INDEMNIFICATION AND CO-EMPLOYMENT Healthcare Staffing Summit October 25, 2013 Presented by: Eric H. Rumbaugh Michael Best & Friedrich LLP ehrumbaugh@michaelbest.com This presentation is intended for general informational purposes only and does not constitute legal advice. Specific questions and requests for legal advice should be addressed to legal counsel. Michael Best & Friedrich LLP 2013
Indemnification Indemnification is a form of restitution. It can be implied by law in tort claims to shift liability for an obligation to the party who should bear ultimate responsibility for it under principles of equity, or it can be based on contract. In the absence of a duty imposed by law to indemnify another, there is no right to indemnification unless derived from a contract.
Indemnification - Contract Under a contract for indemnification, one party (the indemnitor) promises to hold another party (the indemnitee) harmless for loss or damage of some kind. The indemnitor promises to indemnify the indemnitee against liability of the indemnitee to a third party, or against loss resulting from the liability. Generally, no particular language is required to support indemnification, and a written agreement can be established without specifically expressing the oligation as indemnification. Intent is the controlling consideration. See generally McNally & Nimmergood, et al. v. Neumann-Kiewit Constructors, Inc., 648 N.W.2d 564 (Iowa 2002)
Indemnification What is indemnification? Damages Costs/Fees Joint liability Joint employment co-employment
What Liabilities Are We Indemnifying? 1. Title VII, ADEA, ADA and other Discrimination Liability 2. Tax Liabilities 3. Wage & Hour Liabilities 4. Worker s Compensation Liability 5. Tort/General Liability 6. Contractual Liability 7. Other Liabilities
Indemnification Advantages Coordinated/central defense Control of defense Planned allocation of cost
Indemnification Disadvantages Unclear enforceability Difficulty of insurance Weeding of qualified vendors Potential loss of control for indemnified party
Indemnification Strategy Don t accidentally indemnify Plan regarding insurance Allocate risk rationally Plan regarding enforcement
Insurance 1. EPLI 2. Workers Compensation 3. D&O, E&O 4. General Liability
Insurance Coverage Cross-Insurance Who are our employees? Who is covered? WC General liability, D&O, E&O EPLI Do we have agents for whom we are not covered? Consultants Independent contractors Vendors Contingent workers
Insurance Are we covered? Does our carrier know what we are doing? Does our carrier know what our business partners/vendors are doing? Raise coverage issues before a claim is filed. If we are indemnifying, are we insured? If we are indemnified, are we insured?
Insurance Are employees correctly classified by job title/duty? For our company? For our vendor?
Insurance Problems with Misclassification Independent Contractors Employee Benefit Plans Wage & Hour Corporate, LLC Status Inadequate
Indemnification When a staffing agency places a contingent worker with a company, the two parties sometimes enter into an indemnification agreement in their staffing contract. Staffing company is sometimes required to indemnify its client company, or special employer, against claims by a contingent worker.
Sanchez v. Harbor Construction Contingent worker files a tort suit against special employer after work injury. Special employer successfully argues exclusive remedy rule. Worker then pursues worker s compensation claim against staffing agency, and agency asserts that special employer is liable for contingent worker s benefits, including those already paid by staffing company. Court held that special employer had to reimburse staffing company, due to a lack of an indemnification agreement.
Port Elevator-Brownsville v. Casados Contingent worker was killed in an accident at work, after which his family sued the special employer in tort and was awarded $2 million at the trial court and appellate level. The Texas Supreme Court reversed. Texas law allows employers to opt out of worker s compensation, but they then lose the exclusive remedy protection. Here, both the general and special employers had coverage, but the special employer s policy did not specify that it covered contingent workers.
Port Elevator-Brownsville v. Casados (Continued) While the worker s family received worker s compensation benefits through the staffing company s worker s compensation carrier, the special employer was not named as an additional insured under the staffing company s carrier s policy. Worker s family claimed based upon the above that the special employer opted out of worker s compensation coverage, and thus the exclusive remedy rule should not apply. The Texas Supreme Court reversed, holding that special employer s purchase of worker s compensation insurance covered all worker s compensation liability.
Interstate Fire & Cas. Co. v. Wash. Hosp. Ctr. Corp. A staffing agency entered into an agreement with a hospital to provide temporary nurses. The agreement included an indemnification clause, under which the staffing agency was required to indemnify the hospital for claims arising from the negligence of the staffing agency or its registered nurse employees who were provided to the hospital. The plaintiff insurance company brought suit seeking allocation of a settlement it paid for the alleged medical malpractice by a nurse provided by the staffing agency. The plaintiff argued that it was entitled to reallocation of settlement because the nurse was an employee within the meaning of the hospital s insurance policy and that the hospital s insurance policy was primary.
Interstate Fire & Cas. Co. v. Wash. Hosp. Ctr. Corp. The court applied a common law control test and found that the hospital had an employer/employee relationship with the nurse for purposes of the hospital s insurance policy, and the hospital s insurance company was accordingly liable. The court found that the hospital itself had waived its indemnification under the agreement with the staffing agency through a settlement agreement in the underlying malpractice case. The waiver of the indemnification agreement meant that finding the hospital s insurance company liable would not lead to circular litigation. The court also determined that the hospital itself was not liable under any theories advanced by the plaintiff insurance company
Medical Staffing Network, Inc. v. Connors, et al. A staffing agency was under contract with a hospital to supply the hospital with temporary medical personnel as needed. The staffing agency had a contractual obligation to indemnify the hospital for any damages it had to pay on account of the negligence of its employee. A widow brought suit against the hospital and the staffing agency, which employed a nurse whose negligence allegedly caused the death of the widow s husband. The hospital filed a cross-claim for indemnification against the staffing agency. On the first day of trial, the hospital and the widow entered into an agreement which allowed the hospital to reduce or eliminate its financial exposure in exchange for certain conduct during the litigation that would increase the staffing agency s liability.
Medical Staffing Network, Inc. v. Connors, et al A wrongful death claim against the staffing agency was barred by the statute of limitations. Nevertheless, the court determined that when the staffing agency agreed to indemnify the hospital, it did not condition that obligation on the injured person also having a viable claim directly against the staffing agency. As a result, the widow could get through the hospital what she could not get directly against the staffing agency.
Questions & Answers Eric H. Rumbaugh Michael Best & Friedrich LLP 100 East Wisconsin Avenue, Suite 3300 Milwaukee, WI 53202-4108 414.225.2742 ehrumbaugh@michaelbest.com 22