Home My membership Protection for members Principles of assistance Medical-legal issues to consider with individual contracts

Looking for medico-legal help?
Start here: Advice, support and assistance at your fingertips.

Medical-legal issues to consider with individual contracts

CMPA membership and assistance
Indemnification issues
Liability provisions
Confidentiality
Termination of contract: Procedural fairness and impact on privileges
Dispute resolution
Governing law

The information contained in this document is provided for the purposes of general advice, information and education. The medical-legal information is not intended to provide specific professional medical or legal advice or constitute a "standard of care" for Canadian healthcare professionals. It is not intended to be a substitute for direct consultation with legal professionals or other professional advisors with regard to specific medical-legal issues. Members should not act or abstain from acting based upon information contained in this document without first consulting appropriate professional advisors.

Purpose of this document

The CMPA does not generally provide advice to members who are considering signing individual contracts. Members are encouraged to contact their own personal legal counsel and, if relevant, their local medical organization or association for assistance with such contracts.

The CMPA can, however, provide some general information that might be of assistance to members and their legal counsel when reviewing individual contracts. The following describes medical professional issues that frequently arise in contracts to which physicians are a party, and which require careful consideration by members and their personal legal counsel. These issues may or may not arise in a particular contract under consideration. Members are urged to consult their personal legal counsel to review the contract, including clauses to which this general information might pertain.

The information contained in this document is provided for the purposes of general advice, information, and education. It is not intended to be a substitute for direct consultation with legal professionals or other professional advisors with regard to specific medical-legal issues. Members should not act or abstain from acting based upon information contained in this document without first consulting appropriate professional advisors. Members are also encouraged to ensure they are aware of applicable policies, guidelines, and regulatory and legislative requirements that may be relevant to their obligations under the contract.

1. CMPA membership and assistance

Many contracts to which physicians are parties require the physician to maintain some form of professional liability protection. Some contracts, however, only specify that the physician maintain insurance for professional liability claims or erroneously refer to maintaining insurance with the CMPA.

Members are urged to review the wording of these clauses to ensure that, with respect to professional liability protection, reference is made to the member's "membership in the Canadian Medical Protective Association," and that the words "coverage," "insurance" or "policy" are not used in reference to CMPA membership. The CMPA is a mutual defence organization, not an insurer. The assistance the CMPA provides to its members is discretionary, and the determination as to eligibility for assistance will depend on the facts and circumstances of any given case. For these reasons, such a determination is not generally made in advance of the onset of medical-legal difficulties. In general, however, members are eligible for the CMPA's assistance in the event of medical-legal difficulty arising out of the clinical practice of medicine. A member's eligibility for assistance from the CMPA will, to some extent, depend on whether they were providing medical input when engaged in the activity that forms the subject of the action.

In addition, references in agreements to the physician maintaining minimum amounts of insurance coverage or malpractice protection would not be applicable to membership in the CMPA and the assistance the CMPA provides. There is no financial limit on the assistance provided to eligible members, as there is with an insurance policy.

2. Indemnification issues

Members may be asked to sign agreements that contain indemnification clauses.

Indemnification is a promise in which one person ("A") agrees to compensate another person ("B") if B suffers a specified harm or loss. However, an indemnification clause will not prevent a third party from bringing an action against B.

2.1 Who is indemnifying whom?
It is important to identify which party is agreeing to provide the indemnity and in whose favour the indemnity clause is drafted. Indemnity clauses can be either unilateral or mutual.

2.1.1 Unilateral indemnity
A unilateral indemnity clause provides that one party ("A") will compensate the other party ("B") for losses or damages sustained by B.

There are two types of unilateral indemnity clauses:

In favour of the physician: for example, "Party A agrees to indemnify and save harmless the physician..."
In favour of the other party: for example, "The physician agrees to indemnify and save harmless Party B...

A unilateral indemnity in favour of the physician is the best case scenario in an agreement. However, to determine how comprehensive an indemnity (including a unilateral one) actually is, the scope of the indemnity must still be carefully examined.

2.1.2 Mutual indemnity
A mutual indemnity clause provides that each of the parties will reimburse the other for damages paid as a result of claims arising from certain acts or omissions. For example, "The parties covenant and agree to indemnify and save each other harmless...".

