Legal and regulatory proceedings
Indemnification clauses — What you need to know before you sign that contract
An article for physicians by physicians
Originally published April 2002/ Revised May 2009 IL0210-2-E
Physicians should carefully consider the meaning and implications of indemnification clauses in contracts with employers, research organizations, governments, health care agencies and others.
Of interest to all physicians
Physicians are often asked to sign contracts - for example, with employers, research organizations, governments or health care agencies. Often these contracts include a clause requiring the physician to indemnify the other party for any losses it may sustain as a result of that physician's work.
Often the contract contains an indemnification clause that may be one-sided and, in some cases, unfair to physicians. In addition, while such clauses are binding on the physician who agrees to them, the CMPA does not consider itself bound by such clauses signed by its members.
Members should be aware that the specific terms and conditions of other clauses in the contract can affect the legal result of the indemnification clause. Thus, it is necessary and important for the member to have their own personal lawyer review and advise them on the entire contract. The following comments may also be helpful.
Indemnification clauses can be mutual or unilateral in nature.
Unilateral indemnification clauses
There are two types of unilateral indemnification clauses:
(a) In favour of the physician: for example, "Party B agrees to indemnify and save harmless the physician..."
(b) In favour of the sponsor: for example, "The physician agrees to indemnify and save harmless Party B..."
Although rare, a unilateral indemnity in favour of the physician is the best case scenario in an agreement. However, to determine how comprehensive an indemnity (including a unilateral one) actually is, the scope of the indemnity must still be carefully examined.
Often, the party offering the contract insists on including a unilateral indemnification clause in its favour. One has to question why a party would insist on being indemnified, but refuse to provide indemnification to the physician in return. In this situation, the preferred course of action may be to have a mutual indemnification clause (as discussed below) or no indemnification clause.
When a physician is pressured to sign a contract with a unilateral indemnification clause, the CMPA again recommends that members consult their personal lawyer and review the importance of this clause. The following is standard wording for a unilateral indemnification clause given by the physician, which should be modified to suit any unique aspects of the contract in question:
The physician agrees to indemnify and save harmless Party B from any liability, loss, damage or expense, including assessable legal fees, which Party B may incur as a direct result of the negligent performance of the physician's obligations under this agreement. Party B agrees to provide prompt written notice of any claim that might give rise to such liability and to give the physician the opportunity to retain his or her own counsel to defend such claim.
The CMPA recognizes that it might not be possible for a member to convince the other party to modify the current wording of the indemnification clause in the contract. In these circumstances, the physician has the choice of negotiating a mutual indemnification clause, refusing to sign the contract or signing a contract that contains a less-than-ideal unilateral indemnification clause. The CMPA cannot advise its members which choice is best for their individual circumstances.
Mutual indemnification clauses
This type of clause provides that each party will reimburse the other for damages paid as a result of claims arising from certain acts or incidents. A well-crafted mutual indemnification clause sets out in clear terms the respective spheres of responsibility of each party. Generally speaking, a party should be liable for those acts for which he or she would be responsible at law, which usually amounts to those acts over which the party has control. So, for example, each party will generally be responsible for the consequences of its own negligence, and for the negligence of anyone the party employs and directs. As well, if one party has control over the premises or materials used in treatment, that party should assume any liability arising from faulty maintenance.
Any indemnification clause agreed to by a member creates legal obligations for that member. Standard wording for a mutual indemnification clause, which must be reviewed with the member's personal lawyer in light of the particular circumstances of the contract, is as follows:
The parties covenant and agree to indemnify and save each other harmless from any liability, loss, damage or expense, including assessable legal fees, arising out of the negligent performance of their respective obligations under this agreement or by anyone for whom they are in law responsible. The parties hereto agree that they shall co-operate with each other in the defence of any such action, including providing each other with prompt notice of any such action and the provision of all material documentation. The parties further agree that they have a right to retain their own counsel to conduct a full defence of any such action.