Opinion ID: 2046507
Heading Depth: 2
Heading Rank: 3

Heading: Apparent or Ostensible Agency

Text: The principal issue in this case is whether, under Indiana law, Norton can be held liable for the alleged negligence of an independent contractor anesthesiologist. Sword is seeking to hold Norton liable for the alleged negligence which caused her injuries. There are no allegations of direct corporate negligence, that is, that the hospital itself was negligent. Because the alleged negligence was not committed by Norton, but instead by a physician working at Norton, Sword must present a theory by which a court can find the hospital vicariously liable for the actions of a physician who practices there. After reviewing the basic tort and agency concepts relevant to theories of vicarious liability, as well as the jurisprudence in Indiana and other jurisdictions, in the specific context of this case, we adopt the theory of apparent and ostensible agency formulated in the Restatement (Second) of Torts section 429 (1965). We then conclude that there are genuine issues of material fact in dispute as to the existence of an apparent or ostensible agency relationship here.
Vicarious liability is indirect legal responsibility. BLACK'S LAW DICTIONARY 1404 (5th ed.1979). It is a legal fiction by which a court can hold a party legally responsible for the negligence of another, not because the party did anything wrong but rather because of the party's relationship to the wrongdoer. See KEETON, TORTS § 69. Courts employ various legal doctrines to hold people vicariously liable, including respondeat superior, apparent or ostensible agency, agency by estoppel, [3] and the non-delegable duty doctrine. [4] Some doctrines are based in tort law, some are based in agency law. Courts often discuss the various doctrines as if they are interchangeable; they are not. We will address each applicable doctrine in turn. Respondeat superior is the applicable tort theory of vicarious liability. Under respondeat superior, an employer, who is not liable because of his own acts, can be held liable for the wrongful acts of his employee which are committed within the scope of employment. Stropes v. Heritage House Childrens Ctr., 547 N.E.2d 244, 247 (Ind. 1989); see also KEETON, TORTS §§ 69, 70; WARREN A. SEAVEY, AGENCY § 83 (1964). In this context, employer and employee are often stated in broader terms as master and servant. See Burkett v. Crulo Trucking Co., 171 Ind.App. 166, 180, 355 N.E.2d 253, 261 (1976); SEAVEY, AGENCY § 83. One important aspect in applying respondeat superior is differentiating between those who are servants and those who are independent contractors. A servant is defined in the following general manner: one who is employed by a master to perform personal services and whose physical conduct is subject to the right to control by the master. See KEETON, TORTS § 70; SEAVEY, AGENCY § 84; RESTATEMENT (SECOND) OF AGENCY § 2(2) (1958). It is the employer's right to control that generally separates a servant from an independent contractor. See KEETON, TORTS § 71; SEAVEY, AGENCY § 84 cmt. c; RESTATEMENT (SECOND) OF AGENCY § 2 cmt. a. An independent contractor can, therefore, be defined as a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking. RESTATEMENT (SECOND) OF AGENCY § 2(3). It is important to distinguish between servants and independent contractors in the tort context [5] because, while a master can be held liable for a servant's negligent conduct under respondeat superior, a master generally cannot be held liable for the negligence of an independent contractor. See Burkett, 355 N.E.2d at 261-62; RESTATEMENT (SECOND) OF TORTS § 409 (1965); SEAVEY, RESTATEMENT (SECOND) OF AGENCY §§ 82, 83. The theory behind non-liability for independent contractors is that it would be unfair to hold a master liable for the conduct of another when the master has no control over that conduct. See RESTATEMENT (SECOND) OF TORTS § 409 cmt. b. Apparent agency is a doctrine based in agency law. It is most often associated with contracts and the ability of an agent with apparent authority to bind the principal to a contract with a third party. See Pepkowski v. Life of Indiana Ins. Co., 535 N.E.2d 1164, 1166-67 (Ind.1989). Apparent authority is the authority that a third person reasonably believes an agent to possess