Indiana Court of Appeals Reminds Hospital Can be Liable for Acts of Independent Contractors

 October 2, 2020

by: Colin E. Flora

     After a couple fairly quiet weeks in Indiana and Seventh Circuit caselaw, this week, the Indiana Court of Appeals and the Seventh Circuit have handed down several notable cases. As always, the Hoosier Litigation Blog has you covered. Our primary focus will be on the question of when a healthcare provider may be held liable for the acts of an independent contractor through the lens of Jernagan v. Indiana University Health, a topic we last covered eight years ago.

     Before taking a deep dive into Jernagan, let us look for a moment at the other notable lessons from recent cases. We start with Symons v. Fish from the Indiana Court of Appeals. Resulting from a fallout of a business acquisition, the court was asked, among other things, to determine whether a treble-damages clause in a stock purchase agreement constituted an unenforceable penalty provision. It may strike you as odd, but, as a general rule, contract law does not permit a party to penalize a breaching party. Instead, the purpose of contract law is to place the contracting parties in as closely approximating the position they would have been had the contract not been breached. This derives from the concept of an efficient breach benefiting society as a whole. As a result, Indiana contract law generally prohibits provisions that serve no purpose other than to punish a breaching party.

     In Symons, the question was whether a provision that would award the non-breaching party not only its actual damages but an additional amount equal to two-times the actual damages. Finding that the provision was disproportionate to the actual loss sustained—necessarily so, since the provision acted to triple the actual losses—the court unsurprisingly ruled that the provision was unenforceable.

     Next up, also from the Indiana Court of Appeals, is In re C.G. v. Union North United School Corporation. The case stemmed from an injury to a basketball player—a concussion—occurring during practice after the coach swatted a ball away from another player during a shooting drill. Although, as we’ve discussed, Indiana law holds injuries during sports drills to the standard of injuries during the course of a competition within the sport—i.e., if it is within the scope of an injury and conduct typical to the sport, then liability will attach only if the injury-causing conduct was intentional or reckless—there remained an open question of whether a coach constituted a “participant” in the sport. Although technically arising in dicta, the court of appeals indicated that it believed a coach to be a “participant” subject to the same standard as any other “participant.”

     Finally, we turn to the Seventh Circuit’s opinion in Ricci v. Salzman. Interestingly, it was a decision handed down by the quorum of the panel that heard the argument because Judge Barrett, who participated in the argument, has since been nominated to fill a vacancy on the Supreme Court. Presumably in light of the possibility of the Supreme Court being asked to review the decision, Judge Barrett did not participate in the result. The case addressed whether the derivative jurisdiction doctrine may act as a bar to litigation of an action removed to federal court pursuant to the Federal Officer Removal Statute. The doctrine dictates that an action over which the state court lacked subject matter jurisdiction must be dismissed without prejudice upon removal to the federal court. Notably, the doctrine has been abrogated by Congress in the context of the general removal statute. Nevertheless, as the Seventh Circuit recognized, the doctrine appears to remain in tact in the context of Federal Officer Removal.

     Now we transition back to our main focus for today: Jernagan v. IU Health. In order to understand the significance of decisions such as Jernagan, we must first start by discussing a some of the structure American healthcare. You may not realize it, but a fairly common practice is that the persons who provide medical services at a hospital are not actually employees of the hospital. Generally speaking, persons who employ the services of independent contractors are not liable for the tortious conduct of the contractor. Compare that with the doctrine of respondeat superior, which holds an employer liable for the conduct of its employee who causes harm while acting within the scope of his employment. Nevertheless, in Sword v. NKC Hospitals Inc., the Indiana Supreme Court ruled that the doctrine of apparent or ostensible agency may apply to affix liability to the hospital where the patient has not been informed that the person servicing him is a contractor and not an employee.

     In Jernagan, the question was whether IU Health could be held liable for the acts of an anesthesiologist who was not named in the complaint and whose conduct was not addressed by the medical review panel. The only evidence that IU Health produced to carry its burden of “satisfy[ing] the meaningful notice requirement informing the patient that the doctor performing the medical procedure is an independent contractor” was “the delivery of a business card during the surgical registration procedure”. The court of appeals reversed the entry of summary judgment, concluding that there was a genuine issue of material fact as to whether the mere giving of the card was sufficient.

     The court further built on its post-Sword decision Columbus Regional Hospital v. Amburgey, which had held that an apparent/ostensible-agency claim could still proceed even if the purported agent is not a named party to the case. To that end, the Jernagan court found that there was no problem with pursuing the claim despite not having been submitted to the medical review panel because such “vicarious liability claims do not fall within the purview of the medical review panel or the Medical Malpractice Act. . . . Accordingly, as the medical review panel’s procedure is a legal construction solely used in medical malpractice claims, . . . Jernagan did not need to file a proposed Complaint with respect to [the anesthesiologist] to the medical review panel prior to commencing a vicarious liability claim against IU Health.”

     Although Jernagan does little, if anything, to alter Sword and its progeny, it stands as a reaffirmation of the limited caselaw that has been handed down on the matter in the twenty-one years since Sword and provides the first pronouncement from an Indiana state appellate court since 2016.

     Join us again next time for further discussion of developments in the law.

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*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.

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Indiana Court of Appeals Reminds Hospital Can be Liable for Acts of Independent Contractors

colin@pavlacklawfirm.com | Oct 2nd, 2020
In this installment, we return to the question of when a hospital may be held responsible for the acts of independent contractors. We also examine whether a treble-damages clause is an unenforceable penalty provision, whether a basketball coach is subject to the same standard as players for injuries during practice, and briefly examine the derivative jurisdiction doctrine in the context of the Federal Officer Removal Statute.

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