Indemnity Claims of Health Care Providers Against Independent Contractors Must be Filed Within Two Years

By: Melanie A. Kalmbach

It is now more important than ever for health care facilities to ensure that they are taking all measures necessary under Sword v. NKC Hospitals, Inc., 714 N.E.2d 142 (Ind. 1999) to avoid vicarious liability claims for negligence of independent contractors as any viable indemnity claim against the independent contractor must be filed within the two-year statute of limitations afforded by the Indiana Medical Malpractice Act (“MMA”). Last week, the Indiana Court of Appeals issued an opinion in Lake Imaging, LLC v. Franciscan All., Inc., No. 20A-CT-1490, 2021 WL 1747894, at *1 (Ind. Ct. App. May 4, 2021) holding that a health care provider’s indemnity claims against other health care providers arising out of claims for medical malpractice are subject to the MMA and its two-year statute of limitations.

In this case, Lake Imaging, LLC (“Lake Imaging”) and Franciscan Alliance, Inc. (“Franciscan”) entered into a contract by which Lake Imaging agreed to perform radiology services at Franciscan hospitals as an independent contractor. Id. Included in the contract was an indemnification clause which provided that Lake Imaging agreed to “indemnify and hold [Franciscan] harmless from any liability claimed as a result of [Lake Imaging’s] negligence in the provision of services undertaken under this agreement.” Id.

Seven years into their contractual relationship, Lake Imaging’s radiologists interpreted two head CTs of a patient at Franciscan hospital. Id. The patient was not notified that his images would be interpreted by an independent contractor. The patient subsequently passed away and his family filed a medical malpractice claim with the Indiana Department of Insurance (“IDOI”) against Franciscan, as well as other health care providers, as a result of the patient’s death.  Lake Imaging was not among the defendants sued. However, nearly a year after the family brought the medical malpractice claim, one of the named defendants alleged that a Lake Imaging radiologist who interpreted the patient’s head CTs failed to identify a right-sided subdural hematoma on the CTs and that this caused the patient’s death. Id. Franciscan notified Lake Imaging of the co-defendant’s allegation and its intention to seek indemnification from Lake Imaging under the indemnification clause in their contract for the medical malpractice claim. Id.

The Medical Review Panel ultimately found in favor of Franciscan rendering the opinion that “the evidence does not support the conclusion that Franciscan failed to meet the applicable standard of care as charged in the complaint.” Id. Nevertheless, the plaintiffs chose to pursue their claim against Franciscan in state court. Upon agreement by the parties, Franciscan was granted summary judgment for all claims asserted against it by the plaintiffs except for Franciscan’s potential vicarious liability for the Lake Imaging radiologists who interpreted the patient’s head CTs. The claim was eventually settled. Id.

A little over a year and a half after the settlement and over four years after becoming aware of the potential indemnification claim, Franciscan demanded indemnification of the settlement amount from Lake Imaging. Id. at *2. Lake Imaging declined Franciscan’s claim for indemnification and Franciscan sued for breach of the indemnification clause in their contract. Lake Imaging filed a motion for summary judgment arguing that Franciscan’s indemnification claim was centered around alleged medical malpractice and was barred by the MMA’s two-year statute of limitations. Id.

The trial court held that Franciscan’s claim was a medical malpractice claim and thus, subject to the MMA. Id. The trial court dismissed the claim without prejudice for lack of subject matter jurisdiction because Franciscan did not first file a Proposed Complaint with the IDOI or obtain a Medical Review Panel Opinion on the issue. Both parties appealed the trial court’s holding. Id.

At the appellate level, Franciscan argued that its claim was not a medical malpractice claim and was therefore not subject to the MMA. Instead, Franciscan argued that its claim was a breach of contract claim for indemnification which did not accrue until Lake Imaging denied Franciscan’s demand for indemnification and was subject to the ten-year statute of limitations for contract claims. Id. It also argued that the MMA only covers claims brought by patients or representatives of the patients—not health care providers seeking indemnity. Id.

Lake Imaging argued that the trial court erroneously dismissed Franciscan’s claim without prejudice allowing Franciscan to refile the claim instead of making a determination on its two-year statute of limitations defense. Id.

The Indiana Court of Appeals held that Franciscan’s claim was one of medical malpractice and was subject to the MMA along with its two-year statute of limitations. Id. Specifically, the MMA’s statute of limitations, Ind. Code § 34-18-7-1, provides as follows:

A claim, whether in contract or tort, may not be brought against a health care provider based upon professional services or health care that was provided or that should have been provided unless the claim is filed within two (2) years after the date of the alleged act, omission, or neglect, except that a minor less than six (6) years of age has until the minor’s eighth birthday to file.

