DTCI: Questions Remain as 20th Anniversary of Sword Approaches

By Carly Brandenburg and Allison Skimehorn

A brief history

skimehorn_allison_mug Skimehorn
brandenburg-carly-mug Brandenburg

Twenty years ago, our Supreme Court handed down its decision in Sword v. NKC Hospitals, Inc. Alliant Health System, Inc. d/b/a Norton’s Children’s Hospital, 714 N.E.2d 142 (Ind. 1999), that had a significant impact on hospitals and the physicians practicing in them. The plaintiff was a patient in labor who brought her medical malpractice action against a hospital based on the alleged negligence of the anesthesiologist who performed her epidural. The anesthesiologist was an independent contractor, but the plaintiff contended she did not know this. The doctor simply came to her labor and delivery room at the hospital to perform her epidural. She had no choice in selecting the physician, and she had no reason to know that he was not an agent of the hospital. Id.

Before Sword, the general rule in Indiana had been that hospitals could not be held liable for the negligent actions of independent contractor physicians. See, e.g., Iterman v. Baker, 214 Ind. 308, 316–18, 15 N.E.2d 365 (1938) (finding that respondeat superior did not apply because hospitals could not legally assert control over physicians).

Sword and its impact

With Sword, our high court recognized the erosion of Iterman’s holding over time and the growing trend in other jurisdictions to apply apparent agency theory to hold hospitals vicariously liable for the negligence of their independent contractor physicians. Indiana joined this movement, issuing the rule that a hospital “will be deemed to have held itself out as the provider of care unless it gives notice to the patient that it is not the provider of care and that the care is provided by a physician who is an independent contractor and not subject to the control and supervision of the hospital.” Id. at 152. The court focused on (1) a hospital’s manifestations and (2) a patient’s reliance on those manifestations.

Analysis of the first factor involved consideration of whether “the hospital acted in a manner which would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or an agent of the hospital.” Id. at 151. As to the second, the operative question was whether a patient lacks “special knowledge regarding the arrangement the hospital has made with its physicians, and if there is no reason that the patient should have known of these employment relationships, then reliance is presumed.” Id. at 152.

The language from Sword that would guide hospitals’ future attempts to avoid ostensible agency liability was the court’s expression that “[a] hospital generally will be able to avoid liability by providing meaningful written notice to the patient, acknowledged at the time of admission.” Id. (emphasis added). Thereafter, hospitals strove to give their patients meaningful notice that some of their physicians were independent contractors rather than employees, typically through explanatory written forms and waivers. Such notice, it seemed, should be effective to limit liability in all but emergency situations — for example, the unresponsive patient arriving in need of care but unable to read and sign forms. Id. at 152 (recognizing that “written notice may not suffice if the patient had an inadequate opportunity to make an informed choice”).

How has “meaningful notice” worked out for you?

Despite Sword’s guidance, continuing analysis in the case law has proven the “meaningful notice” target to be more elusive than many initially contemplated. In Helms v. Rudicel, a patient signed forms explaining that “many” of his health care providers in the hospital were independent contractors. 986 N.E.2d 301 (Ind. Ct. App. 2013). But the court held the reference to “many” was vague as to which providers were employees as opposed to independent contractors. Thus, a material issue of fact remained that precluded summary judgment.

Then in Ford v. Jawaid a patient signed a registration form that stated:

“I acknowledge that the health care professionals who attend to me, including but not limited to anesthesiologists, radiologists, pathologists, emergency room physicians, and provide and perform such medical and surgical care, tests, procedures, drugs and other services and supplies may be independent contractors and not employees or agents of Floyd Memorial Hospital and Health Services.” 52 N.E.3d 874, 881 (Ind. Ct. App. 2016) (emphasis added).

Looking to Sword and Helms, the court held a genuine issue of material fact remained as to whether plaintiff had meaningful notice that Dr. Jawaid, in particular, was an independent contractor. The court focused on the “may be” language as the source of confusion.

In the wake of such analysis, the level of specificity required to qualify as meaningful notice remains unclear. What if hospitals’ releases include language similar to that discussed in Helms or Ford, but the hospitals also require all independent contractors to wear name tags designating them as such? Sword and its progeny articulate that hospitals must be as explicit in informing patients exactly who is an independent contractor, but the means of achieving the requisite level of specificity to give meaningful notice remains murky.

And regardless of how explicit a hospital is with its forms, name tags, or other efforts taken to give patients meaningful notice, is there anything a hospital can do to provide meaningful notice to patients who arrive at their doors unconscious or otherwise unable to read and consent? To the extent hospitals may have come up with any such creative solutions, there is a lack of case analysis to convey helpful guidance about what may work.

Contracting against liability

Indemnification clauses bind a party in a business relationship to reimburse the other should damages or losses arise. Such a clause in this context may state that a physician independent contractor agrees to defend and indemnify her contracting hospital from and against all claims, demands, actions, and so forth, related to the physician’s rendering of medical care.

Although this approach may appear attractive to hospitals faced with a difficult task of limiting their liability for acts of apparent agents, it is unlikely they would easily find physicians willing to contract under such terms. Such a clause can leave physicians vulnerable, potentially even leading to situations where the physician’s malpractice insurance would decline coverage of claims. Because indemnification clauses are contractual in nature, the liabilities that arise from them are not necessarily derivative of the medical care provided and may fall outside the scope of a medical malpractice insurance policy.

