NJ High Court Looks At Liability For Uninsured Physician

Transcription

1 Portfolio Media. Inc. 860 Broadway, 6th Floor New York, NY Phone: Fax: NJ High Court Looks At Liability For Uninsured Physician Law360, New York (October 20, 2015, 11:10 AM ET) -- The New Jersey Supreme Court s recent decision in Jarrell v. Kaul is paradoxical.[1] It holds a surgery center liable to a patient harmed by a physician s malpractice not liable because of the malpractice, but liable because the physician didn t have the malpractice insurance coverage mandated by state law. At the same time, the decision squarely holds that the same physician the one who violated the insurance mandate is not liable to the patient for that violation or for failing to disclose the violation. Background James Jarrell suffered from chronic back pain. He was referred to Dr. Richard Norman G. Tabler Jr. Kaul, a board-certified anesthesiologist who practiced at Market Street Surgical Center. Dr. Kaul performed a spinal fusion procedure on Jarrell. The procedure wasn t a success. Jarrell began to experience new pain in his left side. That pain grew worse over time and led to a drop foot a condition that makes it difficult to lift the front part of the foot and impedes walking. He was examined by a board-certified neurosurgeon, who concluded that the pain and the drop foot were the result of Dr. Kaul s improper placement of screws placement that pinched the nerve. Jarrell had to have another surgical procedure to correct the problem. Beginning in 1998, New Jersey has required a physician to maintain medical malpractice liability insurance or, alternatively, post a letter of credit. At the time of Jarrell s procedure, the minimum of insurance coverage was $1 million per incident and $3 million per policy year, and the minimum of the alternative letter of credit was $500,000. When he performed the procedure on Jarrell, Dr. Kaul was covered by a medical malpractice insurance policy, but the policy specifically excluded spinal procedures from coverage. In practical terms, therefore, he was uninsured for the procedure he performed. Jarrell didn t ask about insurance coverage, and Dr. Kaul didn t disclose the spinal procedure exclusion. Dr. Kaul claimed to have over $500,000 in liquid assets, but he didn t post a letter of credit. Based on his failure to meet the coverage requirement (i.e., either have the insurance or post the letter of credit), the

2 New Jersey Board of Medical Examiners revoked his medical license in Trial Proceedings The Jarrells sued Dr. Kaul and the surgery center. Their theories were that Dr. Kaul was negligent in performing the procedure; that he was liable for deceit, misrepresentation, lack of informed consent or battery because he didn t meet the coverage requirement and failed to disclose that fact; and that the center was negligent for allowing Dr. Kaul to perform spinal surgery without meeting the coverage requirement for that procedure. The trial court awarded Dr. Kaul summary judgment on the claims other than the basic malpractice claim and the loss of consortium claim, and it dismissed the claims against the center because the plaintiffs didn t produce an expert to testify against the center on the negligent-credentialing theory. The jury awarded Mr. Jarrell $500,000 on his malpractice claim, and it awarded Mrs. Jarrell $250,000 for loss of consortium. Appellate Proceedings Dr. Kaul appealed the verdicts and awards in favor of the Jarrells, and the Jarrells appealed the summary judgment in Dr. Kaul s favor on violation of the coverage requirement and failure to disclose it, and the dismissal of the claim against the center. The appellate division affirmed the summary judgment orders, the jury verdicts and the damages awards. It also upheld the dismissal of all claims against Dr. Kaul relating to his violation of the coverage requirement. And it held that the Jarrells had no cause of action against the center. Both Dr. Kaul and the Jarrells petitioned for certification to the New Jersey Supreme Court. That court denied Dr. Kaul s petition, but granted the Jarrells petition. Decision The New Jersey Supreme Court issued its decision on Sept. 29 a decision that likely disappointed all the parties in one way or another. Patient Right of Action Against Physician for Failing Coverage Requirement The first question the court addressed was whether the Jarrells had a right of action against Dr. Kaul for his failure to meet the coverage requirement. The Jarrells had a cogent argument for their claim: The clear indeed, the only purpose of the requirement is to protect patients and their families harmed by malpractice; Dr. Kaul failed the requirement; Mr. and Mrs. Jarrell are a patient and spouse harmed by that failure; so they should have a claim against Dr. Kaul. The court disagreed. It followed a U.S. Supreme Court holding that absent evidence of a contrary legislative intent, courts must conclude that the legislature has provided all the remedies it deems appropriate.[2] In the case at hand, the legislature placed those remedies exclusively in the hands of the Board of Medical Licensing, and the court could find no evidence of intent to create a private cause of action for patients or families harmed by violation of the coverage requirement. So the court upheld the dismissal of the Jarrells claims against Dr. Kaul for failing the coverage requirement. Lack of Informed Consent

