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Staffing agency nurse was employee of hospital for liability insurance purposes

By Ronald Miller, J.D.

A nurse hired by a staffing agency and assigned to work at a hospital on a temporary basis was a covered hospital “employee” under an insurance policy providing coverage for hospital employees for claims arising out of medical incidents within the scope of their employment, ruled the D.C. Circuit. As a result, the staffing agency’s insurer, Interstate Fire, was entitled to reimbursement from the hospital’s insurer, Greenspring, for the amounts it paid to defend a malpractice action filed by a patient (Interstate Fire & Casualty Co v Washington Hospital Center Corp dba Washington Hospital Center, July 18, 2014, Srinivasan, S).

Liability coverage. In February 2002, the staffing agency entered into an agreement with the hospital to provide registered nurses for long-term and per-diem assignments. The hospital retained the right to terminate the assignment of any nurse who failed to meet the hospital’s reasonable expectations or failed to follow the hospital’s patient care policies. The parties also agreed that each would indemnify the other “any and all claims and expenses arising out of or resulting from the . . . negligent acts . . . of its employees or agents.”

Greenspring Financial issued a general liability policy to the hospital’s parent company under which it must indemnify the “Insured” for damages of up to $5 million per incident resulting from covered medical incidents. The policy defines “Insured” to include “all past, present, or future full-time or part-time Employees” of the parent company, including employees of its hospital subsidiaries. This policy stated that it afforded primary insurance. Another insurer, Interstate Fire and Casualty Co., issued a professional liability policy covering the staffing agency and its current and former employees for claims made between November 2006 and November 2007, with a cap of $1 million per incident. That policy contained a provision stating that it was deemed excess insurance if another policy applied to the loss or claim. Interstate Fire simultaneously issued an excess commercial liability policy to the agency which covered its current and former employees for up to $4 million per incident.

Settlement agreement. A nurse employed by the staffing agency and assigned to the hospital was one of several medical professionals involved in the treatment of a patient, who became paralyzed following a caesarean section. The patient sued the hospital and two doctors. Thereafter, the hospital filed a third-party complaint in the action seeking indemnification and contribution from nurse and staffing agency. In 2009, the parties, including the nurse, staffing agency, hospital and Interstate Fire reached a settlement agreement with the patient. Interstate Fire expressly reserved the right to seek reallocation of the settlement under other insurance policies. It sued the hospital, its parent company, and its insurer, Greenspring, alleging they owed a duty to provide primary insurance coverage for the nurse.

The district court held that the nurse was an “employee” of the hospital for purposes of the Greenspring policy, and that she thus qualified as a person insured under that policy. It rejected the hospital’s argument that the staffing agreement required the agency’s insurer to indemnify it for any liability arising out of the actions of agency nurses. The district court held that hospital had waived its right to indemnification when it released its claims against the agency and Interstate Fire in the settlement. Greenspring appealed.

Hospital employee. The principal issue in this case was whether the nurse, who was hired by the staffing agency and assigned to work at the hospital, qualified as an “employee” of the hospital. The fact that only the staffing agency paid a salary to the nurse did not preclude a finding that she is an employee of the hospital, observed the D.C. Circuit. Here, Greenspring acknowledged that the staffing agreement gave the hospital the right to control the details of the nurse’s work performance. The nurse was in fact under the hospital’s control at the time of the conduct causing the patient’s injuries. Thus, she qualified as an employee of the hospital.

Still Greenspring argued that nurse from a staffing agency would be referred to in the insurance context as a “leased worker” or a “temporary worker,” and that the absence of those terms from the Greenspring policy meant that the policy did not intend to cover someone like the nurse. However, the appeals court observed that District of Columbia courts are primarily concerned with “the meaning which common speech imports,” not the meaning that other insurers would ascribe to the same term. As a result, the fact that the Greenspring policy contained no mention of “leased workers” or “temporary workers” in its definition of “employee” afforded no basis for concluding that the policy excluded the nurse from that term.

Common law test. Next, Greenspring contended that the district court erred in invoking the common law test in the first place. Noting that Maryland and District of Columbia courts have indicated that the “‘known principles of the common law’” can inform the interpretation of insurance policies, the appeals court concluded that the district court appropriately considered common law principles of vicarious liability in construing the term “employee” in the Greenspring policy. It further agreed with the district court that the common law test supported concluding that the nurse qualified as an “employee” of the hospital.

Policy coverage. Still, Greenspring asked the D.C. Circuit to reverse the district court’s decision even if it held that the nurse was an employee covered under its policy. Specifically, Greenspring asked the appeals court to follow the Eighth Circuit’s holding in Wal-Mart Stores, Inc v RLI Insurance Co. The D.C. Circuit concluded that the Wal-Mart decision would not alter the outcome of this case. There was no suggestion that Wal-Mart had waived its contractual right to indemnification as was the situation in the instant case. Further, Greenspring would not step into the hospital’s shoes if it paid $3.055 million on the nurse’s behalf to settle the malpractice action. Instead, Greenspring would step into the nurse’s shoes with respect to the payment, and the nurse would have no indemnity claim against the agency. Thus, even if the hospital had not waived its indemnification claim, Greenspring would have no entitlement to assert the hospital’s indemnification claim while standing in the shoes of the nurse.