Interstate Fire and Cas. Co. v. Dimensions Assurance Ltd — Dec. 2016 (Summary)

INDEPENDENT CONTRACTOR/EMPLOYEE

Interstate Fire and Cas. Co. v. Dimensions Assurance Ltd.
No. 15-1801 (4th Cir. Dec. 6, 2016)

The United States Court of Appeals for the Fourth Circuit reversed a district court’s grant of summary judgment that held that an agency nurse did not qualify as an “employee” of a hospital for the purposes of coverage under the hospital’s professional liability insurance policy.

An employment agency provided health care providers to a hospital under a staffing agreement, which stated that all agency providers would be considered employees of the agency, rather than the hospital.  The agency providers were supervised solely by hospital staff and could also be disciplined or terminated by hospital staff.  Both the agency and the hospital had professional liability insurance for providers.  Following a medical malpractice suit that named one of the agency nurses as a defendant, the hospital’s insurer refused to defend the agency nurse or share in the defense costs.  The agency insurer contended that the agency nurse was a “protected person” under the hospital’s insurance policy and, therefore, was entitled to indemnification from the hospital’s insurer.

The hospital’s insurance policy provided protection to “employees” under a general liability section and under a professional liability section; in the latter, the definition of “employee” did not specifically exclude agency providers, as it did in the former.  The court, applying basic principles of contract construction, interpreted this to mean that the hospital’s professional liability coverage extended to agency employees.  The court justified this interpretation by applying the “right-to-control” test for employees.  This test asks whether the employer had sufficient power to hire and fire the employee, pay the employee’s wages, and generally control the employee’s conduct.

The court rejected the hospital’s insurer’s argument that the court should categorize the agency nurse as an “affiliated provider.”  Under the hospital’s insurance agreement, this would convert all providers, including direct hires, into “affiliated providers.”  The court also rejected the argument that the terms of the staffing agreement, which held that the agency nurse was not a hospital employee, should preclude the applicability of the hospital’s insurance policy to the nurse.  This, the court noted, was a contract between the hospital and the agency and did not involve either the insurance company or the agency nurse.  The terms of this third-party contract could not determine the scope of the hospital’s independent insurance contract.  Thus, the court held, a staffing agreement cannot control the applicability of a separate insurance contract.  The court accordingly dismissed the district court’s summary judgment ruling in favor of the hospital’s insurer and remanded the case.