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“Oh, I Wish I Had Known That Before I Signed!” Part II

This is the second in an occasional series discussing issues and provisions standard in many types of contracts between healthcare professionals and various entities (this entry: Indemnification clauses)

Has this ever happened to you? In my first post (July 24, 2013), I discussed a consulting scenario—based on actual events—that cautioned against the pitfalls of non-exclusivity/non-competition clauses. In this post, I identify the need for a pro-consultant indemnification clause, and caution against the inclusion of a pro-company indemnification clause.

“Uh oh, what have I done!” Ok, you have signed the consulting agreement. Not long afterwards, you receive a subpoena from a law firm claiming that you were involved in a patient’s serious injury because the arrhythmia product made by the company for which you consulted was defective in some manner. “Well,” you tell yourself, “I should be fine because I did not consult on that product, but simply gave advice on ideas in general and I had no idea what the company would do with my advice.” Unfortunately for you, the agreement provides you with no indemnification protection—a common omission in these types of agreements. What happens next could be devastating to you financially. You hire your personal legal counsel and spend thousands of dollars and numerous hours seeking to dismiss you as a defendant from the law suit. Ultimately, you prevail because you had nothing to do with the defective device, but it has cost you legal fees and other expenses that total many, many times the amount you received in consulting fees.

What could have been (or your “saving clause”). A properly crafted indemnification clause provides you with reimbursement of your costs, including legal fees and expenses, in the event that you are sued for any damages arising out of your good faith, non-negligent provision of services to the company. The company provides this type of protection to its employees and should provide it to you, its consultant, as well. It is rare, however, for a standard consulting agreement drafted by a company to contain such a clause—indeed, many go the opposite way and require the consultant to put his/her net worth at great peril by requiring the consultant (an individual with unlimited liability potential) to indemnify the company (an entity that has limited liability, as well as insurance)!

“Is this situation avoidable?” Yes. Having proper language in the agreement will ensure that you do not have the headaches associated with the example above.

“So, what can I do, other than hire a lawyer?” In reading your proposed contract, refuse to accept: any provisions that require you to provide any type of “indemnity”, “guaranty”, “reimbursement”, or similar make-whole provisions for the company. Further, insist upon inclusion: a provision that fully and completely indemnifies you against damages and other costs to third parties resulting from your consulting services. Beware, however, that these clauses must be carefully crafted to ensure that the potential liability resulting from your services are properly identified and fully covered. This requires careful attention to the facts of each consulting engagement. Bottom Line: When dealing with agreements in fields within which you practice or research, it is always safest and in your best interests to seek experienced legal counsel. The expense you incur to your lawyer before a mistake is so much less than you will pay attempting to fix it after the mistake is made.

Continued good luck in your consulting ventures and until my next post (confidentiality provisions), be well!

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