Preservation of Indemnity Claims Between Healthcare Providers

Indiana law is well-established that a hospital may be liable for the actions of its independent contractor physicians under an apparent or ostensible agency theory unless the hospital provides the patient with written meaningful notice at the time of admission 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. Sword v NKC Hosps., Inc., 714 N.E.2d 142 (Ind. 1999).

Since the Indiana Supreme Court issued its ruling in Sword, Indiana appellate courts have made it increasingly difficult for hospitals to obtain summary judgment on the apparent/ostensible agency issue.  For instance:

Partial summary judgment could not be granted to defendant hospital as to plaintiff’s apparent agency theory even though the statute of limitation had expired with respect to two independent contractor doctors. Columbus Reg’l Hosp. v. Amburgey, 976 N.E.2d 709 (Ind. Ct. App. 2012).

Question of fact existed whether hospital might be vicariously liable for actions of independent contractor providers where hospital consent form disclosed “many of the physicians and other health care providers …are not employed by [hospital], but are independent contractors…[.]” The court found the consent form did not meet the Sword meaningful notice threshold because it told [the patient] only that there was a possibility her physician might not be a [hospital] employee. Helms v. Rudicel, 986 N.E.2d 302 (Ind. Ct. App. 2013).

Genuine issue of material fact found as to whether the delivery of physician’s business card to patient by hospital during surgical registration process was sufficient to satisfy the meaningful notice requirement informing the patient that the physician was an independent contractor. Jernagan v. Ind. Univ. Health, 156 N.E.3d 734 (Ind. Ct. App. 2020).

Given the risk of Sword type liability, independent contractor agreements between hospitals and medical providers often include a provision requiring the independent contractor to indemnify the hospital should the hospital be held responsible for an independent contractor physician’s medical negligence.  However, recently, the Indiana Court of Appeals (“COA”) threw a hurdle in the path of any hospital that desires to pursue an indemnity claim by holding that indemnity claims between healthcare providers are governed by the Indiana Medical Malpractice Act (“MMA”) including the MMA’s two-year occurrence-based statute of limitation. Lake Imaging v Franciscan Alliance, No. 20A-CT-1490 2021 Ind. App. LEXIS 144, 2021 WL 1747894 (Ind. Ct. App. 2021), reh’g sought, trans. not yet sought. That is, “healthcare providers with a right to indemnification …will often have to sue before they have actually suffered a loss, in order to satisfy the medical-malpractice statute of limitation.” Id.

In Lake Imaging, a patient’s family sued Franciscan for medical negligence stemming from care provided in April 2001. During the course of the litigation and after the statute of limitation ran, a contention emerged that two nonparty Lake Imaging radiologists may have misinterpreted the patient’s medical imaging studies. Franciscan thereafter put Lake Imaging (an independent contractor) on notice of a potential indemnity claim should it be held liable for the radiologists’ negligence. Following completion of the medical review panel proceedings, the patient’s family filed their claim against Franciscan in the Superior Court of Johnson County. The parties agreed to the entry of summary judgment in favor of Franciscan on all claims “except [Franciscan’s] potential vicarious liability for unnamed radiologists…[.]” In September 2016, the patient’s family and Franciscan settled the remaining claim for $187,001. In May 2018, Franciscan sent Lake Imaging a letter demanding indemnification of the settlement amount pursuant to the indemnity clause contained in the independent contractor agreement. Lake Imaging did not pay.  In July 2018, Franciscan sued Lake Imaging for breach of the indemnity clause.