Some agreements may be drafted with two distinct unilateral indemnification clauses (one in favour of the physician and one in favour of the second party). In such circumstances, depending on the wording used in each of the clauses, the effect can be the same as having a single mutual indemnification clause in the agreement.

While the concept of mutual indemnification may appear fair, the actual effect of such clauses can only be assessed once the scope of the indemnification has been examined (see below).

2.2 What kinds of harm or loss will be compensated?
Both mutual and unilateral indemnification clauses should specify the kinds of harm or loss that will be compensated.

The physician will want to ensure that any indemnity in his or her favour is comprehensive so that he or she bears no economic loss. Examples of clauses to look for include:

The second party agrees to indemnify and save harmless the physician from any liability, loss, damage or expense, including assessable legal fees ...
The parties covenant and agree to indemnify and save each other harmless from any liability, loss, damage or expense, including assessable legal fees...
The physician agrees to indemnify and save harmless the second party from any liability, loss, damage or expense, including assessable legal fees... [in this case the indemnity is in favour of the second party]

2.3 What must the harm or loss be caused by to secure compensation?
Both mutual and unilateral indemnity clauses should clearly describe the responsibilities of each of the parties.

Generally, a party should be liable only for those acts for which he or she would be responsible at law, which usually means acts over which the party has control.

Each party will generally be responsible for the consequences of its own negligence, as well as for the negligence of anyone acting under his or her direct supervision or control.

The scope of the indemnity will often be affected by the parties' obligations under the agreement. Physicians should pay particular attention to any administrative or other nonmedical duties they may be assuming under the agreement. The CMPA does not typically provide assistance with these types of matters and, similarly, will not necessarily assist with indemnities regarding non-medical matters. Physicians should ensure the particular terms of the agreement do not impose overly onerous obligations that will be difficult to fulfil.

2.4 Are there any exceptions to the obligation to indemnify?
The scope of the indemnity can also be affected by any enumerated exceptions to the obligation to indemnify. For example, an indemnification clause can be limited to exclude loss that the indemnified party incurs as a result of his or her own negligence:

The second party agrees to indemnify and save harmless the physician from any liability, loss, damage or expense, including assessable legal fees, which the physician may incur provided that such liability, loss, damage or expense does not arise out of the negligence or wilful malfeasance of the physician.

This exception is important because it essentially renders the indemnity into a contractual restatement of the law with respect to legal liability. At law, a physician is responsible for all reasonably foreseeable damages flowing from his or her own negligent acts or omissions. However, a physician will not generally be responsible for damages caused by the negligence of others.

As a result of this exception, the physician will not be entitled to compensation for losses incurred as a result of his or her own negligence. While the second party will have to indemnify the physician for losses he or she may suffer as a result of the second party's negligence, the second party would be legally responsible for these damages even in the absence of an indemnification clause.

In these circumstances, the real benefit the indemnification clause provides is with respect to payment of legal costs by the second party.

2.5 In the event of legal action, are there any mechanisms for cooperation between the parties?
Both mutual and unilateral indemnity clauses should provide for some mechanism of notification and cooperation in any lawsuit that might arise against either of the parties.

These provisions obligate a party who receives notice of a claim to inform the other party and allow that party to participate in its defence. It is also helpful if the physician has the right to retain his or her own legal counsel to defend the action, even if this right must come at the physician's own expense.

In the absence of such terms, it would be possible for a party to settle a claim on disadvantageous terms, in the confidence that it could look to the other party for reimbursement under their agreement. For similar reasons, indemnity clauses sometimes specify that a party may not settle any claims or admit to any liability without the consent of the other. For example:

The parties hereto agree that they shall cooperate with each other in the defence of any such action, including providing each other with prompt notice of any such action and the provision of all material documentation. The parties further agree that they have a right to retain their own counsel to conduct a full defence of any such action.
The second party agrees to provide prompt written notice of any claim that might give rise to such liability and to give the physician the opportunity to retain his or her own counsel to defend such claim.

2.6 What is the extent of CMPA's assistance for indemnities given by members?
The CMPA does not generally consider itself bound by indemnities given by members to third parties. However, where an indemnity in favour of a third party specifically relates to the practice of medicine by the member, the member will generally be eligible for assistance from the CMPA. Although the CMPA may assist in the defence of such a claim, it will not necessarily agree as part of that assistance to reimburse third parties for damages they may have paid in relation to such claims and for which they seek to be indemnified by the CMPA member.

