Indemnification Clauses in Emergency Medicine Contracts
An Information Paper
Reviewed by the ACEP Board of Directors, April 2016
Why Indemnification Clauses Are Inappropriate in Medical Contracts
Indemnification is a legal event in which one party to a business relationship is either legally forced to or
contractually agrees to reimburse another party for losses or damages. Typically, indemnification is
available as a legal remedy only when one party is without fault and seeks reimbursement for expenses
that it has had to pay in order to settle a lawsuit. For example, in one ruling, the Florida Supreme Court
stated that “weighing ... relative fault of [different defendants] has no place in the concept of indemnity
[since] the one seeking indemnity must be without fault.” Houdaille Industries, Inc. v. Edwards, 374 So.
2D 490 (Fla., 1979), see also Uniroyal Chemical Co. v. American Vanguard Corp., 203 Cal.App.3d 285
(Cal., 1988). Indemnification should be contrasted with another legal term called contribution. If multiple
defendants in a lawsuit are each found to have acted negligently in some way, a contribution action may
be filed by one defendant against another defendant seeking reimbursement for disproportionate payments
it has made to a plaintiff.
Insurance policies are a good example of indemnification. Policyholders purchase an insurance policy
protecting them against some risk. Under the terms of the policy, an insurance company then agrees to
reimburse the policyholders for any covered losses. While the insurance company did not actually cause
damages sustained by the policyholder, by virtue of the contract, the company nevertheless becomes
legally responsible to the policyholder for all losses covered under the policy.
In a contract between a physician and a hospital or contract management group, the intent of an
indemnification agreement is to protect the interests of the employer which is often named as a co-
defendant in a malpractice lawsuit against a physician. However, if a hospital or group was also negligent,
a contractual indemnification agreement may provide the negligent employer more recourse than would
otherwise be available to it in common law or statute. Recall that common-law indemnification is only
available when the party demanding compensation is without fault. Negligent employers would ordinarily
have no common law right to indemnification from physicians and would therefore be forced to bring a
contribution action against a co-defendant physician in order to apportion damage payments based upon
relative negligence. By agreeing to contractual indemnification, a physician agrees to provide full
reimbursement to an employer – whose negligence may have been the cause of the patient's injuries.
A typical indemnification clause might state that 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.
Broadly worded indemnification clauses are legally dangerous. Any adverse events that occur while the
physician is working will in some way be “related to” the physician’s provision of medical care. For
example, a physician who assists a security guard in restraining a combative head-injured patient 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. Actions the government takes against a hospital for an EMTALA violation
when an on-call physician does not respond to calls from the emergency department could end up being
solely the contracting physician’s responsibility. The physician could also be personally responsible for
expenses incurred by the hospital if the hospital is named in a medical malpractice suit. Even if a nurse,
who is a hospital employee, kills a patient with a medication overdose, a physician who agrees to
indemnify the hospital could be held liable for all the hospital's damages if the hospital can show that the
overdose was “related to” the physician's provision of medical care – even though the nurse was negligent
for administering the overdose.
Finally, indemnification clauses may negate a physician’s malpractice insurance coverage. Liabilities
relating to indemnification clauses are not created out of the provision of medical care but rather are
created out of a contractual agreement. Malpractice insurance policies generally cover only damages
resulting from “diagnosis of, treatment for, or medical care for a patient's medical condition.” Because a
contractual agreement to reimburse a hospital does not meet any of those requirements, malpractice
insurance companies have no duty to defend or pay for expenses related to an indemnification agreement.
A physician who agrees to an indemnification clause may give a malpractice insurer the means to deny
coverage for a malpractice claim against a physician.
In some cases, courts have held that indemnification clauses which attempt to shift liability from a
company to a private individual are so unconscionable that they are invalid as a matter of law. In Yang v.
Voyagaire Houseboats, Inc., 701 N.W. 2d. 783, the Minnesota Supreme Court held that an
indemnification clause in a houseboat rental agreement that was being enforced against an individual who
had rented the houseboat was void as a matter of public policy. In Vicksburg Partners, LP v. Stephens, 911
So. 2d 507, the Mississippi Supreme Court held that indemnification clauses in contracts where one party
has minimal bargaining power were “unilaterally oppressive,” “substantive[ly] unconscionab[le],” and
therefore unenforceable.
If a physician's actions may have caused damage to either a group or a hospital, the physician can be sued
for negligence, breach of contract, or contribution. Indemnification agreements are a dangerous and unfair
means for employers to recover those damages. Do not commit to them.
Indemnification Clauses Between Hospitals and Contract Management Groups
While physician employment contracts should not contain indemnification clauses, some contract
management groups may elect to enter into indemnification agreements with hospitals. Aside from issues
related to recourse noted above, indemnification clauses within service provider agreements are a bad
idea for several other reasons. Hospitals that seek to enforce indemnification agreements against groups
or physicians may find that their legal strategies backfire.
Suppose that a hospital has entered into a broadly-worded mutual indemnification agreement with its
emergency department management group. Now suppose that the hospital is seeking indemnification
from the group for a payment in a malpractice case related to a patient's emergency department care. In
response, it is likely that the group would allege some negligent act on the hospital's part and would
exercise its right to seek indemnification from the hospital. After all, wouldn't an indemnification
payment made by a group be a “loss” or a “cost” for which the group could seek reimbursement based
upon the negligence of a hospital employee? I would certainly argue so if I were providing legal
representation to the group. In the ensuing litigation, each party would then attempt to prove how the
other party's shortcomings were responsible for the damages sustained. Meanwhile, both parties' “dirty
laundry” would potentially be incorporated into court filings for the public and the media to review.
