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By Charlotte H. Norris Of Jenkins Fenstermaker, PLLC on 12/30/2019
Staffing Agency Nurse Liability: What You Need to Know

Many hospitals address staffing shortages (nurses and physicians) through staffing agencies. In an attempt to provide certainty regarding staffing agency nurse liability, standard staffing contracts provide that the nurses and/or physicians (locum tenens) are employees of the staffing agency and not the hospital. The staffing agency agrees that the nurses or physicians provided shall abide by the hospital's policies and bylaws. The hospital determines the work schedules and provides all necessary equipment and supplies. The hospital and staffing agency also agree to purchase professional liability insurance and agree to terms of indemnification for the acts or omissions of their respective employees. All's well and good in the hospital professional liability shifting arrangement, right? Not necessarily.

On December 6, 2016, the United States Fourth Circuit Court of Appeals published a decision, Interstate Fire and Casualty Company v. Dimensions Assurance, Ltd. (No. 15-1801), on the issue of whether a hospital's insurance policy extended coverage to a "staffing agency nurse" for professional liability claims arising from the alleged acts or omission of the nurse while providing care at the hospital.

The underlying declaratory judgment action regarding the staffing agency nurse liability, filed in the United States District Court of Maryland by the staffing agency insurance carrier, Interstate Fire and Casualty, sought a declaration that the hospital's insurance carrier, Dimensions Assurance Ltd., should be deemed the primary insurance carrier for a professional negligence claim against the nurse.

Contract Regarding Staffing Agency Nurse Liability Deems Agency Nurses to Be Agency Employees

In the case, the staffing contract between the hospital and the staffing agency included the standard language that any nurses provided by the staffing agency were employees of the staffing agency and not the hospital. Both the hospital and the staffing agency carried separate hospital professional liability insurance for their respective employees. Although the staffing agency nurses were the "employees" of the staffing agency, the hospital retained the right to schedule the nurses, as needed, and direct them with respect to the duties they had to perform.

All was well until a hospital professional liability claim was brought against one of the staffing agency nurses for care provided to a patient at the hospital. The staffing agency tendered the claim to its insurer, Interstate Fire and Casualty, to defend the nurse. Interstate Fire and Casualty incurred defense costs of approximately $500,000 for the staffing agency nurse liability defending the nurse and paid a settlement of approximately $2.5 million to resolve the hospital professional liability claims. Interstate Fire and Casualty then filed a declaratory judgment action to determine whether the hospital's liability carrier, Dimensions Assurance, Ltd., should have provided coverage to the staffing agency nurse as an employee of the hospital and, as primary carrier, should have shouldered the entire cost of defense and settlement for the staffing agency nurse liability.

The U.S. District Court of Maryland found that the hospital professional liability's insurance policy did not extend to the staffing agency nurse and granted the hospital insurance carrier's motion for summary judgment. On appeal, the United States Court of Appeals for the Fourth Circuit disagreed.

Fourth Circuit Finds Staffing Agency Nurse a Shared or Borrowed Employee

The Court of Appeals was not persuaded in the least by the language in the staffing contract wherein the parties had attempted to shift staffing agency nurse liability to the staffing agency because the parties "agreed" that the hospital was not the nurses' employer. The Court looked at the amount of control that the hospital exercised over the staffing agency nurses and found that the nurses provided by the staffing agency were, in effect, "shared" or "borrowed" employees. Further, the Court noted that the staffing contract was only between the hospital and the staffing agency. Neither the hospital's insurer, the staffing agency's insurer, nor the nurse were parties to that contract, so it was not binding on them with respect to hospital professional liability insurance coverage.

The Court of Appeals then looked at the language of the hospital's liability insurance policy and found that there were no express exclusions for staffing agency nurses in the section providing coverage for "hospital professional liability." (In contrast, interns, externs, residents, dental, osteopathic and medical doctors were excluded in this section.) The Court of Appeals noted that the hospital liability 's insurance policy "does not define 'employee,' nor does it incorporate or otherwise refer to the Staffing Agreement between the Agency and the Hospital." Absent an express exclusion or its own definition of "employee," the hospital's insurer was obligated to provide coverage for the alleged staffing agency nurse professional liability.

Best Practices in Staffing Agency Contracts

So, what are the implications of this decision for companies that use staffing agencies to augment their available personnel? First, understand that, as with staffing agency nurse liability, staffing contracts that attempt to shift liability are not foolproof and not always determinative regarding the identity of the "employer" on issues of liability. State law governs. Second, if a company contracts with a staffing agency for additional personnel, that company needs to be certain that its insurer, such as the provider of hospital professional liability coverage, is aware that temporary staff through a staffing agency is being used and also aware of any indemnification language in the staffing contract. Third, companies contracting for temporary staffing should carefully review their insurance policies to be certain whether they have coverage for temporary staff in the event that a court or administrative agency determines that the company exercises sufficient control over the temporary staff to be deemed the employer.

For insurers, it is important to review the definitions of terms such as "employee." If the insurer does not intend to extend coverage to individuals provided to an insured through a staffing agency or temporary agency, then such exclusion needs to be clear and unambiguous.

If you have questions about how hospital liability insurance staffing agency nurse liability, or what insurance coverage your business has or requires, contact Charlotte Hoffman Norris or by calling Jenkins Fenstermaker, PLLC at (304) 523-2100.