The wording of such a clause, if attempted, would likely to need to trigger an indemnification requirement only where the hospital’s liability is solely predicated on the physician independent contractor’s care and not on the hospital’s own, concurrent potential negligence in providing patient care. But even then, contractor physicians may struggle to find coverage for such claims through their malpractice insurers. And moreover, a hospital seeking to enforce such a policy against a physician would surely suffer widespread damage to its goodwill with its contractors.

Sword and the MMA: A cautionary tale

Qualified providers in Indiana have a significant advantage in being able to limit their exposure for claims focused on the care rendered by an actual or apparent agent. The Medical Malpractice Act provides that if a health care provider is qualified under the Act and is liable “solely by reason of the conduct of another health care provider who is an officer, agent, or employee of the health care provider acting in the course and scope of employment and qualified under this article . . . the total amount that shall be paid to the claimant on behalf of the officer, agent, or employee and the health care provider by the health care provider” is confined to the statutorily prescribed cap in place when the malpractice occurred. Ind. Code § 34-18-14-3 (emphasis added). That would be true whether the physician is an actual agent or independent contractor/apparent agent.

Still, a plaintiff is not required to pursue both her physician and her hospital in litigation and can assert a claim against the hospital exclusively. In fact, this may appeal to plaintiffs who hope a jury will be more eager to find against a deep-pocketed business entity than against a more relatable, human physician. See, Columbus Regional Hospital v. Amburgey, 976 N.E.2d 709 (Ind. Ct. App. 2012) (holding as a matter of first impression that the running of the statute of limitations with respect to independent contractor physicians did not preclude a timely filed action against the hospital on a theory of vicarious liability and apparent authority).

And while most health care entities choose to be qualified providers, a significant risk exists for those entities that do not. Webster v. CDI Indiana, LLC presents a cautionary tale for the nonqualified health care provider entity or hospital. 337 F. Supp. 3d 818 (S.D. Ind. 2018). Patient Webster presented to a nonqualified entity, CDI Indiana, LLC (CDI), in Carmel for a CT scan. The reading radiologist was a qualified physician, as was the corporate entity that employed the radiologist. The radiologist and his employer contracted with CDI to provide radiology services at its facility, but CDI elected not to opt into the benefits of the Act.

Plaintiff Webster contended that the radiologist was an apparent agent of CDI pursuant to the analysis in Sword, that the radiologist misread her CT scan, and that CDI should be liable for his medical negligence under apparent agency theory. The alleged misreading of the scan led to a failure to diagnose her rectal cancer for 17 months, during which time it spread and became terminal. Id.

The plaintiffs, husband and wife, brought their claim against the qualified radiologist and his corporate employer with the Indiana Department of Insurance, and they simultaneously pursued an action in federal court against CDI given diversity of citizenship. The case was tried in the summer of 2018, and the court gave several jury instructions with language tied closely to that set forth in Sword. For instance, the following guided the jurors’ analysis of whether CDI should be liable for the acts of the radiologist:

“CDI Indiana, LLC will be considered to have held itself out as the provider of Ms. Webster’s radiology services unless it gave meaningful notice to Ms. Webster that it was not the provider of those services before the treatment, and that the services were being provided by a physician who was an independent contractor and not subject to the control and supervision of CDI Indiana, LLC, and Ms. Webster acknowledged the notice before the treatment.” Id. at 828.

After a five-day trial, the jury returned a verdict for the plaintiffs totaling $15 million. The district court denied CDI’s post-trial motion to set aside the verdict, finding no persuasive reason why Sword should not apply to a medical center like CDI. It further expressed that “[t]he evolving nature of the provision of health care, and the reduced reliance on the hospital setting as the location where health care is provided” supports Sword’s applicability to medical centers like CDI. Id. at 826.

The court also rejected CDI’s many arguments that the verdict should be set aside, reduced, or a new trial granted. Notably, it agreed with the plaintiffs’ argument that CDI could have taken “simple steps” to limit its liability, such as providing patient Webster with written notice of the radiologist’s independent contractor relationship with CDI. The court also dismissed CDI’s public policy argument that it should not be subject to the high, uncapped verdict where the radiologist who rendered the care at issue would be subject to the statutory cap of only $1.25 million pursuant to the MMA. The court observed that health care providers can opt in or out of the system — there is no requirement they be qualified. CDI could have qualified for the Act’s protections. It did not, so its liability was not limited. Id. at 830.

The District Court’s opinion was issued August 29, 2018, and CDI has sought further review. The Seventh Circuit Court of Appeals has yet to issue its ruling.

Moving forward

As the twentieth anniversary of Sword approaches, questions remain. What qualifies as meaningful notice? What are the best steps a hospital or health care entity should take to limit their liability? Will Sword apply to health care providers outside the traditional hospital setting? We will eagerly await the Seventh Circuit’s analysis of the Webster case.•

Ms. Brandenburg is a partner and Ms. Skimehorn is an associate in the Hammond office of Eichhorn & Eichhorn. Opinions expressed are those of the authors.

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