3 The Jarrells alleged that Dr. Kaul s violation of the coverage requirement was material to Mr. Jarrell s decision to consent to the procedure: Had he known of the violation, Mr. Jarrell would not have consented. Therefore, the Jarrells argued, Dr. Kaul s failure to disclose the matter rendered the consent uninformed and invalid. Again, the court disagreed. As the court saw it, the validity of a patient s consent is confined to a disclosure of the risks associated with the recommended treatment and alternative procedures or therapies. The only exception is when the physician makes significant misrepresentations about his credentials and experience. [3] No one claimed that Dr. Kaul failed to disclose the risks of the procedure and alternatives or therapies, or that he misrepresented his credentials or experience. According, there was no material failure to disclose, and the consent was informed and valid. Negligence of the Center Mr. and Mrs. Jarrell alleged that the surgery center was negligent in permitting Dr. Jarrell to perform a medical procedure for which he was uninsured. The opening of the court s analysis of this claim looked ominous from the plaintiffs perspective. The court began with the observation that Dr. Kaul was an independent contractor, and generally, a person who engages an independent contractor is not liable for the negligence of that contractor. [4] But the court went on to note three exceptions to the general rule of nonliability. A principal is liable if he: (1) retains control over the manner and means by which the work is performed, or (2) retains an incompetent contractor or (3) retains a contractor to perform work that constitutes a nuisance per se.[5] Unfortunately for the surgery center, New Jersey case law includes two decisions that, taken together, put the center squarely in the second of the three exceptions to the general rule of nonliability. In Puckrein v. ATI Transport[6] the court addressed the question of the liability of a principal for a fatal truck accident caused by its independent contractor trucking company in the hazardous waste disposal industry. The company had no insurance. The Puckrein court phrased the issue this way: The core question here is not whether [the retained trucker] was competent to transport [the business s] loads upon the public highways it was not. The question is whether [the business] violated its duty to use reasonable care in selecting a trucker and whether it knew or should have known of [the retained trucker s] incompetence.[7] Answering its own question in the affirmative, the court found the principal liable for the damage caused by the truck. The second decision contained language albeit dictum even more on point. Basil v. Wolf[8] concerned a workers compensation insurer that hired an uninsured physician to examine and treat people who sustained workplace injuries. At the time of the events in question, New Jersey didn t require physicians to carry insurance, but it did by the time the decision was rendered. Noting that there was no insurance requirement at the time of the incident, the Basil court held that the

4 contractor the physician could not be considered an incompetent contractor. Thus, the general rule of principal nonliability applied. But the court didn t stop there. It went on to observe that now that the state does require insurance, a principal that engages a physician now must be aware that it is under a continuing duty of inquiry in respect of malpractice insurance in order to ensure that the physicians it engages are qualified to practice. In the Jarrells case, the surgery center had that continuing duty of inquiry. So if, as the Jarells alleged, the center failed in that duty, it was guilty of negligent hiring of an independent contractor and would be liable to them. Accordingly, the dismissal of that claim was reversed. The case was returned to the trial court to determine whether or not Dr. Kaul s representations to the center about his assets were sufficient to fulfill the alternative letter of credit requirement of the coverage requirement. All indications in opinion were that the answer would be negative. Takeaway The takeaway from the decision is clear. The takeaway is that a health facility that credentials a physician has a duty to assure that the physician maintains the legally mandated liability insurance coverage for the services the physician provides. That s clear. What may be difficult is fulfilling the duty. Remember that Dr. Kaul did, in fact, have malpractice coverage that met the statutory minimum requirements. So if the center had asked for a certificate of insurance, he could have provided one. Maybe he did. But a certificate wouldn t necessarily show the spinal procedure exclusion. Nor would it show all other material exclusions, terms and conditions. What does that mean in practical terms? It means that to be safe, every time a physician applies or reapplies for credentials or for new privileges, and every time the physician s policy year ends or the policy is amended, the facility must assure that someone knowledgeable in the field of malpractice coverage reviews all the physician s policy documents all of them. That s the takeaway for the straightforward situation where state law mandates coverage. But many states don t have a coverage mandate. For facilities in those states, the lesson is more blurred. They may need to apply a reasonable man call it a reasonable facility standard, under which they require of their medical staff members the same assurance of financial responsibility that other, similar, responsible health facilities in the same state require. By Norman G. Tabler Jr., Faegre Baker Daniels LLP Norman Tabler Jr. is counsel in the Indianapolis office of Faegre Baker Daniels. From 1996 through 2012, he served as senior vice president and general counsel of Indiana University Health. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice. [1] Jarrell v. Kaul, 2015 BL , N.J. No. A (N.J. 2015).

5 [2] Middlesex County Sewage Authority v. National Sea Clammers Ass n, 453 U.S. 1, 101 S. Ct (1981). [3] Citing 1 Dan B. Dobbs, The Law of Torts, 251 (2001). [4] Majestic Realty Assocs. V. Toti Contracting Co., 30 N.J. 425 (1959). [5] Id. [6] 186 N.J. 563 (2006). [7] Id., brackets and bracketed language in Jarrell opinion. [8] 935 A. 2d 1154, 193 N.J. 38 (2007). All Content , Portfolio Media, Inc.