because of some manifestation from his principal. Id. at 1166; see also RESTATEMENT (SECOND) OF AGENCY § 8. The manifestation must be made by the principal to a third party and reasonably cause the third party to believe that an individual is an agent of the principal and to act upon that belief. See Pepkowski, 535 N.E.2d at 1166-67; see also RESTATEMENT (SECOND) OF AGENCY § 8 cmt. d. The manifestations can originate from direct or indirect communication. Pepkowski, 535 N.E.2d at 1167. They can also originate from advertisements to the community. RESTATEMENT (SECOND) OF AGENCY § 8 cmt. b. In certain instances, apparent or ostensible agency also can be a means by which to establish vicarious liability. One enunciation of this doctrine is set forth in the Restatement (Second) of Agency section 267, which provides that: One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such. (emphasis added) [hereinafter Section 267]. Under a Section 267 analysis, if, because of the principal's manifestations, a third party reasonably believes that in dealing with the apparent agent he is dealing with the principal's servant or agent and exposes himself to the negligent conduct because of the principal's manifestations, then the principal may be held liable for that negligent conduct. See RESTATEMENT (SECOND) OF AGENCY § 267 cmt. a; see also RESTATEMENT (SECOND) OF TORTS § 429; SEAVEY, RESTATEMENT (SECOND) OF AGENCY §§ 8 cmt. D, 90 cmt. A, 91 cmt. B. Another similar enunciation of this doctrine is set forth in the Restatement (Second) of Torts section 429 (1965), which is captioned Negligence in Doing Work Which is Accepted in Reliance on the Employer's Doing the Work Himself and which 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. (emphasis added) [hereinafter Section 429]. Both Section 267 and Section 429 are estoppel-based. To the extent that Section 429 differs from Section 267 when applied in the hospital context, the primary difference appears to be that the reliance element is less subjective under Section 429. [6]
In the hospital setting, Indiana courts have long followed the general rule that hospitals could not be held liable for the negligent actions of independent contractor physicians. In early cases, courts held that, because hospitals are corporations and corporations could not legally practice medicine, the doctrine of respondeat superior could not be applied as between hospitals and physicians, even if those physicians were employees of the hospital rather than independent contractors. See Iterman v. Baker, 214 Ind. 308, 316-18, 15 N.E.2d 365, 369-70 (1938); Huber v. Protestant Deaconess Hosp. Ass'n, 127 Ind.App. 565, 577, 133 N.E.2d 864, 869 (1956). Courts felt that respondeat superior simply did not apply because the hospitals could not legally assert any control over the physicians. Iterman, 15 N.E.2d at 369-70. [7] As the Court of Appeals correctly observed, however, the holding of Iterman has eroded over time, and courts no longer allow hospitals to use their inability to practice medicine as a shield to protect themselves from liability. 661 N.E.2d at 14; see also Sloan v. Metropolitan Health Council, 516 N.E.2d 1104, 1106-09 (Ind.Ct.App.1987) (citing IND.CODE § 23-1.5-2-6(c) (1998)); Estate of Mathes v. Ireland, 419 N.E.2d 782, 785-86 (Ind.Ct.App.1981). Moreover, although Indiana law may support a claim of vicarious liability through apparent or ostensible agency in some instances, [8] courts in this jurisdiction rarely have considered this doctrine in a hospital setting and have never applied it to hold a hospital liable for the acts of an independent contractor physician. [9] Rather, Indiana courts have continued to limit hospital liability under the doctrine of respondeat superior and have continued to focus on the question of whether the alleged acts of negligence were committed by an employee of the hospital or by an independent contractor. See Weaver v. Robinson, 627 N.E.2d 442, 447-48 (Ind.Ct.App.1993), disapproved of on other grounds, Kennedy v. Murphy, 659 N.E.2d 506 (Ind.1995); Castillo v. Ruggiero, 562 N.E.2d 446, 456 (Ind.Ct.App.1990). If the alleged negligence was committed by an independent contractor physician, the courts generally have held that the hospital cannot be held liable for those actions. See, e.g., Weaver, 627 N.E.2d at 447-48.
