agrees to hold another party (for example, an individual officer or employee) harmless from financial liability for certain acts or omissions of that party that cause damage to another.
Like insurance policies, indemnification agreements often do not cover liability resulting from intentional or malicious action or from action violating the state's penal laws. Just as public policy may limit the types of acts or omissions that may be insured against, it may also limit those for which indemnification may be received.
Both public and private institutions may enter indemnification agreements. A public institution, however, may need specific authorizing legislation (see, for example, Mich. Comp. Laws § 691.1408), while private institutions usually can rely on the general laws of their states for sufficient authority. Some states also provide for indemnification of state employees for injuries caused by their acts or omissions on behalf of the state (see, for example, Cal. Gov't Code §§ 995 et seq.) or for torts committed within the scope of their employment (see, for example, Ill. Code, 5 Ill. Comp. Stat. 350(2)(d)).
State laws on defense and indemnification are often general, and may vary considerably from state to state. To have a sound and clear institutional policy, adapted to the academic environment, public institutions may need to expand upon applicable state law.
A third method of risk transfer is the release or waiver agreement. This type of arrangement releases one party from liability to another for injuries arising from some particular undertaking in which both parties are involved. In postsecondary education, this mechanism is most likely to be used for student activities and services, such as intercollegiate athletics, provision of medical services, study abroad programs, and student field trips, which involve acknowledged risks. In such circumstances, the institution may require the student to execute a release or waiver as a precondition to participation in the activity or receipt of the service.
Postsecondary institutions may also use “consent forms” for certain activities or services—for example, a form securing a consent to a particular medical treatment, or consent for the institution to authorize medical treatment on the participant's or recipient's behalf. Consent forms are not the same as releases and will not have the legal effect of a release unless clear exculpatory language, like that used in releases, is added to the consent form. Absent such exculpatory clauses, use of a consent form may actually increase, rather than decrease, an institution's potential liability. In Fay v. Thiel College, 2001 WL 1910037 (Pa. 2001), for example, a college had had students sign medical consent forms before participating in a study abroad trip. The form authorized the college's representatives to secure medical treatment in case of emergency. The plaintiff, a student who became ill on the trip and was left behind for medical treatment at a medical clinic, alleged that she had received unnecessary surgery and been sexually assaulted at the clinic. The court held that the consent form created a “special relationship” between the college and the student and that, due to this relationship, the college owed the student a “special duty of care” regarding medical treatment while she was on the trip. The court therefore denied the college's motion for summary judgment and ordered a jury trial on whether the college had breached this duty.
The most practical option for the institution in some circumstances may be to retain the risk of financial liability. Risk retention may be appropriate, for instance, in situations where commercial insurance is unavailable or too costly, the expected losses are so small that they can be considered normal operating expenses, or the probability of loss is so remote that it does not justify any insurance expense. Both insurance policy deductibles and methods of self-insurance are examples of risk retention. The deductible amounts in an insurance policy allocate the first dollar coverage of liability, up to the amount of the deductible, to the institution. The institution becomes a self-insurer by maintaining a separate bank account to pay appropriate claims. The institution's risk managers must determine the amount to be available in the account and the frequency and amount of regular payments to the account. This approach is distinguished from simple noninsurance by the planning and actuarial calculations that it involves.
2.4.3 Enterprise risk management. In recent years, universities have been considering and implementing more comprehensive programs for risk assessment, management, and prevention, which can be grouped under the category of “enterprise risk management” (ERM). ERM focuses on various risk areas within an institution, such as strategic, competitive, operational, reputational, and financial risks, among others. The goal of ERM is to manage risk across the university in a holistic way, which requires buy-in from all levels in the university.
For an overview of enterprise risk management and its interplay with insurance, see https://www.naic.org/cipr_topics/topic_enterprise_risk_management.htm.
Notes
1 1 Another branch of judicial deference that is highly important to higher education arises when an institution, or an association of institutions, challenges a rule or decision of a federal or state administrative agency in court. Questions may then arise concerning the extent to which the court should defer to the expertise or authority of the administrative agency.
2 2 Some personnel disputes will have gone to arbitration before landing in court. When an institution prevails in arbitration and the faculty member then files suit in court, the institution has an additional argument for deference: that the court should accord deference not only to the institution's judgment but also to the arbitrator's decision. See, for example, Samoan v. Trustees of California State University and Colleges, 197 Cal. Rptr. 856 (Cal. 1983).
3 3 The suggestions in this section apply not only to litigation against the institution but also to suits against officers or employees of the institution when the institution is providing them, or considering providing them, with legal representation or related assistance. In suits in which both the institution and one or more named institutional officers or employees are defendants, questions may arise concerning possible conflicts of interest that could preclude the institution's legal staff from representing all or some of the officers or employees (see Section 2.4.3).
4 4 Information about ombudspersons may be found on the website of the International Ombudsman Association (www.ombudsassociation.org).
5 5 Steelworkers v. American Manufacturing Co., 363 U.S. 564 (1960); Steelworkers v. Enterprise Wheel and Car Corp., 363 U.S. 593 (1960); and Steelworkers v. Warrior and Gulf Navigation, 363 U.S. 574 (1960).
6 6 This section was revised and updated by Jonathan R. Alger, former senior vice president and general counsel at Rutgers University and currently president of James Madison University.
3 The College's Authority and Liability
Chapter 3 addresses the concept of authority—specifically, the college or university's authority to take particular actions and its potential legal liability for exercising authority in certain ways. Explanations are given for three types of authority (express, implied, and apparent authority) and three types of liability (tort law [especially negligence], contract law,
