Healthcare provider liability for the negligence of an independent contractor – Apparent agency

In a previous post I discussed negligent credentialing, a theory of recovery that enables a patient to hold a hospital liable for injuries caused by an independent contractor physician.  This is not vicarious liability – that is, the hospital is not liable for the physician’s negligence merely because the physician breached the standard of care in a particular case.  Rather, the hospital is directly liable for its own negligence if the physician is so manifestly incompetent or unqualified that the hospital should not have given him or her staff privileges, because in those circumstances it is foreseeable that the physician will breach the standard of care on a regular basis.

Another way for a patient to pierce the independent contractor veil (so to speak) is the doctrine of apparent agency, sometimes called apparent authority or apparent servant.  Like negligent credentialing, this theory of recovery has its source in the Restatement (Second) of Torts – in this instance, section 429.  Unlike negligent credentialing, apparent agency is a form of vicarious liability:  the healthcare provider is liable for the negligence of the independent contractor, exactly as if the contractor were an employee, because the patient reasonably believes that the contractor is, in fact, and employee.  Section 429 states:  “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.”

In Webster v. CDI Indiana (7th Cir. 2/27/2019),, the U.S. Seventh Circuit Court Appeals, applying Indiana law, affirmed a verdict against the defendant based on the doctrine of apparent agency.  The court succinctly summarized the facts as follows:

Courtney Webster had a CT scan performed at CDI Indiana, LLC’s (CDI) diagnostic imaging facility in Carmel, Indiana.  The radiologist, [Dr. Walker], an independent contractor hired by Medical Scanning Consultants (MSC), missed Courtney’s cancer, which then festered for over a year before being diagnosed.  Courtney and her husband, Brian Webster, sued CDI. CDI, in response, insisted that the Websters could not hold it liable because CDI did not directly employ the radiologist.  The district court rejected this argument and applied Indiana’s apparent agency holding in Sword v. NKC Hosp., Inc., 714 N.E.2d 142, 152 (Ind. 1999), which instructs that a medical provider is liable if a patient reasonably relied on its apparent authority over the wrongdoer…. We agree with the district court’s analysis and so we affirm.

The court proceeded to discuss Sword, in which the Indiana Supreme Court adopted the doctrine of apparent authority:

The Sword court specifically held, “[u]nder Section 429, as we read and construe it, a trier of fact must focus on the reasonableness of the patient’s belief that the hospital or its employees were rendering health care.”  The court explained that this inquiry involves the “totality of circumstances” based on the “actions or inactions of the hospital, as well as any special knowledge the patient may have about the hospital’s arrangements with its physicians.” (Citations omitted.)

The facts relevant to the jury’s finding of apparent agency pursuant to Sword were as follows: CDI has a national network of diagnostic imaging facilities.  CDI and MSC have a service agreement, under which MSC provides independent contractor radiologists to interpret imaging studies at CDI’s Indiana facilities.  MSC actually does business as CDI and uses the trade name CDI and related trademarks to assist in marketing its services as part of a national provider network.  Crucially, plaintiff Courtney Webster “testified that she had no idea about the relationships among MSC, CDI, and Dr. Walker and that she was never provided information or written notice about the different entities.  Courtney, in fact, believed CDI had provided the health care services in relation to her November 2014 CT scan.”

The Seventh Circuit gave short shrift to CDI’s argument that the district court had erred in applying the apparent agency doctrine because MSC, not CDI, had engaged Dr. Walker as an independent contractor:

Nothing in Sword’s holding indicates that a health care facility must have a direct employment relationship with an independent contractor physician to be held liable for the acts of its apparent agent…. CDI’s contrary argument would mean that health care facilities could easily evade liability by using independent contractor professional organizations to employ physicians.  Put differently, a medical center cannot hold itself out to the public as offering health care services – and profit from providing those health care services – yet escape liability by creating a complex corporate arrangement of interrelated companies….Equally important, CDI’s position conflicts with Sword’s explicit focus on the medical center’s manifestations and the patient’s reliance – as opposed to employment contractual formalities.  CDI’s argument that Dr. Walker was an independent contractor hired by MSC, therefore, is of no moment unless Courtney was aware of any such contractual relationship.  She was not…. (Citations omitted.)

Whenever a hospital, urgent care facility, freestanding primary care clinic, diagnostic imaging network, or other corporate healthcare provider uses independent contractor physicians, both plaintiff and defense counsel should be alert to the possibility of apparent agent liability.


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