March 28, 2022

The Indiana Supreme Court held in its opinion filed on March 24, 2022: “In Sword v. NKC Hospitals, Inc., our Court adopted the Restatement (Second) of Torts section 429 and held that a hospital may be held vicariously liable for the tortious conduct of an independent contractor through apparent or ostensible agency. 714 N.E.2d 142, 152–53 (Ind. 1999).”

“Today, we consider Sword and Section 429’s reasoning and application to a non-hospital diagnostic medical imaging center. We hold that Sword and Section 429’s apparent agency principles apply to non-hospital medical entities that provide patients with health care. Therefore, because plaintiff Harold Arrendale has shown there are genuine issues of material fact whether the radiologist who read and interpreted his MRIs was an apparent agent for the defendant Marion Open MRI, we reverse summary judgment in Marion Open MRI’s favor and remand for further proceedings consistent with this opinion.”

Background Facts

Harold Arrendale’s primary care physician sent him to American Imaging & MRI, LLC a/k/a Marion Open MRI (“Marion Open MRI”) to get MRIs of his spine in April 2013. Marion Open MRI is not a hospital; it is an outpatient diagnostic imaging center that is not a qualified healthcare provider under the Indiana Medical Malpractice Act (“the Act”).

Marion Open MRI contracted with radiologist Dr. Alexander Boutselis to read MRIs on an independent contractor basis. Pursuant to this contract, Marion Open MRI sent Arrendale’s images to Dr. Boutselis for review and interpretation. Dr. Boutselis read and interpreted these MRIs from his home office, and he was never physically present at Marion Open MRI. Dr. Boutselis’s reports and conclusions from reviewing Arrendale’s MRIs appeared on Marion Open MRI letterhead and gave no indication of his independent contractor status.

Arrendale filed his Indiana medical malpractice complaint alleging that Open MRI and Dr. Boutselis, failed to diagnose and treat his spinal arteriovenous fistula, which resulted in permanent injuries. Arrendale designated an affidavit attesting that Marion Open MRI never provided him with any notice that the radiologist reading his MRIs was not an employee, that he had no independent knowledge of the relationship between Marion Open MRI and Dr. Boutselis, and that he assumed that Dr. Boutselis was an employee of Marion Open MRI.

Apparent Agency

Even absent an actual agency relationship, a principal may sometimes be vicariously liable for the tortious conduct of another under the doctrine of apparent agency. Apparent agency may be established when a third party reasonably believes there is a principal-agent relationship based on the principal’s manifestations to the third party.

Restatement (Second) of Torts section 429 (1965) provides: “One 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.”

Under Sword’s Section 429 apparent agency analysis, courts look at two main factors: (1) the principal’s manifestations that an agency relationship exists and (2) the patient’s resulting reliance.

The Indiana Supreme Court stated in the case it was deciding: “We begin our analysis by acknowledging the ongoing changes in the way patients consume heath care, prompting us to apply Sword and its apparent agency rules to non-hospital medical providers. We then find the policy reasons underlying Sword apply equally to Marion Open MRI and non-hospital medical entities providing patients with health care, and apply Sword’s apparent agency principles accordingly.”

“The changing realities of the way patients consume modern medicine prompt us to evolve our agency law once again to reflect society’s increased reliance on non-hospital entities for its health care needs … We see no meaningful difference between a hospital and a non-hospital medical entity considering Sword’s manifestation and reliance inquiries. Hospitals and non-hospital medical care entities alike may make representations that reasonably lead a patient to believe that the physicians providing them health care are the facility’s employees or agents. Both hospitals and non-hospital entities can hold themselves out to the public as providers of health care services, and both receive profits in exchange for providing such services.”

The Indiana Supreme Court held: “We therefore hold that a non-hospital medical entity holding itself out as a health care provider may be held vicariously liable for its independent contractor physician’s tortious acts unless it gives meaningful notice to the patient, the patient has independent special knowledge of the arrangement between the non-hospital medical entity and its physicians, or the patient otherwise knows about these relationships … we hold that a non-hospital medical entity, including a diagnostic imaging center like Marion Open MRI, may be held liable for the negligent acts of its apparent agents, and expressly apply Sword’s apparent agency rules to such entities.”

Source Arrendale v. American Imaging & MRI, LLC a/k/a Marion Open MRI, Supreme Court Case No. 21S-CT-370.

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