In the area of hospital liability, there has been an ongoing movement by courts to use apparent or ostensible agency as a means by which to hold hospitals vicariously liable for the negligence of some independent contractor physicians. See, e.g., Clark v. Southview Hosp. & Family Health Ctr., 68 Ohio St.3d 435, 628 N.E.2d 46, 53 (1994) (terming it agency by estoppel); Gilbert v. Sycamore Mun. Hosp., 156 Ill.2d 511, 190 Ill.Dec. 758, 622 N.E.2d 788, 793-94 (1993). [10] Many of these cases employ the doctrine of apparent agency when the plaintiff was negligently injured by a physician's actions while visiting the hospital's emergency room. See Clark, 628 N.E.2d at 53-54; Gilbert, 190 Ill.Dec. 758, 622 N.E.2d at 791, 796. See generally Abraham, supra note 10, at 387. Courts, however, also have employed the doctrine of apparent agency to hold a hospital liable for assertedly negligent acts committed in non-emergency room settings, including negligent acts committed by anesthesiologists. See Seneris v. Haas, 45 Cal.2d 811, 291 P.2d 915, 917, 926-27 (1955) (discussing negligence of an anesthesiologist during the delivery of a baby); see also Williams v. St. Claire Med. Ctr., 657 S.W.2d 590, 592-93 (Ky.Ct.App. 1983) (discussing negligence of an independent contractor nurse anesthetist). [11] Courts that have held hospitals liable for the negligence of independent contractor physicians under apparent agency have sometimes referred to or adopted Section 267, [12] Section 429, [13] or both, [14] and sometimes have not referred to or adopted either Section 267 or Section 429. [15] While the language employed by these courts sometimes varies, generally they have employed tests which focus primarily on two basic factors. The first factor focuses on the hospital's manifestations and is sometimes described as an inquiry whether the hospital acted in a manner which would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. Kashishian, 481 N.W.2d at 284-85; Gilbert, 190 Ill.Dec. 758, 622 N.E.2d at 795-96 (quoting Pamperin v. Trinity Mem'l Hosp., 144 Wis.2d 188, 423 N.W.2d 848, 855-56 (1988)); see also Seneris, 291 P.2d at 927. Courts considering this factor often ask whether the hospital held itself out to the public as a provider of hospital care, for example, by mounting extensive advertising campaigns. See, e.g., Clark, 628 N.E.2d at 53; Gilbert, 190 Ill.Dec. 758, 622 N.E.2d at 796. In this regard, the hospital need not make express representations to the patient that the treating physician is an employee of the hospital; rather a representation also may be general and implied. See, e.g., Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255, 256 (Ky.1985); Pamperin v. Trinity Mem'l Hosp., 144 Wis.2d 188, 423 N.W.2d 848, 856 (1988) (presuming that the hospital held itself out as a medical care provider unless the hospital expressly provided notice to the patient that independent contractors provide the care). The second factor focuses on the patient's reliance. It is sometimes characterized as an inquiry as to whether the plaintiff acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. Kashishian, 481 N.W.2d at 285; Gilbert, 190 Ill.Dec. 758, 622 N.E.2d at 795 (quoting Pamperin, 423 N.W.2d at 855-56); see also Seneris, 291 P.2d at 927. Courts considering this factor sometimes ask whether, because of the hospital's manifestations, the plaintiff believed that the hospital was providing the pertinent medical care as opposed to simply acting as a situs for the physician to provide health care as an independent contractor. See, e.g., Clark, 628 N.E.2d at 53; Gilbert, 190 Ill.Dec. 758, 622 N.E.2d at 796; Kashishian, 481 N.W.2d at 285. Other courts, however, seem to employ a less subjective form of reliance or even to presume reliance absent any evidence that the patient knew or should have known that the physician was not an employee of the hospital and that it is the physician and not the hospital who is responsible for his medical care. See, e.g., Seneris, 291 P.2d at 927; Paintsville Hosp., 683 S.W.2d at 257-58; Williams, 657 S.W.2d at 596; Arthur v. St. Peters Hosp., 169 N.J.Super. 575, 405 A.2d 443, 447 (1979). An example of a situation where a patient might be in a position to know that the physician was an independent contractor may exist if the patient establishes an independent relationship with the physician or selects a particular physician in advance of going to the hospital. See Arthur, 405 A.2d at 447. Even in such circumstances, however, the courts have reasoned that the patient may not have had reason to know of the contractual arrangements between the physician and the hospital. See, e.g., Kashishian, 481 N.W.2d at 284. Central to both of these factorsthat is, the hospital's manifestations and the patient's relianceis the question of whether the hospital provided notice to the patient that the treating physician was an independent contractor and not an employee of the hospital. See, e.g., Seneris, 291 P.2d at 927; Gilbert, 190 Ill.Dec. 758, 622 N.E.2d at 796; Clark, 628 N.E.2d at 53; Pamperin, 423 N.W.2d at 856-57; Kashishian, 481 N.W.2d at 286.
