Executive Summary
Indemnification clauses included in some contracts with employers, hospitals, and payers can complicate malpractice litigation and can result in additional liability for physicians.
- Physicians might be required to reimburse the hospital for all expenses if the hospital is later named as a defendant in a legal action.
- Contractual indemnification could void medical malpractice insurance coverage.
- Physicians can potentially incur significant personal financial losses.
Should a physician employee agree to "indemnify, hold harmless, and defend the hospital from any and all loss, damage, cost, and expense the hospital may suffer that is in any way related to the physician's performance or failure to perform the services, responsibilities, and duties the physician has agreed to perform?"
"Imagine the scenarios that could be 'in any way related to the physician's performance or failure to perform' patient care services," says William Sullivan, DO, JD, FACEP, an emergency physician at University of Illinois in Chicago and a practicing attorney in Frankfort, IL.
Sullivan gives the example of a physician who assists a security guard in restraining a combative head-injured patient. In this scenario, the physician might be required to reimburse the hospital for all expenses if the hospital is later named as a defendant in a legal action brought by the patient. "Indemnification clauses are not appropriate in medical employment contracts," argues Sullivan. "In addition to causing financial risk, contractual indemnification may also void a physician's medical malpractice insurance coverage."
Clause complicates coverage
By agreeing to contractual indemnification, a physician could be required to provide full reimbursement to an employer for the events being indemnified. "At times, that indemnification may apply even though the employer's own negligence may have caused its damages," says Sullivan. For example, if a physician misses a heart attack in a busy emergency department and is sued, an indemnification agreement might force the physician to pay for all expenses the hospital incurs when defending the lawsuit, even if the malpractice occurred because the hospital grossly understaffed the emergency department.
"In addition, adding contractual indemnification to a medical group's service provider agreement with a hospital can unnecessarily complicate medical malpractice litigation," says Sullivan. In order to avoid indemnification during litigation, multiple defendants may disclose undesirable facts about the other defendants, increasing the liability for all defendants. For example, when attempting to enforce a mutual indemnification clause during one New York medical malpractice case, a defendant obstetrical resident alleged that the hospital should indemnify him because a hospital attending provided inadequate supervision.1 In turn, the defendant hospital alleged that the resident should indemnify it because the resident withheld important information from the attending and provided substandard care.
"These allegations benefitted the plaintiff in the pending case against both defendants," says Sullivan.
Coverage might be voided
There are two basic types of indemnity agreements, says Robert J. Milligan, JD, an attorney at Milligan Lawless in Phoenix. One is common law indemnity, under which the party which is solely at fault for a claim has to indemnify another party that is named in a lawsuit.
"That's what the law is in many states, in the absence of an agreement," says Milligan. The other type of indemnity is contractual, which in some cases is broader, such as agreeing to indemnify a party from any claims arising from the other party's conduct or the physician's conduct.
"Hospitals, payers, or others that physicians deal with may slide that broad indemnification provision into a contract," says Milligan. If a physician has granted this broader contractual indemnity to a hospital and a lawsuit occurs, the physician could end up without coverage for the indemnity obligation.
"The insurer will say, 'Check your policy; there's an exclusion for liability assumed under contract. We don't have to insure you because of that provision,'" says Milligan. "And the physician is out of luck."
Physicians often are unaware of the provision. "And when they do realize it, they say, 'Well, how often does that happen?'" says Milligan. "Maybe so, but when it does, you're going to be very unhappy. It's a low likelihood risk of a very bad problem."
- Robert J. Milligan, JD, Milligan Lawless, Phoenix. Phone: (602) 792-3501. Fax: (602) 792-3525. Email: [email protected].
- William Sullivan, DO, JD, Frankfort, IL 60423. Phone: (708) 323-1015. E-mail: [email protected].
