Contracts – Hold Harmless Clauses

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Avoiding Liability Bulletin – December 2011

… During the course of practicing the profession, therapists and counselors from time to time enter into written contracts or agreements. For example, a therapist or counselor enters into a contract with his or her malpractice insurance carrier when obtaining coverage for professional liability. Practitioners enter into contracts or agreements with landlords in order to lease or rent office space and when they become providers with HMOs or similar organizations. Additionally, practitioners may enter into contracts with employers, either when they act as W-2 employees or “independent contractors.” Practitioners must be careful before entering into any contract, and often will want to consult with an attorney to learn the full import of signing the contract or agreement.

One of the clauses in the contract or agreement that should be carefully reviewed is known as a “hold harmless” clause. Sometimes, such a clause is combined with or alternatively called an “indemnification clause.” Essentially, a “hold harmless clause” in a contract means that one party agrees to assume liability for certain situations, and releases the other party from responsibility for damages or liability. Stated otherwise, it is the assumption by contract of another’s liability. Such clauses can be unilateral or mutual (e.g., where each party holds the other party harmless for their respective acts of negligence), but I suspect that most clauses encountered by mental health practitioners are initially presented as unilateral – that is, where the mental health practitioner is expected to “hold harmless” or “indemnify” the other contracting party. These clauses, regardless of the kind of contract that they appear in, can be written in a variety of ways, with many nuances.

Practitioners will sometimes be able to negotiate the language of such a clause so that the practitioner does not assume liability for the acts of others. For example, I have reviewed office leases where the “hold harmless clause” was overly broad and one-sided. Sometimes the landlord was unaware of the one-sidedness of the clause because he or she was using a standard form that was obtained from a colleague or trade association. I have also experienced situations where landlords are amenable to amending the clause so that the tenant/lessee is not expected to hold the landlord harmless or indemnify the landlord for damages caused by the sole negligence or intentional misconduct of the landlord or another. For example, the tenant/lessee should not ordinarily be expected to indemnify the landlord or hold the landlord harmless for injuries occurring to a patient who trips and falls in the common areas of an office building, where the landlord has complete and sole control of the maintenance of the common area.

With respect to employment contracts, employers who hire mental health practitioners as independent contractors may insist upon a contractual provision where the independent contractor agrees to indemnify or hold the employer harmless for the harm caused to a patient by the independent contractor. Thus, when and if the employer is sued, the employer can look to the independent contractor to indemnify or hold the employer harmless for the independent contractor’s negligence. Care must be taken by the practitioner that he or she is not assuming liability for the acts of others that he or she would otherwise not be responsible for – that is, where the additional liability of the practitioner is the result of a contractual agreement (the hold harmless/indemnity clause) that accepts liability for some or all of the acts of others.

Practitioners who are covered by professional liability insurance (and additionally, by general liability coverage) must be aware of clauses contained within these policies that exclude coverage for claims or suits for damages arising out of any liability that the insured assumes under any contract or agreement. The intent of such an exclusion is to protect the insurer from being responsible for the liability that the insured may incur as a result of the insured entering into a contract or agreement containing a broad indemnification/hold harmless clause, where the insured may have agreed to hold the other party or entity harmless for the acts of negligence or intentional wrongdoing of that party or entity. This is clearly not what the insurer agreed to insure. Importantly, such exclusions will typically not apply if the insured simply holds the other party harmless only from the insured’s own negligence. Again, one must take care to examine these clauses closely and should not hesitate to consult with an attorney or others.

Some hold harmless agreements may not be enforceable because they violate either a state statute or the public policy of the state as established by case law. For example, a California statute provides that all contracts which have for their object, either directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against public policy. Such a statute could render void a hold harmless/indemnification provision in a contract that is overly broad or one that is “unconscionable.” As the reader can discern, this area of the law is rather technical, and the implications for practitioners are real. That is precisely why practitioners must be careful before signing contracts.

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Richard Leslie

"At the Intersection of Law and Psychotherapy" Richard S. Leslie is an attorney who has practiced at the intersection of law and psychotherapy for the past twenty-five years. Most recently, he was a consultant to the American Association for Marriage and Family Therapy (AAMFT), where he worked with their various state divisions to develop and implement their legislative agendas. He also provided telephone consultation services to AAMFT members regarding legal and ethical issues confronting practitioners of diverse licensure nationwide. Additionally, he wrote articles regarding legal and ethical issues for their Family Therapy Magazine and presented at workshops on a variety of legal issues. Prior to his work with AAMFT, Richard was Legal Counsel to the California Association of Marriage and Family Therapists (CAMFT) for approximately twenty-two years. He was director of Government Relations for CAMFT, and as such was the architect of CAMFT’s widely regarded and successful legislative agenda. He represented CAMFT before the regulatory board (the Board of Behavioral Sciences) and was a tireless advocate for due process and fairness for licensees and applicants. He was a regular presenter at workshops and was consistently evaluated as CAMFT’s most highly rated presenter. He also sat with the CAMFT Ethics Committee and acted as their advisor on matters pertaining to the enforcement of ethical standards. Richard is an acknowledged expert on matters pertaining to the interrelationship between law and the practice of marriage and family therapy and psychotherapy. For many years, he taught Law and Ethics courses for a number of colleges and universities in their marriage and family therapy degree programs. While at CAMFT, he provided telephone consultation services with thousands of therapists in California and elsewhere for over twenty years. He is highly regarded for his judgment, his expertise, his direct style, and his clarity. Richard has been the driving force for many of the changes and additions to the laws of the State of California that affect MFTs. In 1980, he was primarily responsible for achieving passage of the "Freedom of Choice Law" that required insurance companies to pay for psychotherapy services performed by MFTs. Passage of that law allowed MFTs to earn a living, allowed them to better compete in the marketplace, and strengthened the profession in California by leading to a great increase in the number of licensees and CAMFT membership. Currently, about half of the licensed marriage and family therapists in the country are licensed in California. While at CAMFT, Richard was primarily responsible for, among other things, the successful effort to criminalize sex between a patient and a therapist. He was successful in extending the laws of psychotherapist-patient privilege to MFTs, thereby giving patients the same level of privacy protection as when seeing a psychiatrist or psychologist. He fought tirelessly and successfully for the right of MFTs to refer to themselves as "psychotherapists," to perform psychological testing services, to be appropriately reimbursed by California’s Victims of Crime Program, and to be employed in county mental health agencies throughout California. Richard was admitted to the Bar in New York (1969) and in California (1973). While practicing in New York, he served as a public defender, and later, as an Assistant District Attorney. Shortly after moving to California, he worked for the San Diego County Human Relations Commission as their Law and Justice Officer. While there, he worked successfully to achieve greater racial diversity in the criminal jury selection system and to expose and stop police abuse. For such work with that agency, he was the recipient of the Civil Libertarian of the Year Award by the San Diego Chapter of the American Civil Liberties Union.

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