In the present case, Sword argues that, under the doctrine of apparent or ostensible agency, Norton is vicariously liable for the actions of its apparent agent Dr. Luna, whom the parties agree was an independent contractor. The Court of Appeals held that Dr. Luna could be an apparent agent of Norton, and that there were genuine issues of material fact in dispute on this question. The Court of Appeals, however, reached this conclusion by looking to Indiana jurisprudence which, to date, had not clearly defined a test for determining apparent agency in the hospital context and which had not adopted either Restatement position. The Court of Appeals invited us to consider the appropriateness of more clearly defining a test and adopting one of the two formulations of the test set forth in the Restatements. Sword, 661 N.E.2d at 15 n. 2. We agree with the conclusion of the Court of Appeals and now, in the specific context of a hospital setting, expressly adopt the formulation of apparent or ostensible agency set forth in the Restatement (Second) of Tort section 429. Under 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. This ultimate determination is made by considering the totality of the circumstances, including 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. We conclude that a hospital will be deemed to have held itself out as the provider of care unless it gives notice to the patient 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. A hospital generally will be able to avoid liability by providing meaningful written notice to the patient, acknowledged at the time of admission. See Cantrell v. Northeast Georgia Med. Ctr., 235 Ga.App. 365, 508 S.E.2d 716, 719-20 (1998) (concluding that hospital did not hold physician out as its employee as evidenced by conspicuous signs posted in hospital's registration area and express language in the patient consent to treatment form); Valdez v. Pasadena Healthcare Management, Inc., 975 S.W.2d 43, 48 (Tex.App. 1998) (finding written notice, signed by the patient, that physician served as an independent contractor was sufficient to release hospital from liability for physician's medical malpractice). Under some circumstances, such as in the case of a medical emergency, however, written notice may not suffice if the patient had an inadequate opportunity to make an informed choice. As to the meaning and importance of reliance in this specific context, we agree with the cases that hold that if the hospital has failed to give meaningful notice, if the patient has no special knowledge regarding the arrangement the hospital has made with its physicians, and if there is no reason that the patient should have known of these employment relationships, then reliance is presumed. See Seneris, 291 P.2d at 927; Paintsville, 683 S.W.2d at 257-58; Williams, 657 S.W.2d at 596; Arthur, 405 A.2d at 447. Applying this test here, we conclude that there are genuine material issues of fact in dispute as to whether Dr. Luna was an apparent or ostensible agent of Norton and whether Norton may be held liable for any of Dr. Luna's asserted negligent acts. First, there is nothing in this record which indicates that the hospital did anything to put plaintiff on notice that it was her physician, an independent contractor, who was responsible for her medical care and not the hospital. [16] Second, this is clearly not a case where plaintiff selected her own anesthesiologist prior to admission, for she specifically testified that she did not know who would administer the epidural until just before the procedure, and if she had any special knowledge of the hospital's employment arrangement with Dr. Luna or with the hospital's general employment practices with respect to physicians, it is not apparent on this record. Finally, Norton held itself out, through an extensive advertising campaign, as a full-service hospital which specializes in obstetric care. Based on this record and under Section 429 as we construe it today, there are clearly genuine issues of material fact as to whether Dr. Luna is an apparent agent of Norton. The trial court erred when it entered summary judgment for defendant on this issue.