September 8‐10, 2014 | Sheraton Dallas

Concurrent SessionThe Devil is in the Details: Indemnification Provisions in Healthcare Staffing Agreements

Moderator: Adrianne Nelson, Director, Global Services,Staffing Industry Analysts

Speakers: Louis Alonso, Senior Corporate Counsel, AMN Healthcare Dan Thomson, General Counsel, CHG Healthcare Services

WED, SEPT 10  10:15 AM  DALLAS BALLROOM A2

September 8‐10, 2014 | Sheraton Dallas

Don’t forget to rate thissession as you exit.

DIGITAL SURVEYS

The Devil is in the Details: Indemnification Provisions in Healthcare Staffing Agreements

The Devil Is in the Details:Indemnification Provisions in

Healthcare Staffing AgreementsPresentation by: 

Dan Thomson (CHG Healthcare Services) Louis Alonso (AMN Healthcare)Date:  September 10, 2014

Housekeeping Matters

• This presentation is for general educationalpurposes only. No material or opinionsprovided by the presenters should beconstrued as legal advice or asencouragement to adopt a particularapproach to the matters discussed.

• Each company must separately andindependently determine its own appetite forcontract risk and act accordingly.

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What is Indemnity?

• Indemnification is simply the act of makinganother "whole" by paying any loss anothermight suffer.

• Indemnifying party (indemnitor) agrees to acceptresponsibility (has to pay) for claims or liabilitiesof indemnified party (indemnitee)

• Indemnification provisions transfer risk from oneparty to the other.

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Indemnity Provisions

• Found in many service agreements and may also be called “holdharmless” agreements

• Typically difficult to negotiate because the provision is intended toallocate the risk of loss associated with events or circumstances thathappen in the future

• Healthcare staffing clients typically seek indemnity provisions to be asbroad (or ambiguous) as possible and temporary healthcare staffing firmswant them drafted as narrowly (and as clearly) as possible

• More and more often peppered throughout the subject agreement(multiple indemnity provisions for specific items as well as generalindemnity provisions)

• Not always co‐extensive with insurance coverage or obligations• Can be one‐sided or mutual• States may apply the same language differently

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What Types of Risks Might Be Covered by an Indemnity Provision

• Negligence of Staffing Firm• Negligence of Staffing Firm’s corporate

employees• Professional negligence of provider• Ordinary negligence of provider• Intentional bad acts of provider• Wage and hour claims from failure to pay

properly• Sexual harassment claims made by provider• Sexual harassment claims made against provider• Potential meritless claims of providers or third

parties• HIPAA violations• Workplace injuries• Improper credentialing, background check, etc.• Co-employment or joint employer claims• Failure to provide services set forth in contract• Negligent training• FLSA

• Negligence of Client• Negligence of Client’s employees• Negligence of Client’s independent

contractors (e.g, physicians directing nurses)• Breakdown of Client’s equipment• Intentional bad acts of Client’s employees• Sexual harassment by Client’s employees or

independent contractors against provider• Negligent supervision• Negligent training• Workplace accidents• Employee-related claims• Benefits claims• FLSA

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Where Are Indemnification Provisions Found in a Contract

• More frequently, indemnification provisions are found in multiple sections of acontract, including:

– Indemnification section– Insurance section– Taxes section– Compliance with laws section– Independent contractor section– Confidentiality section– HIPAA section– Other sections

• Broad categories of risks being covered lead to indemnification in many sections(see prior slide)

• Indemnification provisions in one section can potentially broaden risk/liabilitythat you thought was limited in another section

• Pay attention to business associate agreements

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Illustration of Indemnity ProvisionStaffing Firm agrees to indemnify Client, its employees, agentsand affiliates (the “Indemnified Parties”) from and against allliabilities, claims, suits, actions, causes of action and damagesincurred by the Indemnified Party as a result of any act oromission to the extent arising out of Services furnishedhereunder by Providers, Staffing Firm, its agents andemployees.

• THERE IS NO “STANDARD” INDEMNIFICATION/HOLDHARMLESS PROVISION.

• Analyze each part and work to reach an acceptable level ofrisk and risk shifting for your own company’s situation andrisk tolerance level.