The Court of Appeals held that Franciscan’s claim “falls neatly under this statute” as it was (1) a contract claim (2) against a health care provider (3) based upon professional services provided/should have been provided. Id. at *3. The Court also noted that other provisions of the MMA reference a “claimant” rather than a “patient” which was broad language that included an indemnification claim asserted by one health care provider against another if the claim was rooted in alleged medical malpractice. Id.

Further, the Court addressed the purpose of the MMA, which is “to combat ‘the reduction of health care services available to the public’ that resulted from ‘increased malpractice claims and the difficulty in obtaining malpractice insurance.’” Id. citing Havens v. Ritchey, 582 N.E.2d 792, 794 (Ind. 1991). The Court held that imposing the occurrence-based two-year statute of limitations to medical malpractice claims “to spare the courts from litigation of stale claims, and the citizen from being put to his defense after memories have faded, witnesses have died or disappeared, and evidence has been lost” was an important part of satisfying the underlying purpose of the MMA and one which applies even when a health care provider seeks indemnification against another health care provider based on alleged medical malpractice. Id.

The Court noted that the purpose of the MMA’s requirement that a medical malpractice claim proceed through a medical review panel prior to filing in State Court is to (1) promote mediation and settlement of claims; (2) allow for a medical opinion free from influence and prejudice; (3) deter frivolous lawsuits; (4) decrease the “mental, financial and time-consuming burdens imposed upon health care providers”; and (5) limit the interruption of services provided by the health care provider. Id. at *4. The Court held that despite the identity of the plaintiff, these interests are important implications any time a health care provider is sued for medical malpractice. Id. For these reasons, the Court of Appeals held that Franciscan’s indemnity claim against Lake Imaging was subject to the MMA. Id.

The implications of this holding are that health care providers who are owed indemnity under contract by another health care provider must bring an action for indemnity prior to actually suffering a loss in order to comply with the MMA’s two-year statute of limitations. Id. The Court of Appeals was unsympathetic to Franciscan’s argument outlined below:

Requiring contractual indemnification claims such as Franciscan’s to be litigated under the unique constraints of the [MMA] would have far-reaching, adverse implications for all Indiana physicians and hospital systems. In today’s delivery of modern medicine, hospital systems typically staff their facilities by contracting with individual physicians and physician groups. Moreover, claims for medical malpractice are routinely filed with the IDOI on the eve of the expiration of the two-year statute of limitations, which is what happened here.

Hospitals that have contractual indemnification agreements with the physicians on their medical staff, like Franciscan, would be forced to immediately scour the patient’s lengthy medical record, identify every physician who cared for the patient, and file a third-party complaint against each physician just to preserve a contractual indemnity claim in the event the physician is later alleged to have been negligent.

Id. at *5. The Court simply stated that “if Franciscan did not want to be placed in that position, it could have protected itself” against vicarious liability claims by providing “meaningful written notice to the patient, acknowledged at the time of admission, ‘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.’” Id. citing Sword v. NKC Hospitals, Inc., 714 N.E.2d 142, 152 (Ind. 1999).

Finally, with respect to Lake Imaging’s argument that the trial court erred in dismissing Franciscan’s claim without first resolving the statute of limitations issue, the Court held that the trial court properly dismissed Franciscan’s claim without prejudice. Id.  Pursuant to the MMA, a court does not have subject-matter jurisdiction over a medical malpractice claim until the claim has been presented to the IDOI and an opinion has been rendered by a medical review panel. Id. The Court held that it would be improper for a trial court to do anything but dismiss a case without prejudice under these circumstances—although Franciscan was still prohibited from refiling its claim with the IDOI because the two-year statute of limitations had run on its claim. Id.

It is yet to be seen whether the Indiana Court of Appeals’ decision in Lake Imaging, LLC v. Franciscan All., Inc., will be appealed and if so, whether transfer will be granted. Regardless, it would be wise for health care facilities to revamp measures for notifying patients of care provided by independent contractors to make it explicitly clear that they have no control over and do not supervise the independent contractor. It would also be wise for health care entities to immediately investigate and identify all potential indemnity claims against independent contractors involved in a patient’s care upon the filing of a Proposed Complaint with the IDOI. If those claims are not identified and preserved by the filing of a complaint against the independent contractor within the applicable statute of limitations under the MMA, they may be barred.

For questions about medical malpractice or indemnity claims, contact Melanie Kalmbach at mkalmbach@dsvlaw.com or your DSV attorney.


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