United States: New Jersey Supreme Court Restricts Medical Malpractice Actions Against Uninsured Doctors But Expands Potential Liability Of Hospitals And Other Facilities

On September 29, 2015 the Supreme Court of New Jersey decided Jarrell v. Kaul, No. A‑42 (Sup.Ct. Sept. 29, 2015), a case that simultaneously restricts and expands theories of medical malpractice liability against healthcare providers.  Addressing three issues relating to the statutory requirement that physicians licensed to practice medicine in New Jersey must obtain and maintain medical malpractice liability insurance pursuant to N.J.S.A 45:9-19.17, the Court considered whether: (1) an injured patient may bring a direct action against a negligent, uninsured physician; (2) failure to comply with the statutory liability insurance requirement gives rise to an informed consent claim; and (3) a healthcare facility granting privileges to a physician to treat patients in its facility has a duty to determine and monitor the physician's compliance with the statutory malpractice insurance requirement.

Jarrell is a medical malpractice case in which plaintiff was treated by defendant Dr. Kaul, a board‑certified anesthesiologist who focused on pain management and minimally invasive spinal procedures.  Dr. Kaul saw patients and performed procedures at defendant Market Street Surgical Center ("MSSC").  Plaintiff saw Dr. Kaul for back pain that Dr. Kaul diagnosed as a herniated lumbar disc, lumbar radiculopathy, and discogenic back pain.  Dr. Kaul performed a spinal fusion procedure on plaintiff.  Following the surgery, plaintiff experienced new pain in his left side that worsened over time, eventually resulting in a drop foot, chronic pain, and limitations in his physical activities, which persisted even following a subsequent procedure by another doctor to address plaintiff's new symptoms.

Plaintiff and his wife sued Dr. Kaul and MSSC for malpractice in a multi-count Complaint that included several claims based upon Dr. Kaul's failure to maintain medical malpractice liability insurance as required by New Jersey statute, N.J.S.A. 45:9‑19.17.  Plaintiff also asserted a claim that defendant MSSC negligently and unreasonably facilitated performance of an unauthorized surgical procedure by a physician who was unqualified to perform the plaintiff's surgery based upon the physician's failure to carry the requisite minimum malpractice insurance.

After reviewing the legislative and regulatory history of the malpractice insurance requirement, the Supreme Court first addressed the question of whether an injured patient has a direct cause of action against a treating physician who does not comply with the statutory insurance requirements.  Noting that neither the statute nor its implementing regulations expressly provide a direct cause of action for an injured patient, the Court held that the legislative history and statutory language did not support either an express or implied private cause of action.

The Supreme Court explained that under New Jersey law, the Board of Medical Examiners ("BME") is charged with regulating the practice of medicine in New Jersey, and the state legislature "expressly concluded" that the BME "would be the most likely vehicle to ensure compliance with the liability insurance requirement."  Slip op. at 20.  As the Court explained: "Administrative oversight and enforcement is the declared enforcement mechanism and that choice reflects a legislative decision to encourage and force compliance rather than wait for a complaint by an injured patient that may never be filed."  Id.  The Supreme Court thus concluded that the statute, N.J.S.A. 45:9-19.17, does not expressly or implicitly recognize a direct cause of action by an injured patient against a physician who fails to obtain the requisite medical malpractice liability insurance.  Id.

Second, the Supreme Court addressed Plaintiff's informed consent theory, framing the question as "whether the absence of statutorily mandated medical malpractice liability insurance may be information that a reasonably prudent patient would consider material to his or her decision to proceed with the course of medical treatment or surgical procedure."  Id. at 22.  The Court reaffirmed prior case law holding that the doctrine of informed consent is based upon negligence concepts with a focus on risks pertaining to the specific proposed medical treatment:  "informed consent is predicated on the duty of the physician to disclose to the patient the information that will enable the patient to make a reasoned evaluation of the nature of the proposed treatment, any risks associated with it, and those risks associated with any alternative treatments."  Id. at 30 (citing Largey v. Rothman, 110 N.J. 204, 208 (1988)).