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• BEWARE of the inclusion of certain words used in indemnity provisions and where those words are placed (e.g., what other words they modify):

“directly or indirectly” “arising out of or relating to in any way” “agents” “any and all liabilities” “caused or alleged to have been caused” “except to the extent solely caused by the negligence of Client”

• These words are typically inserted to change the scope and dollar amount of the contractual indemnity clause (i.e., to shift additional risk to the Indemnitor)

• BEWARE of the absence of certain words limiting the scope of the indemnity:

“directly” “solely arising out of the negligence of” “solely to the extent arising out of”

Note: The language of your indemnity is critical not only in Court but for settlements.

Devil Is in the Details

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What is the Scope of Indemnity

• Included within scope:– Indemnify?– Hold harmless?– Defend?

• What do these terms mean? • Duty to defend adds additional responsibilities, costs and

exposure to indemnitor, which may include the advancement of defense costs

• Indemnifying for “alleged” claims can significantly broaden scope and exposure

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Who Are You Indemnifying

Who is an indemnified party?• Client? • Client’s employees, officers and

directors? • Client’s agents? • Client’s representatives? • Client’s affiliates?

Be careful of third parties!

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What Losses Are Subject to Indemnification?• What are you going to pay for?

Liabilities? Losses? Damages? Claims? Fees and Expenses? Suits? Causes of Action? Out-of-pocket expenses?

• Watch for the phrase “any and all”• Watch for the term “alleged” • Are there limitations for consequential damages, lost

profits, etc.?13

How Broad Is Your Indemnification?What is the appropriate nexus between the act and the loss to trigger liability?

• Arising out of?• Solely arising out of?• To the extent arising out of?• Directly or indirectly arising out of?• In connection with?• Related to?• Solely to the extent related to?• Arising out of or related to in any way? • Actually or allegedly arising out of?• Caused or alleged to have been caused by?

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How Broad Is Your Indemnification? (Con’t)• Can you exclude the acts or omissions of client from scope of

indemnity? Consider the particular language and its implications

EXAMPLE: “Except to the extent caused by the sole negligence of client”

vs.“Except to the extent caused by the negligence of client”

• Broad and imprecise language may inadvertently make the indemnitor responsible for the negligence or action of all

parties involved, including client, and enlarge the staffing firm’s exposure and limit client’s exposure

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Whose Acts and What Actions or Events Are Subject to Indemnity?

• Whose acts and what acts or events are subject to indemnity? Whose acts

Internal staff’s acts? Provider’s acts? Client’s acts? Third-party acts?

What acts All acts? Negligence or gross negligence? Client’s acts? Only acts under or within the scope of the agreement? Intentional or unintentional acts?

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Other Factors to Consider• Indemnification language is interpreted differently

in different statesGoverning law provisions matter Some states may have statutes on interpretation

(e.g., California)• Mutual indemnification can help limit risk and

exposure, particularly as it may relate to defense costs

• Arbitration or other controversy resolution provisions can affect risk and exposure

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Mutual Language May Not Always Be Mutual

Client shall indemnify and hold harmless Agency from and againstany and all claims, causes of action, damages, losses, liabilities,costs, expenses, including reasonable attorneys fees, of any kind ornature whatsoever, arising out of Client’s obligations pursuant tothis Agreement.

Agency shall indemnify and hold harmless Client and its agents,representatives, officers and employees from and against any and allclaims, causes of action, damages, losses, liabilities, costs, expenses,including reasonable attorneys fees, of any kind or naturewhatsoever, arising out of Agency’s or its Personnel’s obligationspursuant to this Agreement.

Are Staffing Company’s obligations broader under a typicalAgreement than Client’s? What other differences are there?

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Indemnification Risks Are Real• Professional liability exposure can be in the

millions of dollars• Nurse and allied professionals are employees of

the staffing firm, from which liability can arise• Broad indemnification can create insurance gaps Insurance coverage may be insufficient Some agreed upon language may not be covered

under the staffing firm’s insurance policy

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Real Life IllustrationHepatitis-C Infected Exeter Hospital Patients Seek to Sue Staffing Firm

Seacoast (08/25/12) Elizabeth Dinan

Four people claiming they were infected with hepatitis C while patients at Exeter Hospital in NewHampshire are asking a judge to allow them to sue the staffing firm that hired a hospital workercharged with spreading the disease. The four patients are asking a Rockingham County SuperiorCourt judge to allow them to add Triage Staffing Inc., of Omaha, NE, as a new defendant. Thefour patients filed an 11-count lawsuit against Exeter Hospital and, due to new information, nowwish to also hold Triage responsible, their attorney reports. Triage has not yet been served with thesuit and therefore has not responded.

