Business
Ways to reduce your personal liability
■ A column examining the ins and outs of contract issues
By Steven M. Harris — is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column. Posted Feb. 2, 2004.
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When reviewing a contract or loan document, make sure you check to see what your personal liability is if the deal goes south. Most loans and leases are structured as joint and several among all partners, which can be costly. Here are some key points.
Joint and several liability holds each party to the contract, loan or lease responsible for the entire debt. If the practice defaults, the bank or landlord may collect all amounts due from one partner, even if that person is no longer with the practice.
Negotiate for several liability, under which each physician agrees to be liable for a pro rata share of the loan.
Settlement agreements among the partners often state that former partners shall be indemnified against financial exposure in connection with a lease or bank note. However, that promise is only as good as the practice's continued creditworthiness. The third party can seek payment from a former partner, who in turn has the right to seek reimbursement from the other contract signers.
As part of any termination, it is important all departing partners review every obligation of the practice that may result in joint and several personal liability.
Indemnification clauses can result in you or your practice being responsible for acts outside your control. The following is an example of a broad indemnification clause:
"Physician agrees to indemnify and hold payer, its employees, agents and contracting parties (the "Indemnified Parties") harmless from any and all liability, loss, damage, claims, fines or expenses, including costs and attorneys' fees (or upon the option of the Indemnified Party, Physician shall provide a defense to the Indemnified Party), which result from the alleged or actual negligence, or intentional acts (including but not limited to criminal conduct, fraud, defamation and violation of any individual's right to privacy) of payer or any Indemnified Parties in performance of this agreement including losses due solely to the acts or omissions of any Indemnified Parties."
While many states may not enforce this provision to protect the payer against its own criminal or intentional conduct, a limited indemnification provision is safer.
An example: "Physician shall hold harmless and indemnify payer for any and all third-party costs, losses, expenses, awards or fees that payer incurs due solely to the acts or omissions of the Physician for the medical care of an enrolled patient."
Each party to a contract also should seek indemnification from the other's acts. This can be handled by including a mutual or reciprocal indemnification provision, such as: "Each party agrees to indemnify and hold harmless the other party and its officers, employees and agents from and against all fines, claims, demands, suits, actions, or costs, including reasonable attorneys' fees, of any kind and nature to the extent they arise by reason of the indemnitor's acts or omissions."
To reduce personal liability, weed out all joint and several liability provisions and negotiate for several liability before signing any contract, loan or lease. Also, make sure executed settlement agreements include releases from prior obligations and eliminate broad indemnification provisions.
Steven M. Harris is a partner at McDonald Hopkins in Chicago concentrating on health care law and co-author of Medical Practice Divorce. He writes the "Contract Language" column.