Consider the New York case of Freeman v. Mercy Medical Center (2008 NY Slip Op 31337(U)). A patient
sued a county medical center after alleging that her pregnancy was mismanaged by an obstetrical resident,
causing premature delivery at 23 weeks gestational age and resulting in profound brain damage to her
child. The obstetrical resident managing the patient was employed by the County, but was supervised by
Medical Center attending physicians. Alleging that the attending physicians were ultimately responsible
for the care rendered to the patient, both the resident and the County sought indemnification under the
mutual indemnification clause in the contract between the County and the Medical Center. The medical
center also sought indemnification under the mutual indemnification clause and hired expert witnesses to
testify that the resident provided substandard care, that the resident withheld relevant information about
the plaintiff from the attending physicians, and that the resident was practicing independently within the
clinic. All of these allegations, including the names of the physicians, were made part of legal documents
and were incorporated into an appellate opinion that will be forever memorialized in legal databases. By
encouraging the defendants in the case to point fingers at each other’s faults, the mutual indemnification
clause also made the plaintiff attorney’s job much easier.
As another example, consider a mutual indemnification clause in which a hospital seeks indemnity for
payments it made to a patient who alleged that a physician was negligent in restraining the patient while
the patient was attempting to assault staff. The physician might then seek indemnification from the
hospital alleging that the hospital was negligent for failing to have sufficient security, for inadequately
training its nurses in patient restraint, for violating JCAHO regulations regarding patient restraint, and, in
the case of physician employees, for potentially violating OSHA regulations. Discovery would likely
involve inquiry into previous injuries sustained by hospital staff, and the hospital's response to such
injuries or lack thereof. The allegations in the case may even precipitate investigations by multiple federal
agencies.
Mutual indemnification clauses between hospital and providers serve only to increase the amount of
litigation in which malpractice defendants must engage and assure that parties with intimate knowledge of
each other’s business practices will publicly disclose shortcomings in those business practices in attempts
to absolve themselves from liability.
Finally, a hospital that chooses to enforce an indemnification clause against its physicians may
significantly damage any goodwill the hospital has created with its medical staff. Staff physicians who
learn that their hospital sought damages from another member of the medical staff may consider leaving
the medical staff or curtailing their medical staff privileges to protect themselves from similar actions
should the hospital decide to file a similar claim against them. A December 2008 article in American
Medical News showed that 73.9% of patients choose a hospital based on where the physician chooses to
perform a procedure. Another 14.5% of patients choose a hospital based on the recommendation from
another doctor. A hospital that alienates medical staff by perpetuating litigation against staff physicians or
medical groups will not only diminish the hospital's goodwill, but is also likely to diminish some medical
staff members' willingness to refer future patients to the facility.
Limiting the Breadth of Indemnification Agreements
While indemnification agreements should never be a part of a physician-hospital or physician-group
agreement, some contract management groups may choose to enter into indemnification agreements with
hospitals. If choosing to take such a precarious step, groups would be wise to take additional measures to
limit the breadth of such agreements.
If broad indemnification clauses are contained in a service provider agreement, such indemnification must
be mutual. While mutual indemnification agreements will guarantee substantial additional litigation
expenses and allegations of negligence if enforced, a broad unilateral indemnification agreement applying
to only one party is never contractually appropriate.
If indemnification is created, a condition of the indemnification should be that it is nonassignable to other
parties. Any attempts at assignment of indemnification should immediately void the agreement. In
Caglioti v. District Hosp. Partners, (933 A.2d 800 (DC, 2007)), a wheelchair manufacturer settled claims
with a plaintiff who was injured due to a malfunctioning wheelchair. As part the settlement agreement, the
wheelchair manufacturer assigned the plaintiff its indemnification claim against the medical providers.
The assignment of rights also required the plaintiff to pay the wheelchair manufacturer 25% of any
recovery he obtained. The remaining defendants in the underlying lawsuit filed motions in attempts to
invalidate assignment of the indemnification, but the appellate court permitted the assignment, stating that
such assignment was “supported by ... the law in this jurisdiction ... and is not counter to any public
policy.”
Those groups choosing to enter into indemnification agreements would also be wise to contractually
assure that the party asserting indemnification will fully cooperate in defending any claims and that the
indemnifying party has complete control of the defense and/or settlement of any claims relating to the
indemnification. Without such language, a hospital could retain multiple partners at the most expensive
law firm in the state, agree to a multimillion dollar settlement with the plaintiff, and then seek
indemnification from the group for those potentially inappropriate litigation decisions.
Conclusion
Indemnification clauses are not appropriate in medical contracts. State laws provide alternate means for
any defendant to seek reimbursement for the negligent acts of other defendants through contribution
actions. Adding a contractual indemnification to a service provider agreement will unnecessarily
complicate medical malpractice litigation and may result in additional liability when undesirable facts
about both parties are disclosed during litigation.
Physicians should seek alternate employment when indemnification or any other contractual shift of
liability is contained in a potential employment agreement. Medical industry standards are heavily against
having indemnification clauses in physician contracts, contractual indemnification may void medical
malpractice insurance coverage, and indemnification clauses provide an unacceptable potential for
physicians to incur significant personal financial losses.
The best indemnification clause is a deleted indemnification clause.
Created by members of ACEPs Medical Legal Committee
March 2016