The infected patients now accuse Triage Staffing of negligent hiring, training, and supervision.They accuse Triage of wanton and reckless conduct by retaining hospital technician DavidKwiatkowsi—who allegedly stole anesthetic drugs intended for patients, injected himself, thenreturned contaminated needles that were then used on patients—when the staffing company knew,or should have known, he was addicted to drugs, had hepatitis C, and had been previously firedfrom several hospitals for causes including drug diversion. Triage placed Kwiatkowski at ExeterHospital in April 2011, and hospital officials have said he passed a criminal background check anddrug test.

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Summary• Understand the real vs. illusory risks that an indemnity covers• Understand the scope of people, acts or incidents for which staffing

firm will be liable (Staffing Firm’s negligence, Staffing Firm’s employee’s negligence, client’s negligence, allegations involving mixed negligence)

• Understand the nexus (“solely to the extent,” “in any way arising directly or indirectly out of”)

• Consider obtaining a mutual indemnity (among other things, makes defense clause more palatable)

• Consider taking into account how much the indemnitor can control or mitigate the indemnified risks

• Consider the use of liability caps or insurance-related caps• Evaluate whether the revenue is worth the risk • Each staffing company must evaluate this for itself

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QUESTIONS

General Example of Indemnity Provision and Its Interpretation

A school bus company (“Bus Company”) enters into a Transportation Agreement with a school to transport the school’s students pursuant to which the Bus Company agrees to the following language:

The Bus Company agrees it will carry any and all insurance to protect it, the Board, theschool and its employees from any and all claims and demands, actions and causes of action,damages, costs, loss of service, expenses and compensation, including but not limited to anyand all claims for personal injury and/or death and property damages which may, in any way,arise from or out of the operations of the school pursuant to the terms of the TransportationAgreement whether such operations are performed by the Bus Company itself, anyonedirectly or indirectly employed by it or any other person or company retained in any way tocarry on all or a portion of the operations necessary to abide by the terms of this Agreement.The Bus Company further agrees that the school, and its employees shall be named insured inany and all such insurance policies required by virtue of this Agreement. The Bus Companyalso agrees to defend, indemnify and save the school and its employees harmless from allclaims and demands, actions and causes of action, damages, costs, loss of service, expensesand compensation on account of or in any way growing out of any claim referred to above.

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Case Facts and Outcome• A school child was struck by one of the Bus Company’s buses. The child’s family

sued both the school and the Bus Company arguing both (1) that the school wasnegligent in its failure to supervise the students when they were dismissed fromschool and the school failed to enforce bus safety rules; and (2) the Bus Company’sbus was responsible for hitting the child.

• The lawsuit settled and the school sought indemnification from the Bus Companyunder the indemnity provision in the Transportation Agreement for the amount theschool contributed to the settlement and for the school’s attorneys’ fees incurred indefending the suit. The Bus Company argued it didn’t agree to indemnify theschool for the school’s own negligence.

• The New Hampshire Supreme Court ruled that the language was not ambiguousand the Bus Company was required to reimburse the school for the portion theschool paid for the school’s negligence (e.g. not supervising the students and notenforcing their own bus safety rules), plus the school’s attorneys’ fees.

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Court’s RationaleHow did the court reach that conclusion?1. Indemnity agreements are strictly construed, particularly when they purport to shift

responsibility from one party to another, however, an indemnity provision does notneed to state explicitly the parties’ intent to provide indemnity for the other party’snegligence.

2. In strictly construing such an indemnity provision, the court will look at the “ordinary”meaning of the words in the agreement. When the parties use expansive, unrestrictedlanguage, the court gives those phrases the normal, broad reading.The Bus Company agreed to indemnify the school for ….“any and all” causes of action“arising out of” the defendants performance of the contract.

