Another area where indemnification would be useful is in the relationship between medical schools and nonuniversity hospitals that are used as teaching hospitals. Past court decisions have usually held the medical school liable for the actions of its students and staff. These decisions usually turned on the close relationship between the students, staff, and the medical school. Since the medical school staff members are also members of the hospital medical staff, the hospital could be held liable if it failed to monitor properly the competence of these medical staff members.
The problem is that the hospital is seldom able to evaluate independently the credentials of the members of the teaching staff. The usual agreement between the medical school and the hospital allows the medical school to decide who will be on the teaching staff, and it allows all members of the teaching staff to oversee the teaching in the hospital. In this type of situation, it would be in the hospital's interest to require the medical school to indemnify it against any judgments arising from the negligence of medical school personnel. Since the assets of the medical school would be large enough to pay any judgment, the indemnity would not even require the medical school to carry additional insurance. The benefits to the medical school of having the hospital accept its students is sufficiently important that the potential risk of the agreement would be offset. This balance of interests is basic to the negotiation of indemnification agreements. The hospital can exact indemnification agreements only if the use of the hospital's resources is sufficiently valuable to offset the potential costs of the agreement to the third party.
In a teaching hospital, there are two factors that mitigate the risk to the medical school of indemnifying the hospital. First, hospitals are seldom held liable for the actions of medical students or residents. Second, in the usual malpractice suit involving a teaching hospital, the plaintiff will sue the student, the medical school, and the hospital. Unless the hospital was in actual control of the student, the hospital will be liable only if it breached its duty to monitor the overall quality of medical care. The hospital can escape liability if it can prove that it did not breach its duty to the patient. The best way to do this is to put all of the blame on the medical school. However, this will seriously compromise the ability of the medical school to defend its actions. It is better for the medical school to risk the potential losses of an indemnification agreement than to force the hospital to aid in making the plaintiff's case. In general, it is the potential infighting between defendants that provides the strongest rationale for indemnification agreements.
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