Failure to hire competent physicians can give rise to a claim against surgical centers in New Jersey. Competence includes insurance or a letter of credit.

On September 29, 2015, the New Jersey Supreme Court handed down an opinion relating to potential liability when a physician lacks the mandated medical malpractice insurance or letter of credit. The opinion is Jarrell v. Kaul et al. 

In its opinion, the Court explored three major issues:

1. May, “an injured patient … bring a direct action against a negligent, uninsured physician.”
2. Does an uninsured doctor have a, “duty to advise” the patient whether he is in compliance with insurance requirements? Does a, “failure to obtain such insurance [give] rise to a lack of informed consent claim” when the doctor does not inform the patient he lacks insurance?
3. If a healthcare facility provides privileges to a doctor, does it have, “a continuing duty to ascertain a physician’s compliance with the insurance requirement?”

(See pp 2. All page numbers in this post cite to link above.)

The answers to these questions in New Jersey are now:

1. No.
2. No.
3. Yes.

The Background

Plaintiff Jarrell was suffering from back pain and obtained treatment from Defendant Kaul. Kaul had insurance, but the insurance specifically did not cover spinal fusion, which is the procedure he performed on Jarrell at the surgical center. Jarrell’s pain increased. He sought care from a different doctor and was informed that the initial surgery was performed incorrectly. This second doctor, “concluded that Dr. Kaul improperly placed some screws that pinched a nerve causing the pain and drop foot.” This mistake required a revision of the surgery performed by Kaul. Jarrell’s pain decreased. Jarrell alleged that he suffered harm as a result of Kaul’s negligence. His wife alleged that she suffered a loss of consortium (companionship) due to the negligence.  (2-4)

The claims brought by Jarrell included:

1. Negligent performance of the spinal procedure
2. A “direct claim against Dr. Kaul based on his status as an uninsured physician…”
3. “[M]isreprepresentaion, fraud, deceit and lack of informed consent” against Kaul due to his failure to inform Jarrell that he lacked the requisite insurance.
4. Negligent hiring, “against the facility where Dr. Kaul performed the surgery.”
5. “Loss of consortium” by Jarell’s wife.

All but the negligence claims, 1 and 5, “were dismissed prior to trial.” After trial, the jury awarded $500,000 to Jarrell and $250,00 to Mrs. Jarrel.

The Appeal

Both parties appealed. Jarrell against dismissal of claims 2, 3 and 4. Kaul based on his loss under 1 and 5. The Supreme Court held:

1. It was proper to dismiss the direct claim against Jarrell due to his lack of insurance. The statute does not provide for a direct cause of action.
2. It was proper to dismiss the misrepresentation, fraud, deceit and lack of informed consent claim against Kaul. The Court did not believe that it would be appropriate to use “informed consent to address the financial insecurity of a physician and the inability of a patient to satisfy a judgment.”
3. However, the Court did hold that a surgical center is obligated to make certain that any physician to which it provides privileges has the required insurance or letter of credit.

The Law

Here is an analysis of each of the major issues addressed in the opinion.

The Statute

A lack of insurance does not give rise to an informed consent claim against a doctor in New Jersey.

New Jersey has a law which requires medical doctors to maintain appropriate medical malpractice liability insurance.  (16) Failing insurance, physicians are required to obtain a letter of credit. The insurance requirement is $1,000,000 per occurrence and $3,000,000 per year. The letter of credit is required to be in the amount of $500,000. The purpose of the law is, “to ensure the citizens of the State that they will have some recourse for adequate compensation in the event that a physician or podiatrist is found responsible for acts of malpractice.” It is professional misconduct for a physician to fail to meet these requirements. The doctor can be disciplined for this misconduct, which, “may include revocation or suspension of the physician’s license to practice medicine in” New Jersey. However, in no part of the statute does it allow for a private cause of action against a physician who fails to follow this law. (16-21)

Both the United States Supreme Court and the New Jersey Supreme Court have, in the past, allowed for statutes that do not explicitly provide for a private cause of action to do so if there is an implicit cause. (17) But, according to the Court, the legislative intent of  the statute in question neither explicitly nor implicitly allows for such a private action in this case. Due to this, the Court is unwilling to find a private cause of action under this statute. (21)

Informed Consent

Jarrell argues that had he known that Kaul lacked insurance, he would not have obtained the surgery with Kaul. Therefore, he argues, Kaul failed to obtain informed consent and engaged in conduct that was, “deceit[ful], misrepresentation and outrageous.” (21) In its analysis, the Court states that informed consent relates to the procedure itself. Doctors are required to discuss the risks of the procedure along with any alternatives. Informed consent is not about the financial ability to compensate the patient should the doctor commit malpractice. (21-27) The Court specifically notes that it, “recognize[s] that the existence or not of medical malpractice liability insurance or the permissible letter of credit may be material information for some patients.” (29) However, it also states that professional misconduct (which failure to obtain insurance or a letter of credit is, under NJ law) is penalized by discipline under the law. In no instance does the law provide for new jurisprudence surrounding the issue of informed consent (29-30) Given this, it would be improper to allow an informed consent argument to go forward based upon the failure to have insurance or a letter of credit. (30-31)

Negligence by Surgical Center for Failure to Make Certain a Physician has Appropriate Insurance

It is the responsibility of all surgical centers to retain, “competent and careful contractor(s).” Such contractors must, “‘possess the knowledge, skill, experience and available equipment which a reasonable [person] would realize that a contractor must have in order to do the work which he is employed to do without creating unreasonable risk of injury to others.'” (32) An employer may be found liable if, “‘the harm … result[s] from some quality in the contractor which made it negligent for the employer to entrust the work to him.” (32.)

If, “a business retains a contractor to perform a task that requires special skill and specific permits or licenses, its retention of a contractor without those necessary credentials subjects the business to liability for hiring an incompetent contractor.” (39) In this case, physicians are required to have malpractice insurance or a letter of credit. Kaul allegedly had neither when it came to performing spinal fusions. It was the obligation of the surgical center to make certain that the medical staff to which it provides privileges met the requirements for practicing medicine in the state of New Jersey. In this case, the surgical center failed to do so. (40-41) Insurance is, [a]n essential condition,” to practice in New Jersey. (41) Given this, it was improper for the trial court to dismiss the negligent hiring claim. In order to assess the center’s liability, discovery is required in the case to determine whether the center had reason to believe that Kaul had a sufficient letter of credit.

It is important to note that the failure to make certain a physician has insurance does not create a strict liability claim against the surgical center. (42)

Conclusion

As plaintiff’s counsel, the major item to take from this case is that there is potential liability on the part of surgical centers, hospitals and others who hire physicians who do not have the proper insurance or letter of credit in New Jersey. Medical providers are required to retain appropriate physicians. Those physicians are required to have a license in New Jersey, and part of having a license in New Jersey is meeting the financial requirements of the law in that state.