Court of Appeals Limits Medical Malpractice Third Party Indemnity Claims

05.05.2021 Written by , Christopher L. Riegler

Many hospitals often enter into exclusive contracts with specialty groups such as pathologists, labs, radiologists, hospitalists, ED physicians, and anesthesiologists to provide care at the hospital. Often when your hospital is named in a medical malpractice case, it results from the action or lack of action from a healthcare practitioner from one of the specialty groups. Katz Korin Cunningham aggressively recommends your consent documents reference which healthcare providers are independent contractors and not employees of the hospital. We do this to limit your liability for the action or lack of action of independent contractors. If meaningful notice is given to a patient via the consent documents or otherwise, then the hospital should not be held liable for the action(s) of the independent contractor in the ED, anesthesia, lab, etc. Yesterday (5/4/21) an Indiana appellate case was decided making it even more important to notify patients of the status of your independent contractors.

In Lake Imaging, LLC vs. Franciscan Alliance, the radiology group at Saint Margaret Mercy Health (now Franciscan Alliance) interpreted CT scans of a patient. The CT interpretations, allegedly, failed to recognize a subdural hematoma. A medical malpractice claim was filed against Franciscan Alliance and other healthcare providers. But, the radiology group, Lake Imaging, and the radiologists were not named as defendants. The case proceeded through the medical review panel. The panel found unanimously that the evidence did not support the conclusion that Franciscan failed to meet the applicable standard of care. The patient’s family proceeded in court. In court, Franciscan filed a motion for summary judgment based on the panel opinion which found it did not deviate from the expected standard of care. The parties agreed summary judgment was appropriate except for the issue of Franciscan’s liability for the radiologists (not employees) — if the radiologists did not meet the standard of care, then Franciscan did not meet the standard of care. This meant if Franciscan was liable, it would only be liable based on the actions of non-employed independent contractors. It could not be liable for its own actions or the actions of its actual employees under the summary judgment order. Because Franciscan had a contract with Lake Imaging for the provision of imaging services, and because the contract had an indemnity provision, Franciscan made a demand to Lake Imaging to indemnify it for the costs of the litigation. Lake Imaging refused to pay, and Franciscan sued. The question before the Court of Appeals was should Lake Imaging have to pay?

The appellate court said “no.” It determined the indemnity claim had to be first determined by a medical review panel. Because the indemnity claim was based on malpractice, a medical review panel had to decide if there was a deviation in the standard of care by Lake Imaging and its radiologists before Franciscan could assert its indemnity claim. Franciscan argued an indemnity claim was not a malpractice claim. The court rejected that argument and found that, if the health care was at issue, it did not matter that a patient was not bringing the malpractice case. Franciscan also argued making it file a malpractice claim against Lake Imaging (because it was not a defendant in the malpractice case) created too many hurdles. For example, if a malpractice claim is filed on the day the statute expires (two years for a patient over the age of six), as is often the case, a hospital would not have time to know it had an indemnity contract and name the group in a malpractice claim. In this case, Franciscan only had two weeks to file a malpractice claim against Lake Imaging — that is, the claim was filed against Franciscan two weeks before the statute expired and under this new holding of the court that was not sufficient time. Franciscan noted the unfairness of making it immediately scour the patient’s lengthy record, identify every physician who cared for the patient, and file a third-party complaint against each physician to preserve a contractual claim and, in simple terms, was not practical. The court, again, was not persuaded.

“If Franciscan did not want to be placed in that position it could have protected itself” the court said. How? By complying with the Sword case. Franciscan did not give meaningful notice at the time of admission for the patient to acknowledge that the provider of care was an independent contractor not subject to the control and supervision of the hospital. Because Franciscan “did not give [the family] notice that Lake Imaging would be providing radiology services,” Franciscan was required to file the malpractice claim against Lake Imaging before proceeding with an indemnity claim. “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 the 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], it has only itself to blame.”

So, it is critical that hospitals ensure they take every action available to inform patients that independent contractors are involved in their care. If not, and if the third party is not named in the initial malpractice action, the hospital must file its own malpractice action to preserve its right to indemnity from the third party, no matter how much time remains under the statute of limitations.

Katz Korin Cunningham recognizes the complications this case raises, and its health care litigation attorneys are more than willing to answer your questions and work with you to protect your interests. Katz Korin Cunningham believes the Hospital will ask for the appellate court to rehear the matter or the Indiana Supreme Court to review the appellate ruling. Given the procedural and legal implications, there are good arguments for the appellate court’s decision to be overturned. Nevertheless, for the time it is the law, and it places additional burdens on hospitals making them liable for the actions or non-employees.

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