Apparent Agency Principles Addressed Again by the Indiana Supreme Court in Arrendale vs. American Imaging & MRI, LLC, et al. And How This Affects Non-Hospital Health Care Entities

By: Janet McSharar

According to a recently issued Indiana Supreme Court decision, non-hospital health care entities will be held vicariously liable for the actions or inactions (negligence) of independent contractors and so the non-hospital health care entities should consider becoming qualified providers under the Medical Malpractice Act.

We have known for some time that hospitals will be held liable for the acts of their independent contractor physicians unless it is obvious to the patient that the physician is an independent contractor. See Sword vs. NKC Hospitals, Inc., 714 N.E.2d 142. This principle is rooted in the Restatement (Second) Torts pronouncement on apparent agency.  Unless the patient is made aware of the physician’s independent contractor status as opposed to employee status, the hospital will be vicariously liable for the physician’s actions or inaction because the patient reasonably relied upon the physician being the hospital’s employee (agent).

Vicarious liability is a means by which to hold an entity liable for the negligence of an individual based upon the relationship between the entity and the actor.  Respondent superior is the means by which an employer is held liable for the actions or inactions of its employee and is one form of vicarious liability.  Specifically, the Indiana Supreme Court said in Sword, that [a]pparent agency may be established when a third party reasonably believes there is a principle-agent relationship based on the principal’s manifestations to the third party.  714 N.E.2d at 147.  To establish apparent agency, the Supreme Court noted there must be some form of communication between the hospital and patient to create in the patient’s mind an apparent agency relationship i.e., that the physician is the hospital’s agent.  183 N.E.3rd 1064.  Citing Pepkowski vs. Life of Indiana Ins. Co., 535, N.E.2d 1164, 1166-67.  If the hospital does not expressly inform the patient the physician is an independent contractor and not the hospital’s employee, the patient is reasonable in assuming the physician is the hospital’s agent, thus making the hospital liable for the physician’s negligence.

This liability is based upon the relationship between the hospital and the independent contractor physician; it is not based upon the notion that the hospital controls the physician’s decision-making or practice of medicine.

In Arrendale vs. American Imaging & MRI, LLC, et al. 183 N.E.3rd 1064 (Ind. 2022) the Indiana Supreme Court revisited the issue of vicarious liability in a case involving the alleged liability of a non-hospital diagnostic imaging center to a patient who claimed the independent contractor radiologist who read and interpreted an MRI made a mistake which harmed the patient.  The Supreme Court held this non-hospital diagnostic imaging center was liable for the acts or omissions of its ostensible agent under the theory of vicarious liability thus extending the principle first announced in Sword to non-hospital entities providing health care.

The imaging center argued against the extension of the vicarious liability for an apparent agent theory of Sword to non-hospital entities such as an outpatient diagnostic imaging center because unlike a hospital, which offers a wide array of health care services, it is a single-purpose entity. This argument did not carry the day and in the end the Supreme Court held the single or multiple purpose health care provider was not the analysis, but rather whether the patient was aware of the independent contractor relationship and his reasonable reliance on what the imaging center did or did not tell him.  The Court also noted that more and more patients receive health care services from entities other than hospitals, including outpatient settings and thus, its apparent agency reasoning should evolve with the increasing manner in which health care services are being provided in settings other than a hospital.  In other words, the Supreme Court refused to limit apparently agency to hospitals and expanded this recovery theory to non-hospital, outpatient, and free-standing entities providing health care services.

Using the same analysis it did in Sword, the Supreme Court considered what, if anything, was communicated to the patient about the imaging center’s relationship with the radiologists who interpreted the images, and the patient’s reliance on any such communication or lack of communication.  In other words, did the imaging center inform Arrendale, the patient, that the radiologists reading his MRIs were independent contractors whose actions were not controlled in any way by the imaging center?  In Arrendale as in Sword, the imaging center did not inform Arrendale that the radiologists reading the imaging were independent contractors.  Thus, the patient could reasonably assume the radiologists reading the imaging were the imaging center’s employees.  Given this reasonable reliance, the imaging center could be liable for the radiologist’s negligence, if any.

This case is an important extension of the apparent agency theory applicable to health care providers announcing to the health care community not only their potential liability for their independent contractors but also that to be eligible for the proceedings and protections of the Medical Malpractice Act, non-hospital entities should become qualified providers under the Medical Malpractice Act.

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