Risk Management

Hold Harmless Clauses

By Betsy Kelley
OMIC Underwriting Manager

[Digest, Spring 2000]

Contracts are a fact of life in most ophthalmic practices today. Providers sign contracts with health care plans, laser centers, finance companies, and other entities. Contracts outline each party’s responsibilities, compensation, and other terms. In many instances, contracts may include provisions that affect a provider’s professional liability exposure.

One provision frequently found in contracts is a hold harmless or indemnification clause whereby one party (usually the physician) agrees to contractually assume the liability exposure of the other party. Some indemnification clauses are quite broad, requiring that the physician hold the other party harmless for “any and all claims, suits, losses, or damages” arising from services rendered, without regard to which party was responsible for such activities or whether negligence was involved.

Other clauses are sufficiently narrow and require that the physician hold the other party harmless only for “claims, suits, losses, or damages arising solely from the physician’s negligence and not otherwise covered by insurance.” Indemnification clauses may be unilateral, meaning that only one party holds the other harmless, or they may be mutual, meaning that both parties agree to hold the other harmless for its own negligent actions.

OMIC provides limited contractual liability coverage within policy limits for indemnity and reasonable defense costs that insureds become legally obligated to pay pursuant to a hold harmless or indemnification agreement in a written contract between the insured and a hospital, health maintenance organization, preferred provider organization, or other managed care entity. This coverage is limited to indemnity and defense costs incurred solely from the performance of professional services provided by the insured and is solely for medical incidents otherwise covered under the policy. In certain circumstances, OMIC may, for an additional premium, extend contractual liability coverage by endorsement to other entities that are not engaged in the practice of medicine but may incur liability exposure as a result of their relationship with the insured.

OMIC’s policy excludes coverage for liability assumed under contract with other types of organizations if such liability would not exist in the absence of the contract. Therefore, OMIC generally recommends that indemnification clauses be removed from the contract, if possible. If the clause cannot be removed, OMIC recommends that it be replaced with a narrow, mutual hold harmless clause in which each party agrees to indemnify the other for losses arising solely from the party’s negligence.

Additional Insureds

A new trend is emerging in which organizations are no longer satisfied merely having the physician contractually agree to hold them harmless in the event of a claim. Instead, they are now adding clauses to their contracts requiring that the physician name them as an additional insured under the physician’s policy.

OMIC is generally able to name a third party as an additional insured only in situations where the entity is a management services organization (MSO) involved in administrative activities such as the purchase of equipment, billing, and other matters. Because they do not render medical services themselves, such organizations are frequently unable to purchase medical malpractice policies of their own.

With the exception of MSOs, OMIC will not name third parties, such as medical professional corporations or laser refractive centers, as additional insureds. Because these organizations render professional services themselves and are likely to be responsible to some extent for supervision and control of the physician’s activities, they are equipped to insure themselves or to purchase separate coverage for their liabilities. It is generally in the best interests of both parties to purchase their own insurance policy so separate limits apply. Otherwise, each party’s limits are reduced by any indemnity paid on behalf of the other party.

Other Provisions

Other contract provisions may specify the limits of liability that the physician must carry or may require that the physician provide evidence of insurance. Upon request, OMIC can issue a certificate of insurance to the organization, specifying the insured’s policy number, effective and expiration dates of coverage, and limits of liability. In addition, OMIC also will attempt to notify the certificate holder of any material changes in coverage, such as a change in limits or cancellation of coverage. Some contracts may require that the organization be provided with advance notice prior to cancellation or coverage changes. Although OMIC will do its best to provide ample notice to certificate holders, OMIC itself may not receive sufficient advance notice of requested changes to comply with such contract provisions. For this reason, such requirements should be removed from any contract.

As a service to its insureds, OMIC will review contract language*** as it relates to professional liability issues and provide advice regarding uninsured risks. To have OMIC review these contract provisions, contact the Risk Management Department at (800) 562-6642, ext. 603 or fax the specific clauses to (415) 771-7087.

*** NOTE: OMIC no longer reviews contract language. However, as a service available only to its insureds, OMIC will provide an analysis of indemnification agreements prepared by our Legal Counsel. Policyholders may share this analysis with their own attorney. To obtain this analysis, contact the Underwriting Department at (800) 562-6642, option  1 or via email at underwriting@omic.com, or the Risk Management Department at (800) 562-6642, option 4 or via email at riskmanagement@omic.com. 10/8/14.