The Continuing Evolution of Derivative Claims

It is obvious to all of us who practice in the health care defense litigation field that both judgments and settlements have increased in value. In contrast, the availability of insurance coverage to cover those claims has actually decreased. While most doctors continue to maintain the minimum required $1–$3 million policy for their own liability, many of their practices have switched their policies to shared limit policies, which do not provide the “excess coverage” that has been traditionally available in a separate group policy.

For plaintiffs, the obvious question is where to find additional sources of funds to cover judgments or settlements in cases valued in excess of that usual $1 million policy. If plaintiffs are thinking about this, we should be thinking about it, too. In the last few years, we have seen plaintiffs file a variety of motions seeking to expand liability, including attacking the charitable immunity status of hospitals based upon their profits and seeking to obtain information about the personal assets of individual physicians who own thriving practices. These lines of attack have only resulted in minimal success and will need legislative input to support such approaches.

However, working within the confines of the current case law, we are now seeing new approaches to hold parties in cases on derivative claims for the negligence of another physician. In recent trial court opinions, we have seen corporate defendants brought into cases as direct defendants where a franchisee has been named as a defendant and, in another, a surgeon held in on a derivative claim in a case against a defendant anesthesiologist. In both of these cases, the rulings arguably put physicians’ personal assets at risk.

Estate of Cordero v. Christ Hospital, 958 A.2d 101 (N.J. Super. App. Div. 2008) confirmed that when a hospital provides a doctor to a patient and the circumstances are such that a reasonable patient would believe that the doctor’s care is rendered on behalf of the hospital, an agency relationship is presumed unless rebutted. Accordingly, it has become common practice to make patients aware that the physicians were not employees of the hospital but of a different practice group.

In a case where the treating medical care provider worked in a franchise location, the doctor was questioned during his deposition as to what information was provided to the patient to make it clear that he was not an employee of the corporate franchisor. The doctor denied having specifically advised the patient that he was not an employee of the corporation; consequently, the corporation was then joined as a defendant on a theory of “apparent authority.” However, pursuant to the franchise agreement, the corporate defendant had a right to seek indemnification from the provider. In the event that a judgement is entered against the defendant/provider for an amount in excess of his policy limits, he will be personally liable to the corporation for the excess amount.

In another case, the court denied a motion for summary judgment brought by the defendant surgeon and the surgeon’s practice, which owns a surgical center, in a case brought against the codefendant anesthesiologist on a claim of “apparent authority.” The court found the defense argument that Cordero did apply, as it the practice group was not a hospital, was “a distinction with no relevance.” The practice group was in the business of offering medical care that required the services of an anesthesiologist, and the difference, therefore, was merely “one of semantics.” The court noted that the anesthesiologist was identified as a member of a different practice and, arguably, was an independent contractor.

Nonetheless, the extent to which the practice group represented that they “would provide the anesthesiologist” and that “the anesthesiologist was part of the surgical team” was an indicator of an apparent agency relationship upon which a reasonable fact finder could find the practice group “vicariously liable” for the actions of the anesthesiologist. That fact, therefore, remained in dispute, and the jury was required to decide whether the defendants could overcome the presumption of agency.

The court made it clear it was not holding the doctor in the case under a theory of “Captain of the Ship,” which is not a recognized doctrine in New Jersey, but there remained an open question as to whether the doctor could be vicariously liable for the actions of other individuals involved in the surgical procedure. Of greater concern is the fact that the surgeon maintains a policy of insurance relative to his medical care of a patient. The practice group maintains a policy of insurance that “shares” policy limits with the doctor’s policy but denies coverage for any other physician’s medical care. Should the jury find that a reasonable patient would have concluded the practice group was vicariously liable for the care of the anesthesiologist, the group could be held responsible for any judgment in excess of the anesthesiologist’s policy. However, since there is no coverage for another physician’s care, the plaintiff could argue the physician who owns the group is personally liable for the excess judgment.

On the defense side, we should be facing these issues head-on. We know that in cases where facts are very specific, appeal of issues such as these can often lead to unfavorable precedent. The risk of personal liability could require recommending settlement of an otherwise defensible case. Medical care providers who own or have relationships with other corporations, such as surgical centers, urgent care centers or corporations with multiple sites and franchises, should be made aware of these risks. We should anticipate arguments like these and evaluate the practices of both the provider and the corporation to determine whether an argument for vicarious liability would be successful and potentially expose the doctor to personal liability. Even if it is not an issue in the case in front of us, it may be an issue in a future matter. Evaluating and addressing these issues now may go a long way to preventing an unfavorable opinion in the future when, inevitably, this issue is considered on appeal.

*Maura is Senior Counsel in our Roseland, New Jersey, office. She can be reached at 973.618.4141 or MWBrady@mdwcg.com.

_{Defense Digest, Vol. 28, No. 12, December 2022, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2022 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}