3. The court gave the phrase “arising out of” a very broad, general and comprehensivemeaning. The school’s negligence related to its failure to supervise the students and itsfailure to enforce bus safety rules (e.g. standing so many feet away from the driveway,etc.). The claims against the school “arose out of” the defendants operations to theextent that one of the Bus Company’s buses was the actual cause of the injury to thechild.

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Court’s Rationale Cont….4. The Bus Company argued the phrase “arise from or out of the operations of the Bus

Company” was limited to the operations performed by the Bus Company itself and anyoneemployed by the Bus Company (directly or indirectly) and that this language was not meantto indemnify the school for the school’s own acts of negligence.

5. The Court disagreed and found that the language on its face made the Bus Companyresponsible not only for its negligence and for the negligence of its employees, but also forthe negligence of anyone it hired or who was “associated with” it in order to fulfill theTransportation Agreement. Based on this expansive language, the court found the partiesintended to enter into a “risk shifting” arrangement. Again, the Bus Company’s languagecovered……any and all claims…which may, in any way, arise from or out of theoperations of the school…

6. The Court also awarded attorneys fees to the school because the Bus Company agreed to“defend, indemnify and save the school and its employees harmless from all claims anddemands, actions and causes of action, damages, costs, loss of service, expenses andcompensation on account of or in any way growing out of any claim referred to above.Since the Bus Company agreed to “defend” the school, the Bus Company had to reimbursethe school for legal fees the Bus Company would have paid if it had defended the school asrequired.

Merrimack School District v. National School Bus Service, Inc. No. 94-120

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Illustration (No. 1)Staffing Firm agrees to indemnify Client from and against liabilities, claims, suits, actions, causesof action and damages incurred by Client, its agents and employees as a result of any act oromission to the extent arising out of Services furnished hereunder by Providers, Staffing Firm, itsagents and employees.

Client agrees to indemnify Staffing Firm from and against liabilities, claims, suits, actions, causesof action and damages incurred directly as a result of any act or omission of medical malpracticearising out of medical services provided by and under the direction and control of Client, itsagents and employees, excluding Providers.

The indemnification provisions described herein are contingent upon the indemnitee fullycomplying with the following requirements: (a) cooperating in the investigation, settlementor defense of any suit, action, cause of action or claim and permitting indemnitor andindemnitor’s attorneys and insurers to control and direct the defense of the same; (b)immediately notifying the indemnitor of any demand, notice, suit, summons, complaint orlegal paper in connection with any suit, action, cause of action or claim; (c) promptlynotifying any other insurers whose coverage is available to the indemnitee; (d) cooperatingwith indemnitor and indemnitor’s attorneys and insurers with respect to coordinating otherapplicable insurance available to indemnitee and (e) providing written authorization toobtain records and other information related to the suit, action, cause of action or claim.

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Issues (No. 1) Cont…• 3. The indemnification provision described herein is contingent upon the indemnitee

fully complying with the following requirements: (a) cooperating in the investigation,settlement or defense of any suit, action, cause of action or claim and permittingindemnitor and indemnitor’s attorneys and insurers to control and direct the defenseof the same…

- Does this mean that the indemnitee gives up its right to select counsel?- Indemnitor “controls” and “directs” the defense of a claim per this language, so

the Indemnitee is being required to give up its right to select counsel, approvesettlement, etc. Yes, the insurance company has parallel interests and would wantgood counsel, but what if the indemnitee disagrees with the strategy? It is theindemnitee’s reputation at risk.

4. The indemnitee will be in breach of contract if it does not (b) immediately notify theindemnitor of any demand, notice, suit, summons, complaint or legal paper inconnection with any suit, action, cause of action or claim.

- “Immediately” is up for interpretation and may give the indemnitor an argumentthat it does not have to indemnify the indemnitee for damages of a claim if indemnitorwasn’t notified “immediately.”

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Issues (No. 1)1. Indemnity by Staffing Firm for the benefit of Client

- Language “to the extent arising out of” is very broad

- Staffing Firm agrees to indemnify Client for any damages …… arising out of services furnished hereunder by Providers, Staffing Firm, its agents and employees

Note: This may be interpreted to require the Staffing Firm to indemnify the Client for ANY damages (e.g. sexual harassment, medical malpractice, intentional acts of the provider, etc.)., not just negligent acts or medical malpractice claims. Also, how is “services” defined?

