26 Feb Physicians: Does Your Employment Agreement Contain an Indemnification Provision? It Shouldn’t.
by Rebecca K. Eaton, The Physician’s AdvocateSM
You interviewed with ABC Physician Group two weeks ago and walked out feeling confident. The conversations flowed. The culture felt right. You could see yourself there. For the past week, you’ve refreshed your inbox more times than you’d like to admit.
Then it arrives.
Subject: Welcome to the Team—Your Offer of Employment.
You’re thrilled. All you have to do is sign the Employment Agreement, right?
Not so fast.
When physicians review employment agreements, they focus—understandably—on compensation, call coverage, and restrictive covenants. But one of the most financially dangerous provisions often hides in plain sight: the indemnification provision.
What Is Indemnification?
“Indemnification” is a legal mechanism that requires one party (the “indemnitor”) to compensate another party (the “indemnitee”) for specified losses. In plain terms, the indemnitor promises to “defend and hold harmless” the other party from certain claims or damages.
In many commercial contracts, indemnification makes sense. In a physician employment agreement, however, broad indemnification language is usually inappropriate—and potentially devastating.
Why It’s So Risky for Physicians
In a physician employment agreement, a broad indemnification clause can shift enormous financial risk onto a physician—even when the physician did nothing wrong.
These clauses can require a physician to reimburse their employer for legal fees, settlements, regulatory penalties, or losses “arising from” the physician’s services. And because this language is often drafted broadly, it can be triggered by events that are completely outside of the physician’s control.
Consider the following sample provision:
Indemnification. Physician shall defend, indemnify and hold Practice harmless from any and all claims, damages, losses, penalties, costs, and expenses (including attorney fees, court costs, and costs of settlement) of any kind arising out of or relating to any services provided by Physician during Physician’s employment with Practice.
At first glance, this looks like a routine, boilerplate provision. It is not.
A Real-World Scenario
A patient sues you and the Practice for a delayed cancer diagnosis. The claim is based on a pathology report that was misrouted internally after you finalized it. You complied with the standard of care, documented appropriately, and followed the Practice’s policies. Nevertheless, the Practice is sued under theories of vicarious liability and negligent supervision.
The case settles for $750,000. Your malpractice carrier pays on your behalf.
However, the Practice separately incurs:
* $300,000 in separate defense costs;
* Internal investigation costs; and
* Increased insurance premiums
Because the indemnification clause requires you to indemnify the Practice for “any and all claims… arising out of or relating to” any services that you provided, the Practice demands that you personally reimburse it for these amounts—even though:
* You were not negligent;
* The claim was resolved through insurance; and
* Your employer benefited from the settlement.
“But Doesn’t My Malpractice Insurance Cover That?”
Unfortunately, probably not.
Most professional liability policies only cover damages that you are legally obligated to pay because of professional negligence. They typically do not cover contractual liabilities that you voluntarily assume beyond your own negligence.
If you agree to indemnify your employer for its own legal fees, settlements, regulatory penalties, or business losses, your carrier may deny coverage because the obligation arises from a contract—not from malpractice.
In other words, by signing a broad indemnification clause, you may be personally guaranteeing liabilities your insurance was never designed to cover.
Bottom Line
Before signing any employment agreement, indemnification language should be carefully reviewed—and, in most cases, removed entirely.
Because the most expensive clause in your contract may not be the one about compensation. It may be the one you almost skipped.
Written by Rebecca K. Eaton, Shareholder/Senior Attorney at KMD Law
Rebecca Eaton is a Shareholder/Senior Attorney at KMD and has over 18 years of experience serving clients in the areas of business, employment, healthcare, and litigation. Questions? Contact Rebecca at reaton@kmd.law or (469) 831-8767