The CMPA will not generally assist members with respect to promises of indemnification for administrative or other non-medical obligations that the physician may assume under the agreement. It is therefore important for the physician to determine exactly what his or her obligations are under the agreement.

2.7 Conclusions
It is preferable for the second party to provide a unilateral indemnification in favour of the physician. However, the breadth of the protection such a clause will provide to a physician often depends upon the obligations of the second party under the agreement. The scope of the indemnity will also depend on whether there are exceptions to the second party's obligation to indemnify.

If mutual indemnity is requested, the following sample mutual indemnification clause may be appropriate. Members should consult with their legal counsel to consider the appropriateness of this clause in the particular contract under consideration.

The parties covenant and agree to indemnify and save each other harmless from any liability, loss, damage or expense, including assessable legal fees, arising out of the negligent performance of their respective obligations under this Agreement or by anyone for whom they are in law responsible. The parties hereto agree that they shall cooperate with each other in the defence of any such action, including providing each other with prompt notice of any such action and the provision of all material documentation. The parties further agree that they have a right to retain their own counsel to conduct a full defence of any such action.

Again, the breadth of the protection such a clause will provide to a physician will often depend upon what obligations the second party assumes under the agreement.

In circumstances where the second party insists that the physician provide unilateral indemnity in its favour, the following clause may be appropriate. Members should consult with their legal counsel to consider the appropriateness of this clause in the particular contract under consideration.

The physician agrees to indemnify and save harmless the second party from any liability, loss, damage or expense, including assessable legal fees, which the second party may incur as a direct result of the negligent performance of the physician's obligations under this Agreement. The second party agrees to provide prompt written notice of any claim that might give rise to such liability and to give the physician the opportunity to retain his or her own counsel to defend such claim.

When non-medical duties form part of the physician's obligations under the agreement, the indemnity in favour of the second party could be amended, in either a unilateral or a mutual indemnification clause, to apply only where the second party incurs damage "as a direct result of the negligent provision of medical services by the physician under this Agreement."

In both mutual and unilateral indemnification clauses it is important to limit the scope of the indemnity the physician is providing to compensation for acts for which the physician would be responsible at law.

Given that the breadth of an indemnification clause often depends on the specific terms and conditions in the agreement, members are advised to request a review of the entire agreement by their own personal legal counsel.

3. Liability provisions

Some contracts will contain provisions concerning joint and several liability, vicarious liability arising from delegation to others, or limitations on the liability of the other party. These provisions should be closely reviewed with the member's personal legal counsel.

4. Confidentiality

It is common for members to be presented with contracts that impose obligations on them to ensure the confidentiality of certain information or to ensure that members respect their obligations concerning the maintenance and destruction of medical records. These clauses should be carefully reviewed in light of relevant privacy and other legislation, the common law, and provincial/territorial regulatory authority (College) policies that govern the maintenance and destruction of medical records to ensure those clauses are consistent with the physician's obligations under binding policies and the law. Physicians should not agree to confidentiality clauses that do not permit them to meet their other legal and ethical obligations.

Restrictions on disclosure of confidential information should not prevent a physician from fulfilling his or her legal obligations under various statutes to report confidential information such as the duty to report child abuse, duty to report fitness to drive, and other applicable duties. Physicians should not agree to confidentiality clauses that might limit their ability to seek medical-legal advice from the CMPA or legal counsel. In addition, where clauses state that physicians may disclose information "as required by law," such clauses should be amended to read "as required or permitted by law," since privacy legislation does not generally require the disclosure of confidential information, but rather permits such disclosure. The same is true with respect to the exception to doctor-patient confidentiality that permits physicians, in limited circumstances, to disclose patient information in the interests of public safety. In the Common Law jurisdictions, this exception is established in the Supreme Court of Canada decision in Smith v. Jones and is generally permissible rather than mandatory. In Québec, a limited permissive exception to doctor-patient confidentiality also exists by virtue of statute when public safety is endangered by a person using a firearm (An act to protect persons with regard to activities involving firearms).

5. Termination of contract: Procedural fairness and impact on privileges

A physician facing a suspension or termination of his or her privileges in a hospital is generally entitled to procedural rights, including to know the reason for the termination and to demand a hearing on the merits of that decision.

