Update: Supreme Court Holds that Indemnity Claims of Health Care Providers Against Independent Contractors are Not Subject to the Medical Malpractice Act or its Two-Year Statute of Limitations

By: Melanie A. Kalmbach

On March 8, 2022, the Indiana Supreme Court overruled the Court of Appeals’ holding in Lake Imaging, LLC v. Franciscan All., Inc., 171 N.E.3d 619 (Ind. Ct. App.)[1] and determined that indemnity claims by one health care provider against another are not subject to the two-year statute of limitations afforded by the Medical Malpractice Act (“MMA”). Lake Imaging, LLC v. Franciscan All., Inc., 182 N.E.3d 203, 205 (Ind. 2022). Instead, the Supreme Court ruled that such indemnity claims are rooted in contract law and are subject to either the six-year or ten-year statute of limitations for contract claims. Id. In its holding, the Supreme Court addressed the definition of a “patient” under the MMA and the purpose of the MMA, both of which do not support extension of the MMA to cover indemnity claims between health care providers.

Lake Imaging entered into a contract with Franciscan Alliance between 2004 and 2011 whereby it agreed to provide imaging services to Franciscan patients. In the contract, Lake Imaging agreed to “indemnify and hold [Franciscan] harmless from any liability claimed as a result of [Lake Imaging’s] negligence.” In April 2011, Lake Imaging’s radiologists interpreted two CT scans performed on one of Franciscan’s patients, who ultimately died later that same month. Fifteen days before the statute of limitations expired on the patient’s medical malpractice claim, representatives of the patient filed a Proposed Complaint within the Indiana Department of Insurance (“IDOI”) against Franciscan only. The Proposed Complaint was not served upon Franciscan until nearly one month after the statute of limitations had expired. Id.

Franciscan settled the medical malpractice claim with the patient representatives in September 2016 and subsequently pursued a breach of contract claim against Lake Imaging arguing that Lake Imaging’s negligence in interpreting the CTs caused the patient’s death and that it failed to indemnify Franciscan. Id at 205-206.  Lake Imaging moved for summary judgment on the basis that Franciscan’s claim was founded in medical malpractice and was subject to the two-year statute of limitations under the MMA. Id. At 206. The trial court agreed, dismissed Franciscan’s Complaint and found that Franciscan’s claim must proceed through the IDOI prior to presenting the claim in state court. The Court of Appeals affirmed and interpreted the MMA broadly to cover claims brought by any “claimant” rather than an “injured patient” and to cover all contract claims against a health care provider based on health care that was or should have been provided. The Court of Appeals understood that its holding was harsh and effectively forced health care providers to sue other health care providers for indemnity prior to suffering an actual loss. The Court of Appeals ultimately held that Franciscan failed to file a claim against Lake Imaging within the two-year statute of limitations afforded under the MMA and thus, its claim was time-barred. Id.

The Supreme Court overruled the Court of Appeals agreeing with Franciscan that its claim against Lake Imaging is a breach of contract claim – not medical malpractice – and is subject to either the six-year or ten-year statute of limitations for breach of contract claims. Id. at 207.

  1. Franciscan is not a “patient” under the MMA

The Supreme Court reasoned that the plain language of the MMA defines a “patient” as “an individual who receives or should have received health care from a health care provider, under a contract, express or implied” and has “a claim of any kind, whether derivative or otherwise, as a result of alleged malpractice on the part of a health care provider.” I.C. § 34-18-2-22. A derivative claim includes “the claim of a parent or parents, guardian, trustee, child, relative, attorney, or any other representative of the patient including claims for loss of services, loss of consortium, expenses, and other similar claims.” Id. The Supreme Court held that this definition must be read in conjunction with I.C. § 34-18-8-1, which provides that only a “patient or the representative of a patient who has a claim under this article for bodily injury or death on account of malpractice may” file a proposed complaint with the IDOI. Lake Imaging, LLC v. Franciscan All., Inc., 182 N.E.3d at 208 (emphasis added). The Supreme Court found that no language within the MMA “suggests that it extends beyond the physician-patient relationship to encompass commercial contracts between healthcare providers.” Id. The Supreme Court further held that a “patient” under the MMA must fall into one of two categories, either:

(1) a traditional patient with a direct relationship with a healthcare provider, or

(2) a third party with a claim against a provider for malpractice to a traditional patient.

