You want to be informed about indemnity and hold harmless agreements that can create unexpected legal and financial risks. Increasingly, physicians and healthcare providers are asked to sign contracts with an “indemnity” or “hold harmless” provision in larger hospital settings. This is an agreement in which the provider assumes the liability risks of the other party. What does this provision mean for your professional liability coverage?
ProAssurance is committed to keeping you informed and protected. Read answers to frequently asked questions on indemnity and hold harmless agreements.
Indemnity is the promise to pay another person back if they have to pay something to a third person. A hold harmless agreement states that an organization or individual will not be held liable for any injuries or damages caused to the other party. There are other types of promises, such as an agreement to “be responsible for all liability,” which is similar. All these terms share a common characteristic: they can involve your assumption of someone else’s liability and/or expenses. We’ll refer to these promises as “indemnity agreements” in this summary.
Typically, indemnity agreements involve two kinds of protections: protection against the payment of damages or settlements, and payment of defense costs, including attorney, court, and expert witness fees.
It varies: you need to know the specific language and facts of the agreement. Pay attention to the technical language. For example, even if the risk of damages you assume is small, the indemnity agreement may also require you to pay defense expenses for the other party. If it does, even a “no liability” case against the person or organization you promised to indemnify could mean a great expense to you.
Excerpt from a typical indemnity agreement:
“Physician agrees to fully indemnify and hold harmless the healthcare organization from any and all causes of action, claims, liability damages and costs, including attorney’s fees, which arise out of or relate to the actual or alleged acts, errors and omissions of the physician, including liability arising out of physician’s supervision of healthcare organization’s nurses and technicians.”
There is no monetary limit on the liability assumed by the provider. The indemnity agreement requires the physician or other healthcare provider to “fully” indemnify against “any and all…damages and costs” without limit. And the scope of what is covered is broad. The provider could be held responsible under the indemnity agreement not only for what they do or fail to do, but also for what the healthcare organization’s employee does or fails to do.
The healthcare organization is more likely to face a larger judgment than an individual. This adds to the provider’s risk when they commit to indemnify the healthcare organization.
Yes. Assuming the real goal of the healthcare organization is to protect itself from a provider’s liability being transferred to it as a “deep pocket,” there are options:
Together, these steps can produce an agreement that protects the healthcare organization on the same level or better than an indemnity agreement can. It also leaves the provider with a greater peace of mind.
No, except when liability would be imposed on the insured by law in the absence of a contract or agreement. ProAssurance policies exclude coverage for liability assumed by an insured under any contract or agreement. ProAssurance covers the insured’s professional liability, and not the liability of another party that the insured has assumed through an indemnity agreement.
Likewise, even if the liability arises from the actions of the provider, the indemnity agreement may require payment of an amount that exceeds insurance policy limits. Obligations assumed under an indemnity agreement typically are not limited in type or amount. The provider’s ProAssurance insurance policy is subject to established limits of liability. Your ProAssurance company’s obligation to pay relates only to the limits of liability specified in the insurance policy. Contracts usually include an indemnity clause and additional protection may sound good, but what does it really mean?
If a healthcare organization wants an indemnity agreement from a provider, it may also provide indemnity for its own wrongs. A reciprocal indemnity agreement can put the healthcare organization in a problematic position (e.g., lack of available insurance coverage). Unlike individuals, most large healthcare organizations have significant assets that are not sheltered from judgments.
7. What if a healthcare organization wants to put an indemnity agreement in a contract?
Before you sign an agreement, understand what is being expected of you. Look at promises of indemnity, but also “quiet” indemnity agreements such as “physician or other healthcare provider will be fully responsible.” Consult with a lawyer to consider your personal situation.
Find out why the other side wants indemnification from you. Healthcare organizations are often willing to reconsider indemnity agreements that create personal exposure for you. Providers have been successful in negotiating indemnity provisions out of contracts when they want them removed.
If you must have an indemnity agreement, be sure you and your lawyer attempt to minimize risk. Negotiate a dollar limit. Try to limit your indemnity to your own wrongs, and avoid accepting responsibility for the acts of others. Consider seeking indemnity from the organization for what it does wrong that causes you liability.
Remember that indemnity agreements and professional liability risks involve potential problems. Understand what those problems might be before you sign a contract that has an indemnity agreement.
This is not intended to provide legal advice. If you are asked to sign an indemnity agreement, have your attorney carefully review the agreement and your insurance policy.