Indiana Supreme Court Holds Apparent Agency Principles in Sword and Restatement (Second) of Torts Section 429 Apply to Non-Hospital Medical Providers

We previously wrote about the Indiana Court of Appeals decision in Arrendale v. Am. Imaging & MRI, LLC in which the Indiana Court of Appeals held that the apparent agency principles set forth in the Indiana Supreme Court’s opinion in Sword v. NKC Hosps., Inc., 714 N.E.2d 142 (Ind. 1999) and Restatement (Second) of Torts section 429 applied to non-hospital medical providers. The Indiana Supreme Court granted transfer and agreed, holding Sword and Section 429’s apparent agency principles apply to non-hospital medical entities that provide healthcare to patients.

The Plaintiff in Arrendale, Harold Arrendale (“Arrendale”), sued American Imaging & MRI, LLC, also known as Marion Open MRI (“Marion Open MRI”), an outpatient diagnostic imaging center, and radiologist Dr. Alexander Boutselis for medical malpractice relating to MRIs Arrendale underwent at Marion Open MRI that were interpreted by Dr. Boutselis. While Dr. Boutselis was not an employee of Marion Open MRI, Arrendale sought to hold Marion Open MRI responsible for his malpractice as an apparent agent of Marion Open MRI, which, unlike Dr. Boutselis, was not qualified under the Indiana Medical Malpractice Act. Marion Open MRI never indicated to Arrendale that Dr. Boutselis was an independent contractor, Dr. Boutselis’ opinions and conclusions in his radiology report were on Marion Open MRI’s letterhead, and Marion Open MRI advertised its services stating in a building sign that patients could “Save $$ on your next MRI!”

The trial court granted summary judgment in favor of Marion Open MRI because Indiana’s appellate courts had not yet applied Sword outside the hospital setting. The Indiana Supreme Court in Sword adopted the Restatement (Second) of Torts section 429 with regards to care provided in the hospital setting. Section 429 provides that “[o]ne who employs an independent contractor to perform services for another which are accepted in the reasonable belief that the services are being rendered by the employer or by his servants, is subject to liability for physical harm caused by the negligence of the contractor in supplying such services, to the same extent as though the employer were supplying them himself or by his servants.” Restatement (Second) of Torts § 429 (1965).

Pursuant to Sword the two main factors are (1) the principal’s manifestations that an agency relationship exists (actions which would lead a reasonable person to conclude that a provider is an agent and/or employee) and (2) the patient’s reliance on such manifestations (did the patient rely upon the conduct of the hospital or its agent consistent with ordinary care and prudence). Under Sword, “[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.” Sword, 714 N.E.2d at 152. Hospitals can generally avoid liability by giving meaningful notice to patients, acknowledged at the time of admission. If hospitals do not give meaningful notice, if the patient has no special knowledge of a hospital’s relationship with its independent contractor physician, and if there is no reason the patient should have known of the relationship, then reliance is presumed, and a hospital can be held liable for the negligence of its independent contractor.

In its opinion, the Indiana Supreme Court in Arrendale first discussed the background of Sword, Section 429, and vicarious liability under Indiana law. The Court then held Sword and Section 429 should be applied to non-hospital medical providers. The Court analyzed the ongoing changes in healthcare in which patients increasingly rely upon non-hospital medical providers and found the policy reasons underlying Sword were also applicable to non-hospital providers. Lastly, applying Sword to the facts in Arrendale, the Court found that under the totality of the circumstances there was a genuine issue of material fact as to whether Dr. Boutselis was an apparent agent of Marion Open MRI. The Court noted Marion Open MRI advertised itself as a provider of MRI services and it provided healthcare services to Arrendale, there was no evidence Marion Open MRI provided meaningful notice to Arrendale that Dr. Boutselis was an independent contractor, and Arrendale–having no special knowledge or indication that Dr. Boutselis was an independent contractor and having received Dr. Boutselis’ report on Marion Open MRI’s letterhead–thought Marion Open MRI employed Dr. Boutselis. Accordingly, the Indiana Supreme Court reversed the trial court’s grant of summary judgment in favor of Marion Open MRI and remanded for further proceedings.

You can read the full opinion here.

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