Id. For these reasons, the Supreme Court determined that Franciscan, who did not have a claim of bodily injury or death against Lake Imaging, is not a “patient” under the MMA. Id. at 209.

  1. Interpreting the MMA to cover claims of breach of contract does not comport with the purpose of the Act

The Supreme Court further addressed that the reason for creation of the MMA was to combat rising premiums for malpractice insurance, physicians leaving their fields early, physicians declining to perform high-risk procedures, hospitals reducing offered services and physicians ordering unnecessary procedures. Id. Allowing the MMA to cover contractual indemnity claims would complicate allocation of risk between health care providers. Additionally, in general contract disputes, the “obligation to indemnify does not arise until the party seeking indemnity suffers loss or damages,” whether “at the time of payment of the underlying claim, payment of a judgment on the underlying claim, or payment in settlement of the underlying claim.” Id. citing TLB Plastics Corp. v. Procter & Gamble Paper Products Co., 542 N.E.2d 1373, 1376 (Ind. Ct. App. 1989). The Supreme Court determined that if the MMA covered indemnity claims between health care providers, it would force a provider to sue another health care provider for indemnification before the contractual claim accrues, i.e., Franciscan – which was not served with a proposed complaint by the representative of the patient until after the two-year statute of limitations had expired on the patient’s medical malpractice claim – would have had to sue Lake Imaging for a breach of contract before knowing it was sued for medical malpractice. Id. This would, in effect, create an abundance of unnecessary litigation, turn health care providers against one another and cause medical review panels to decide on pure legal issues which are beyond their scope of practice. Id. at 209-210.

Because the Supreme Court held that Franciscan’s claim was rooted in contract, Franciscan’s claim against Lake Imaging for indemnity accrued upon Franciscan’s settlement with the patient representatives in September 2016. Id. at 210. Thus, Franciscan’s suit filed against Lake Imaging fell within both the six-year statute of limitations (for claims premised on written contracts for the payment of money) and the ten-year statute of limitations (for claims premised on contracts in writing other than those for the payment of money) for contract claims.[2] Thus, the trial court had subject-matter jurisdiction to reside over the claim and it was improper for the trial court to dismiss Franciscan’s claim. Id.

The Supreme Court went even further to hold that nothing within the contract between Franciscan and Lake Imaging provided that Lake Imaging’s duty to indemnity Franciscan for past services ended when the contract terminated in 2011. Id. The Supreme Court concluded that “as long as the act of professional negligence upon which the indemnity claim is based took place while the contract was in effect, the timing of” a patient’s claim does not prevent a health care provider from seeking recovery under an indemnification clause of the contract against another health care provider. Id.

The Supreme Court’s holding has a positive effect on health care providers as it relieves the urgency of investigating potential indemnity claims against independent contractors and filing unnecessary and preemptive claims against those providers for indemnity. Despite this positive outcome, it is still imperative that health care providers bolster measures under Sword v. NKC Hospitals, Inc., 714 N.E.2d 142 (Ind. 1999) to notify patients of care provided by independent contractors to make it explicitly evident that they have no control over and do not supervise independent contractors.

[1] For a detailed analysis of the Court of Appeals’ decision, see Attorney Melanie Kalmbach’s prior Article, which can be found here.

[2] Because Franciscan filed its breach of contract claim against Lake Imaging within the applicable statute of limitations for both forms of contract claims, the Supreme Court opted not to opine as to which statute of limitations applied to Franciscan’s claim although it acknowledged that there is a lack of case law providing a clear answer on this issue.

If you have questions about the Medical Malpractice Act, you can contact Melanie Kalmbach at mkalmbach@dsvlaw.com or your DSV attorney.

***The information contained on this website is for informational purposes and is not intended as formal legal advice and cannot be relied upon as such.  No attorney client relationship is established or intended as a result of the information contained on this website.***