Physicians do not necessarily benefit from these same procedural rights upon termination of the contract. There have been varying court decisions on whether the termination of the contract automatically cancels or suspends the physician's privileges and the associated procedural rights.¹

Some hospitals have included in their contracts for services, a provision that allows them to waive the procedural protections in the by-laws or in the legislation. Members and their legal counsel should argue strenuously that such a provision should not be included in the agreement. Indeed, an express provision should be incorporated into the contract to extend the procedural protections provided for in the bylaws or in the legislation governing the exercise of hospital privileges. At a minimum, physicians should know the reasons for the termination and be given a hearing at which they can be represented by legal counsel.

In some cases, the termination of the contract may automatically trigger cancellation or suspension of the physician's privileges. Members and their legal counsel should be aware of these issues and should ensure there is an adequate notice period prior to such a termination becoming effective and, as above, that procedural protections be applicable to physicians when such a termination occurs.

6. Dispute resolution

Some contracts contain provisions concerning dispute resolution. Members will want their legal counsel to ensure that those provisions are drafted in a favourable manner. To ensure the physician's interests are adequately represented, the provisions should not preclude assistance from the CMPA or the member's personal legal counsel.

7. Governing law

Some contracts contain a provision stipulating that the governing law and jurisdiction of the agreement is a jurisdiction or law that is not the one in which the physician practices. This may not be a significant problem if the jurisdiction and governing law stipulated are that of another province or territory in Canada, although having to be a party to proceedings in another province or territory may cause some inconvenience to the physician. What is of greater concern is when the governing law and jurisdiction are stipulated to be that of another country such as the United States. This could expose the physician to significant damage awards, serious disruption of his or her practice and the possibility that the CMPA may not be in a position to provide assistance in that foreign country. Physicians will want to ensure that when they are a party to an agreement that they attempt to ensure that the governing law and jurisdiction are stipulated to be that of a Canadian province or territory, and preferably, the province or territory in which the physician practices.

The standard governing law and jurisdiction clauses that the CMPA recommends for such agreements are as follows:

Governing Law
The Parties hereby agree that their relationship and the resolution of any and all disputes arising therefrom, including any issues related to this Agreement, shall be governed by and construed in accordance with the laws of the province or territory of _______________ and the laws of Canada applicable therein.

Jurisdiction
The Parties hereby acknowledge that the services will be provided in the province or territory of _________________________ and that the Courts of the province or territory of _________________________ shall have exclusive and preferential jurisdiction to entertain any complaint, demand, claim or cause of action whatsoever arising out of this Agreement. The parties hereby agree that if either of them commences any such legal proceedings they will only be commenced in the province or territory of _________________ and hereby irrevocably submit to the exclusive jurisdiction of the Courts of the province or territory of _______________________.

Footnote

In Rosen v. Saskatoon District Health Board, a physician's contract for medical services with a hospital was terminated without him being provided any opportunity to be heard or any other procedural protections. The hospital argued that since the physician was an independent contractor, this allowed the Board to circumvent the hospital by-laws, which had requirements of procedural fairness. Because the physician's privileges were unaffected by the termination of his contract, the Board argued that this was strictly a contractual matter and that the by-laws were inapplicable. The Saskatchewan Court of Appeal, in upholding the trial court's decision and finding in favour of the physician, held that the termination of the physician's contract affected his hospital privileges in that they were rendered useless. It stated that since nothing in the legislation, regulations, by-laws or contract expressly stated that the board was exempt from the general duty of procedural fairness in terminating the services of the physician, a hearing was required, and reasons for the termination had to be provided. As a result of this decision, as well as the decision in Shaikh v. Regional Health Authority 7 (a New Brunswick decision), some hospitals have included in their contracts for services with physicians a provision that allows them to waive the procedural protections in the bylaws. In some provinces or territories, these clauses may be referred to as "Rosen" clauses. In contrast, the Saskatchewan Court of Appeal in Ready v. Saskatoon Regional Health Authority, found there was no automatic revocation of the physician’s privileges as a result of the termination of his contract. The court found that in the context of an employment contract, the termination must be governed by contract law principles unless the contract expressly incorporates the procedures in the legislation or bylaws governing privileging matters.