Indiana Patient’s Compensation Fund Successfully Rejects Claim for Excess Damages in Medical Credentialing Malpractice Claim

The Indiana Court of Appeals recently reversed a trial court’s denial of a motion for summary judgment filed by the Indiana Department of Insurance and the Indiana Patient’s Compensation Fund (the Fund) in a negligent credentialing claim. In Indiana Dep’t of Ins. v. Doe, a doctor sexually molested a minor child during a physical exam. The child’s parents (the Does) filed a medical malpractice claim against the doctor and the hospital for which the doctor worked. In their lawsuit, the Does asserted the hospital was negligent in credentialing the doctor. The Does and the hospital thereafter entered into a settlement agreement, which was contingent on the Does obtaining access to excess damages from the Fund. After the Does filed a petition against the Fund for excess damages, the Fund moved for summary judgment, with the hospital as an intervening party. The Fund argued the Does’ negligent credentialing claim was not medical malpractice within the scope of the Indiana Medical Malpractice Act (the Act), and therefore, it had no liability to pay excess damages, thereby making the settlement between the Does and the hospital null and void. The trial court denied the Fund’s motion for summary judgment and the Fund appealed.

Under Indiana law, the Act applies to claims for malpractice against healthcare providers qualified under the Act. The Act provides a monetary cap on the liability of healthcare providers, and if a healthcare provider agrees to settle a claim under the Act, claimants may then pursue excess damages from the Fund. Over the years, there have been a variety of cases setting forth what is, and what is not, medical malpractice under the Act, as the Act does not cover all claims against healthcare providers. Whether a claimant can recover excess damages from the Fund depends on whether the Act applies. The Act applies to curative or salutary conduct of a healthcare provider while acting in a professional capacity. The Act does not apply to conduct unrelated to the promotion of a patient’s health or a healthcare provider’s exercise of professional expertise, skill, or judgment. Courts analyze (1) whether the alleged negligence involved the provision of medical services and (2) whether the provision of medical services was to a patient for the patient’s benefit.

Here, the Does sought to recover excess damages from the Fund based upon their negligent credentialing claim against the hospital. However, Indiana caselaw has found the Act inapplicable to claims of sexual misconduct by healthcare providers, and under prior precedent, claimants are required to prove underlying malpractice to succeed on a negligent credentialing claim. The Indiana Court of Appeals reaffirmed its prior position in holding “an underlying act of medical malpractice is a necessary predicate and condition precedent to a medical credentialing malpractice claim,” and concluded that, since the Does’ underlying claim against the doctor was not malpractice under the Act, the Does’ negligent credentialing claim also fell outside of the Act, thereby preventing the Does access to excess damages from the Fund.

Several arguments were advanced by the Does and the hospital on appeal. For instance, the Does argued the Fund could not contest their negligent credentialing claim because under the Act in cases against the Fund a healthcare provider’s liability is “admitted and established.” However, the Court rejected this argument, noting the difference between “factual compensability,” that is, a healthcare provider’s underlying liability for negligence, which cannot be challenged by the Fund, and “legal compensability,” that is, whether a claim is compensable under the Act, which the Fund can challenge. The hospital in turn argued laches and estoppel should apply, but the Court noted the hospital had not set forth any of the elements of laches and the Fund is not required to participate in the settlement of an underlying claim or intervene in any such action. As to estoppel, the Court found the reliance element had not been met, noting, among other things, that the settlement agreement between the Does and the hospital specifically contemplated the Fund challenging the Does’ ability to access the Fund, such that the parties could not have relied on the Fund not interjecting its position during the underlying settlement negotiations. Lastly, as the Court had done in a previous case, which was the subject of one of our previous blogs, the Court distanced itself from the “current test” as to the applicability of the Act, that is, whether the misconduct arises naturally or predictably from the relationship between the healthcare provider and patient or from an opportunity provided by that relationship, as set forth in Martinez v. Oaklawn Psychiatric Care.

In summary, the Court held an underlying act of medical malpractice proximately causing harm is a necessary predicate and condition precent to a medical credentialing malpractice claim, where the Fund is not a party to a settlement agreement it is free to challenge the applicability of the Act, and the Fund has no affirmative duty to intervene in the settlement discussions in an underlying claim or address a claim for excess damages until a petition for excess damages has been filed. The Court reversed and remanded the case, instructing the trial court to enter summary judgment in favor of the Fund. Judge Robb concurred in part and dissented in part with a separate opinion.

You can read the full opinion here.