The absence of insurance, the Court explained, "bears no relation to the nature of the proposed medical course or to the risks attendant to a proposed procedure or treatment."  Id.  Further,

To be sure, a patient who has been injured due to negligent care by an uninsured physician has sustained a financial loss but such a loss is not the injury that the informed consent doctrine ever contemplated.  Applying the informed consent jurisprudence to the financial consequences of negligent care by an uninsured physician untethers the remedy from its theoretical underpinnings and is a stark departure from our prior jurisprudence.  We discern no principled reason to extend the additional and questionable relief that the informed consent doctrine may provide to an injured patient to address the financial insecurity of a physician.

Id. at 30‑31.  The Supreme Court affirmed the dismissal of the informed consent claim.

Third, the Court addressed the negligence claim against MSSC premised upon its alleged failure to limit use of its facility only to those physicians who satisfy the statutory mandate to obtain and maintain a minimum level of medical malpractice liability insurance, a cause of action that the Court interpreted as a negligent hiring claim.  After citing the general rule that a party who engages an independent contractor is not liable for the contractor's negligence, the Court explained that the "incompetent contractor" exception under Restatement (Second) of Torts § 411 and applicable New Jersey case law applied to this claim, because the "basic element of competency" for any doctor seeking surgical privileges at MSSC is a license to practice medicine in New Jersey, and the "essential condition for such a license" is compliance with the medical malpractice liability insurance requirements.  Id. at 41.  Under New Jersey law, MSSC had "a duty to withhold privileges to any physician who did not meet the financial responsibility requirements for license to practice medicine" in New Jersey.  Id. at 41-42.

The Court noted that the record in the case demonstrated that an MSSC knew that Dr. Kaul had an insurance policy that expressly excluded plaintiff's surgical procedure, and did not include any evidence that the BME accepted Dr. Kaul's alleged representation (and defense to plaintiff's claim) that he possessed sufficient assets to satisfy the alternative letter of credit requirement, or that MSSC conducted any inquiry to confirm that the BME deemed such a representation compliant with the statutory requirements.  The Supreme Court concluded that there were genuine issues of fact on the record concerning MSSC's alleged negligence in granting or continuing Dr. Kaul's privileges under the circumstances, and reversed summary judgment entered in favor of MSSC on the negligent hiring claim asserted by plaintiffs.  Id. at 42-43.

The takeaways from Jarrell are a mixed bag for health care professionals.  On the one hand, Jarrell provides restrictions on medical malpractice claims against uninsured and insured doctors.  On a basic level, Jarrell holds that an injured patient does not have a direct cause of action against a physician who fails to obtain or maintain the statutorily required medical malpractice liability insurance or letter of credit in New Jersey.

Beyond this express ruling, Jarrell's analysis of the informed consent doctrine will be beneficial to insured as well as uninsured physicians because the case confirms that the scope of the informed consent doctrine under New Jersey law is limited to disclosure and discussion of information pertaining to the specific medical risks associated with proposed or alternative treatments being considered by the patient.   The Supreme Court explicitly rejected an expansive interpretation of the informed consent doctrine based upon a theory of fraud, misrepresentation, or omission of facts other than the risks to the patient attendant to the medical procedures or treatment.  Jarrell thus precludes expanding the informed consent doctrine to assert novel theories of liability against doctors and other healthcare providers based upon an alleged failure to disclose some information or fact other than the particular risks to the patient inherent in the proposed treatment alternatives.

On the other hand, Jarrell provides a basis for a potential theory of liability against a hospital, surgical center, or other facility that grants privileges to an uninsured doctor or fails to check regularly to confirm that its doctors maintain the requisite medical malpractice insurance.  Consequently, hospitals, surgical centers and other facilities operating in New Jersey should be sure that they have procedures and protocols in place to confirm initially as a prerequisite to granting of privileges, as well as periodically, that all doctors with privileges in their facility have and provide proof of malpractice insurance coverage in compliance with N.J.S.A 45:9-19.17 and related regulations.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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