2. Indemnity by Client for the benefit of Staffing Firm

- Client’s indemnification obligation is limited to damages incurred by Staffing Firm (not Provider).

- Client’s indemnity is limited to damages incurred by Staffing Firm “directly” as a result of any act or omission of medical malpractice arising out of medical services provided by and under the direction and control of Client, its agents and employees, excluding Providers.

Slight variations in language broaden Staffing Firm’s indemnity and limit Client’s indemnity.

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Illustration (No. 2)

Staffing Firm will indemnify and save harmless theState and all of its officers, agents and employees fromall suits, actions, or claims of any character broughtfor or on account of any injuries or damages receivedby any persons or property resulting from theoperations of the contractor, or of any of its contractors,in prosecuting work under this Agreement.

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Issues and Analysis (No. 2)

1. There is no reciprocal indemnity from the State and, more importantly, the Stateprobably enjoys some level of sovereign immunity (cap on what it can be suedfor).

2. Staffing Firm agrees to “indemnify and save harmless” the State, its officers,agents and employees (e.g., other staff employees, perhaps representatives, etc.)

3. “of any character” …resulting from the “operations of the contractor, or any of itscontractors”….

4. This language is quite broad and not limited to medical malpractice claims. Itcould include harassment claims and other types of claims, even when nonegligence occurred. The only defense would be that the claims were outside thescope of practice, however, this limitation is not in the indemnity provision. Acourt may read this broadly.

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Illustration (No. 3)Staffing Firm will indemnify and hold harmless theDepartment of Corrections and all of its officials, officers,agents and employees from and against any and allliability of any character including, without limitation,suits, actions, claims, demands, losses, judgments, costs,damages, and expenses, including attorneys’ fees,arising from or incidental to the act or omission ofContractor, or any of its officers, agents, employee, orcontractors in performing work under this Contractregardless of whether or not said liability arises orresults in part from the act or omission of a partyindemnified hereunder.

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Issues and Analysis (No. 3)1. There is no reciprocal indemnity from the Department of Corrections, so

the risk is greatly shifted to the Staffing Firm.2. Staffing Firm agrees to “indemnify and hold harmless” the Department of

Corrections, its officials, agents and employees (e.g. other staffemployees, potentially independent contractors working for DOC, etc.)

3. Broad language ….liability of “any character”4. Broad language… arising from or “incidental to” …5. Very broad language … “whether or not said liability arises or results in

part from the act or omission of a party indemnified hereunder.”*** This language may be interpreted in many states to mean that theindemnitor (Staffing Firm) has even agreed to indemnify the Department ofCorrections if one of the Department of Corrections’ own officers committedmedical malpractice that resulted in damages to the Department of Corrections.

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Illustration (No. 4)Staffing Firm shall defend, indemnify and hold harmlessthe County, its officers and employees from all claims,demands, damages, costs, expenses, judgments, attorneyfees, or other losses that may be asserted by any personor entity, including Contractor/Consultant, and that ariseout of or are made in connection with the acts oromissions relating to the performance of any duty,obligation, or work hereunder. The obligation toindemnify shall be effective and shall extend to all suchclaims or losses in their entirety. However, this indemnitywill not extend to any claims or losses arising out of thesole negligence or willful misconduct of the County, itsofficers and employees.

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Issues and Analysis (No. 4)1. Staffing Firm is agreeing to “defend” the County, 

which means an advancement of costs for attorneys to represent the County.  If there is a conflict of interest, Staffing Firm will also have to pay for its own attorneys.  This is very costly to the Staffing Firm.

2. “arise out of or are made in connection with the acts or omissions”….Very broad language and not limited to medical malpractice or negligent acts of Staffing Firm and its Providers.  Potential to limit as follows… “ solely arise out of the negligent acts or omissions of Staffing Firm, its employees and/or agents.”

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September 8‐10, 2014 | Sheraton Dallas

Don’t forget to rate thissession as you exit.

DIGITAL SURVEYS

The Devil is in the Details: Indemnification Provisions in Healthcare Staffing Agreements