Hazardous Indemnification Clauses in Physician Contracts

What is an Indemnification Clause?

An indemnification clause is a part of a contract which binds one party to cover the costs incurred by another party for identified liabilities. In the medical setting, the liabilities usually pertain to a claim against the other party. Indemnification clauses, indemnity clauses, and hold harmless clauses are generally considered synonymous. No matter the label, an indemnification clause holds one party on the hook for the losses of another, usually damages and other costs associated with defending a claim against another party. We covered indemnification clauses and other clauses that you may find in a physicians employment contract in our blog titled “How to Negotiate a Physician Employment Contract.”

The basic premise of an indemnification clause in a physician’s contract is to hold the physician liable for any costs related to caring for an association’s or hospital’s patients. In practice, broad indemnification clauses can hold the doctor liable for costs even tangentially related to a patient’s care, even in situations where the physician did nothing to cause or contribute to the harm done. It is important to understand what an indemnification clause looks like since the other party may slip this into an otherwise normal physician contract. Here are some examples of indemnification clauses you may see:

The contracting physician agrees to defend, indemnify, and hold harmless [the hospital] and its affiliates from any and all damages, liability, and expense (including legal costs, other expenses, and attorney’s fees) in any way related to physician’s provision of medical care, even if caused in whole or part by the negligence, gross negligence, or other fault of [the hospital] or its affiliates.

Physician shall indemnify and hold us harmless from any and all liability, loss, damage, claim or expenses of any kind and of whatever nature, including all costs and attorney fees, arising out of the performance of this Contract and for which Physician is solely responsible.

We bolded the language which shows the indemnification clause is being created. We underlined the language which could be construed as shifting the risk of paying for all losses to the physician, even if caused by someone else. The first example probably speaks for itself – “even if caused by . . . fault of the hospital or its affiliates.” The second is more tenuous. Because the other party must perform its promises in the contract, any losses “arising out of” the other party’s actions are shifted to the physician.  In practice, indemnification clauses are not inserted in the contract to benefit the physician but will almost always put the physician at risk for financial ruin.

How do Indemnification Clauses Impact Physicians?

Physicians who sign a contract containing an indemnification clause can be on the hook for hundreds of thousands of dollars should a lawsuit ever be filed against the other indemnified party. In most cases, the indemnification clause will have the indemnified party as the hospital (or other employing care provider). The indemnified party is protected against all costs, including damages, losses, attorneys fees and other costs associated with the harm arising from or in any way associated with the physician’s provision of care.

For example, say you are a physician who signed a broad indemnification clause which includes all costs tied to any harm which is in any way associated with your provision of care. You saw patient “Bob” for 10 uneventful minutes before a nurse came in and accidentally administered Bob a lethal amount of medication. Now Bob’s family has named you, the nurse, and the hospital as defendants in a lawsuit.  When you learn of the situation, of course you are deeply saddened by this event, but you are really not responsible. So, you are not worried about any costs which may arise from this unfortunate event. However, you signed a broad indemnification clause and strictly speaking, Bob’s death is connected to or associated with your provision of care. Because you signed an indemnification clause, you are now solely responsible for covering all of the costs the hospital incurs defending this lawsuit. Most liability or malpractice insurance does not cover indemnification costs either, so you have no recourse. If the hospital gets charged $50,000 in attorneys fees and pays Bob’s family $100,000, you are liable for $150,000 to reimburse the hospital.

This example may sound extraordinary, but it is not at all uncommon. Broad and even narrow indemnification clauses pose serious risks to a physician. As we said in the example, insurance almost never covers indemnification costs, and failure to disclose an indemnification clause you signed can cause problems with your insurance. If you signed a contract containing an indemnification clause, it may only be a matter of time before you find yourself on the receiving end of a six-figure bill.

What Can A Physician do About an Indemnification Clause?

Unfortunately, the answer to this question is “not much.” If you already signed a contract containing an indemnification clause, your options are limited. The first step you should take is to consult with an experienced attorney to help you understand what your specific indemnification clause states and the specifics for which you may be liable should there ever be a claim filed. Beyond that, you can attempt to seek an umbrella insurance policy which covers indemnification. However, these types of insurance policies are oftentimes extremely costly. Apart from trying to find additional insurance coverage, your only option would be to attempt to renegotiate your contract and remove the indemnification clause. There are alternatives such as having reciprocal indemnification clauses which makes you an indemnified party, but in practice, these are not very useful. If the other party got what it wanted in the bargain, the party can say “no.”

If you have not signed your contract yet, engage an experienced attorney to review your contract and help you identify whether or not it contains an indemnification clause or other troublesome provisions. When dealing with indemnification clauses, the American College of Emergency Physicians says “the best indemnification clause is a deleted indemnification clause.” If your employer insists you sign a contract containing an indemnification clause, it may be better to take your talents elsewhere. If you are unwilling or unable to find employment elsewhere and your employer refuses to remove the indemnification clause, you may persuade the other party to revise some of the language. Have your attorney suggest some mitigating language limiting how far your exposure can extend. Make sure your indemnification clause is as narrowly tailored as possible. Ideally, if you absolutely must sign an indemnification clause, make sure you are only liable for gross negligence or willful misconduct of another person.

What This Means For a Physician

Physicians should be aware of the danger an indemnification clause poses to them. The costs associated with indemnification can end a physician’s career and bankrupt them. A physician’s job is to save lives and protect the public’s health, not to read complex and lengthy contracts. Hospitals and other physician employers know this and may try to sneak in an indemnification clause to protect them and hang the physician out to dry. When you are presented with a physician’s employment contract, make sure you consult with an experienced attorney to assure that you are protected. If you want to know more about indemnification in physician contracts or other provisions in physician contracts, do not hesitate to reach out to us.