Lake Imaging filed a motion for summary judgment arguing the indemnity claim fell under the MMA and, as such, was barred by the two-year occurrence-based statute of limitation.  Lake Imaging further argued the trial court lacked subject matter jurisdiction because Franciscan failed to obtain an opinion of a medical review panel as to Lake Imaging’s alleged medical negligence prior to pursuing the indemnity claim in state court.  The trial court agreed that the MMA applied to Franciscan’s contractual indemnity claim against Lake Imaging and dismissed the claim based on lack of subject matter jurisdiction. The COA affirmed the trial court’s dismissal of Franciscan’s action based on the lack of subject matter jurisdiction and also agreed with Lake Imaging that the MMA two-year occurrence-based statute of limitation applied to Franciscan’s indemnity claim.  After discussing several provisions of the MMA, the COA wrote:

These provisions leave us convinced the legislature did not intend to limit the MMA’s coverage to the “typical” medical-malpractice action—one brought by an injured patient or the representative of an injured patient. Rather, the language of these statutes is broad enough to include an indemnification claim by one healthcare provider against another healthcare provider, if the claim is based on the alleged medical negligence of the latter.

The COA further noted:

But if Franciscan did not want to be placed in that position [the position of being held liable for the actions of independent contractor physicians], it could have protected itself.

In Sword v. NKC Hospitals, Inc., our Supreme Court held a hospital generally can avoid vicarious liability for negligence of an independent contractor by providing meaningful written notice to the patient, acknowledged at the time of admission, “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.” 714 N.E.2d 142, 152 (Ind. 1999). Here, it is undisputed Franciscan did not give [the patient] notice that Lake Imaging would be providing radiology services. If it had, and the [patient] later sought to hold it vicariously liable for negligence by Lake Imaging, Franciscan would have had a defense under Sword. By failing to give the notice, Franciscan gave up the benefit of the Sword defense and put itself in the position in which it found itself: facing vicarious liability for negligence by Lake Imaging but with only two weeks to bring Lake Imaging into the case. If that was not enough time for Franciscan to “scour” the records of [the patient’s] treatment, it has only itself to blame.

On June 3, 2021, Franciscan filed a Petition for Rehearing challenging the COA’s opinion. That Petition for Rehearing remains pending as of the date of this article.

Note:  Lake Imaging applies to indemnity claims against qualified health care providers as defined by the MMA.  This article does not address the applicable statute of limitations for filing an indemnity claim against a provider who is not “qualified” under the MMA.

While the Lake Imaging court observed that a hospital can protect itself from Sword type liability by providing meaningful written notice to the patient, acknowledged at the time of admission, “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,” such notice is not always possible or practical. For instance, at the time of admission, it is not always possible to know or anticipate every medical provider who may be called upon to provide care; a patient may present to the hospital with a medical emergency; or the hospital may employ some but not all physicians making it difficult to craft a meaningful written general statement regarding the physicians’ respective relationships with the hospital.

In situations where a hospital may not be able to rely confidently on its consent form to avoid liability, it will need to find ways to preserve a potential indemnity claim while maintaining collegial relationships with the independent contractor physicians and their practice groups. Below are strategies that may preserve an indemnity claim against a qualified healthcare provider as the law currently stands.

Revise Existing Independent Contractor Agreements:

The parties to an independent contractor agreement could draft a general tolling agreement defining the limitations period for bringing an indemnity claim and incorporate that general tolling agreement as an exhibit to the independent contractor agreement. A tolling agreement is a written contract wherein the parties agree to toll or suspend the statute of limitation for a specific period of time. Such agreements can help avoid taking an openly adverse position against a physician during the pendency of a medical malpractice case. If professional liability insurance may be implicated, the parties should work with their respective insurance carriers to ensure that the tolling agreement does not negatively impact coverage or otherwise conflict with any of the obligations imposed by the insurance policy.

Consider a Case Specific Tolling Agreement:

For pending claims where the MMA occurrence-based statute of limitation has not run and where the independent contractor agreement is silent as to the limitations period for filing an indemnity claim, the hospital and physician/physician group whose care has or may come into question could enter into a case specific tolling agreement.

File a Proposed Complaint for Indemnity with the Indiana Department of Insurance (“IDOI”):

If a patient has filed a proposed complaint with the IDOI against the hospital and it appears an independent contractor physician (whether named or unnamed) may have fallen below standard of care, the hospital may consider filing a separate proposed complaint for indemnity naming the independent contractor physician and/or his or her physician group as a defendant(s). Any such proposed complaint must be filed before the MMA two-year occurrence-based statute of limitation expires.  Because a physician is obligated to disclose pending claims on applications for medical licensure, professional liability insurance and hospital privileges, consideration should be given to naming the physician’s group only so as to try to avoid triggering any such disclosure obligation. By initiating a separate action, the hospital and independent contractor physician / physician group, can stay or litigate their dispute without the patient’s counsel’s input or involvement.

