Indemnification Clauses

When two parties do business together, one or both parties may attempt to limit their liability to the other party. This is typically done through a “hold harmless” provision that states that releases a one or more parties from any damages they incur from the relationship. Supplement companies may ask providers to sign vendor agreements with a hold harmless clause, which prevents the provider from seeking damages the provider incurs from the vendor relationship. If a supplement company was unable to ship supplements to a provider’s office for several months, for example, a hold harmless clause would prevent the provider from suing the supplement company for their lost income. 

Parties may agree to a mutual hold harmless clause, but this typically only makes sense if parties providing services to each other. In the case of a provider buying supplements, the supplement company is providing the service, so it is most common for the supplement company to seek a hold harmless clause.  Providers are responsible for upholding the terms of the agreement, (e.g. to make payment for the supplement, not to make false representations about supplements, not to disparage the company), so the supplement company is not likely to include a hold harmless clause to the provider’s benefit. 

Another element that addresses liability is an indemnification clause. An indemnification clause provides that one party will defend the other party in litigation arising from the relationship. Indemnification clauses are obviously desirable to the benefiting party, which is why some supplement companies have inserted them with their hold harmless provision. The supplement companies’ position is that if the provider were to break the terms of the agreement–such as making false representations about the company’s supplements–then the provider should pay to defend the supplement company or reimburse the supplement company’s legal fees. 

 While this sounds fair, anybody with experience in litigation knows that the law is not always fair. If a patient has a bad outcome and supplements are involved, there is a chance that the patient’s claim will name both the provider and the supplement company. Doing so expands the potential payment pool and puts pressure on named parties to cooperate in document production to be dropped from the claim. While it is nice to think that the supplement company would only be named if the provider violated the terms of the vendor agreement, the reality is that the plaintiff will file a claim against whoever they chose. 

If a provider indemnifies a supplement company and if that supplement company gets named in a claim filed against the provider, chances are that the provider would have to pay the supplement company’s defense costs out of their own pocket. Medical malpractice would protect the provider, but malpractice would most likely not cover the defense costs of the supplement company arising out of a private agreement with the provider. The supplement company could hire the most expensive lawyers necessary to defend the company and send the provider the bill. 

Some supplement companies have offered mutual indemnification clauses, but these are essentially worthless to the provider. A mutual indemnification clause would still require the provider to indemnify the supplement company from any claims naming the supplement company arising out of the provider’s services. The supplement company, in turn, would indemnify the provider from any claims naming the provider arising out of the supplement company’s services. The problem here is that there is at least SOME chance that the supplement company will be named in a claim based on the provider’s services, while there is ZERO chance that the provider will be named in a claim based on the supplement company’s services.  

The best scenario in any litigation involving providers and supplement companies is for both parties to pay for their own defense. Providers are strongly encouraged to read vendor agreements and ask that any indemnification clauses be removed. If the supplement company won’t remove the indemnification clause, the provider is better off finding another supplement company.