Indiana Court of Appeals Extends Indiana Supreme Court’s Sword Apparent Agency Holding to Non-Hospital Medical Provider

The Indiana Court of Appeals recently extended the Indiana Supreme Court’s Sword apparent agency holding to a non-hospital medical provider in Arrendale v. Am. Imaging & MRI, LLC. At issue in Sword and Arrendale was whether medical facilities could be held liable for the negligence of non-employee medical providers contracted to perform services for patients at the facilities.

The Indiana Supreme Court in Sword v. NKC Hosps., Inc., 714 N.E.2d 142 (Ind. 1999) adopted the Restatement (Second) of Torts section 429 (1965) dealing with apparent agency in the hospital setting, which states 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). Under Sword, a judge or jury must consider the totality of the circumstances surrounding a hospital’s manifestations and a patient’s reliance on such manifestations, including the reasonableness of a patient’s belief that a hospital or its employees were rendering the care provided. “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 physicians, 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 physicians.

In Arrendale, the Plaintiff, Harold Arrendale (“Arrendale”), filed a medical negligence lawsuit against Marion Open MRI and radiologist Dr. Alexander Boutselis and other healthcare providers arising out of their failure to diagnose and treat an arteriovenous fistula of his spine. In his lawsuit, Arrendale alleged Marion Open MRI was vicariously liable for Dr. Boutselis’ negligence because Dr. Boutselis was “an employee and/or agent” of Marion Open MRI. Marion Open MRI moved for summary judgment arguing that it could not be held liable for Dr. Boutselis because he was not an employee of Marion Open MRI, but rather an independent contractor. Marion Open MRI argued that the holding in Sword should be limited to hospitals only and not applied to non-hospital medical facilities. The trial court, while indicating it tended to agree with Arrendale’s position, granted Marion Open MRI’s motion reasoning that Indiana’s appellate courts should resolve the issue.

The Indiana Court of Appeals, referencing Judge Magnus-Stinson’s analysis in Webster v. Ctr. for Diagnostic Imaging, Inc., 2017 WL 3839377 (S.D. Ind. Aug. 31, 2017), agreed with Arrendale and held that Sword apparent agency could be applied to Marion Open MRI, a diagnostic imaging center. The Court reasoned that, just as it is reasonable for a hospital patient to believe the care provided at a hospital is being provided by the hospital’s employees or agents, it is equally reasonable to believe the care a patient receives from a radiologist at a diagnostic imaging center is being provided by the imaging center, unless the imaging center informs the patient otherwise.

The Indiana Court of Appeals rejected Marion Open MRI’s argument that the Court’s extension of Sword should be applied only prospectively (i.e., not applied to Marion Open MRI) because 1) appellate decisions are routinely applied to the litigants involved in appeals, even as to unresolved points of law, 2) the Supreme Court in Sword did not restrict its holding to future cases, even though it was a more substantial change from established law, and 3) the Court’s decision was not overruling past precedent, but was rather a natural progression of Sword. The Court, however, refused to hold there was a genuine issue of fact as to whether Dr. Boutselis was an apparent agent of Marion Open MRI because the trial court did not resolve the issue in the first place.

The Indiana Court of Appeals reversed the trial court and remanded the case to the trial court for further proceedings. You can read the full opinion here.