File a Cross-Claim for Indemnity:

If the hospital and a named physician are not opposed to litigating their indemnity claim in the same action as the primary medical negligence action, a hospital may consider filing a proposed cross-claim for indemnity prior to the running of the two year occurrence-based statute of limitation. A cross claim for indemnity may not be the best option though, as it would likely force finger-pointing between the hospital and physician in the plaintiff’s case.

Alternatively, if a hospital has no desire to pursue or preserve an indemnity claim, it can simply alert a patient/patient’s counsel to the identities of unnamed independent contractor physicians and leave to the patient’s discretion whether to name any potentially culpable physicians as defendants.

Nonparty defense pursuant to Indiana Code § 34-51-2-17:

Indiana Code § 34-51-2-17, entitled “Nonparty defense; medical malpractice claims,” provides that a healthcare provider sued under IC 34-18 et seq, may plead a nonparty defense within 90 days of the filing of a claim with the Indiana Insurance Commissioner.  The time limitation may be enlarged or shortened by a court having jurisdiction over the claim in such matter as will give:

1. the qualified health care provider reasonable opportunity to discover the existence of a nonparty defense; and

2. the claimant reasonable opportunity to assert a claim against the nonparty before the expiration of the period of limitation applicable to the claim.

For reasons that will not be discussed in this article, Indiana Code § 34-51-2-17 has no practical application in medical malpractice claims against qualified health care providers, and identifying a nonparty provider  would likely not preserve an indemnity claim between health care providers.[1]  Nevertheless, Indiana Code § 34-51-2-17 can serve as a vehicle for alerting a plaintiff and his/her attorney that they may have overlooked a potential defendant and may incentivize the plaintiff to add the previously unnamed medical provider as a defendant. Specifically, by timely adding the provider as a defendant, the plaintiff avoids the burden of proving both medical negligence and Sword liability.

Voluntarily disclose the relationships between the hospital and each treating medical provider:

Prior to the running of the statute of limitation, the hospital may consider voluntarily advising the patient and/or his counsel of the respective relationships between the hospital and each treating physician, without contending any of the treating physicians was negligent. The patient and his or her counsel would then need to determine whether to add as a defendant any medical provider who does not enjoy an employment relationship with the hospital.  The rationale for this approach is the same as the nonparty defense discussed above; however, unlike a nonparty defense, simply identifying relationships does not imply physician negligence.

The key take-away from this article is once a medical negligence claim is anticipated or initiated, a hospital must exercise due diligence to identify the existence of any potential negligent acts or omissions by independent contractor providers, decide whether any potential indemnity claims exist, and then decide if, when, and how best to preserve any indemnity claim prior to the running to the MMA two-year occurrence-based statute of limitation.

 

[1] Palmer v. Comprehensive Neurologic Servs., P.C., 864 N.E.2d 1093 (Ind. Ct. App. 2007).

 

Laura K. Binford

Laura K. Binford

Partner

Author Laura K. Binford

Laura K. Binford concentrates her practice in medical malpractice defense. She represents hospitals, long term care facilities, physicians, nurses, nurse practitioners, clinics, and other healthcare providers in the defense of medical negligence claims.

© Riley Bennett Egloff LLP

Disclaimer: Article is made available for educational purposes only and is not intended as legal advice. If you have questions about any matters in this article, please contact the author directly.

Permissions: You are permitted to reproduce this material in any format, provided that you do not alter the content in any way and do not charge a fee beyond the cost of reproduction. Please include the following statement on any distributed copy:  “By Laura K. Binford© Riley Bennett Egloff LLP – Indianapolis, Indiana. www.rbelaw.com”

Posted on June 25, 2021 by Laura K. Binford