United States: NJ Supreme Court Decision Expands Privileging Liability For Healthcare Facilities

Last Updated: October 30 2015
Article by Andrew J. Finan

On September 29, the New Jersey Supreme Court issued its ruling in Jarrell v. Kaul, deciding several issues in connection with whether a physician's failure to maintain statutorily mandated malpractice liability insurance gives rise to causes of action, in the event of the physician's alleged negligence, against both the physician and the facility at which a medical procedure was conducted.

The case arose from the treatment of James Jarrell (Plaintiff) by Dr. Richard Kaul (Defendant), a board-certified anesthesiologist whose practice focused on pain management and minimally invasive spinal procedures, for persistent back pain. Defendant performed a spinal fusion procedure on Plaintiff at the Market Street Surgical Center (the "Facility").

NJSA 45:9-19.17 requires a physician to either maintain medical malpractice liability insurance or produce a letter of credit to the New Jersey Board of Medical Examiners (BME). Defendant maintained a malpractice insurance policy, but the policy expressly excluded spinal fusion procedures. The procedure performed by Defendant resulted in new pain and limitations on the physical activity of Plaintiff, requiring him to have another surgical procedure with a different physician to attempt to alleviate the new symptoms.

Plaintiff's complaint alleged that Defendant was negligent in performing the original spinal fusion procedure. The complaint also asserted claims against Defendant based on his failure to satisfy the statutory malpractice insurance requirement and for his failure to obtain Plaintiff's informed consent regarding Defendant's insurance status. The complaint also alleged that the Facility was negligent in its hiring of Defendant. Plaintiff's claim of negligent performance of the spinal fusion procedure was allowed to proceed, but the remainder of his claims were dismissed prior to trial. At trial, Plaintiff received a jury award of $500,000. Defendant appealed the award and Plaintiff cross-appealed the dismissal of his additional claims. The New Jersey Superior Court Appellate Division affirmed the jury award and the dismissal of Plaintiff's claims. Both parties appealed the Appellate Division's decision to the state Supreme Court.

The Court addressed three issues in connection with the statutory requirement that physicians licensed in the State of New Jersey maintain malpractice insurance coverage or produce a letter of credit to the BME.

First, the Court addressed whether a patient in New Jersey has a direct cause of action against a physician for the physician's failure to satisfy the statutory malpractice insurance requirement. The Court held that the statutory requirement does not expressly or implicitly give an injured patient a cause of action against a physician who fails to satisfy the requirement. The Court explained that the remedy for a breach of the requirement is suspension or revocation of a physician's license by the BME and that, in its view, the state legislature did not intend to create a private cause of action for patients harmed by a violation of this provision. As a result, the Court affirmed the dismissal of this claim against Defendant.

Second, the Court addressed whether a physician in New Jersey has a duty to inform a patient of the physician's failure to meet the statutory malpractice insurance requirement. The Court held that a patient does not have a claim against an uninsured or underinsured physician for failure to obtain the patient's informed consent regarding the status of the physician's malpractice insurance coverage. The Court explained that the doctrine of "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 risk associated with it, and those risks associated with any alternative treatments. ... [T]he absence of insurance bears no relation to the nature of the proposed medical course or to the risks attendant to a proposed procedure or treatment." The Court affirmed the dismissal of Plaintiff's claim against Defendant based on lack of informed consent.

Finally, the Court addressed whether a New Jersey healthcare facility that grants privileges to a physician to treat patients at the facility has an ongoing duty to monitor the physician's compliance with the statutory malpractice insurance requirement. The Court held that a cause of action for negligent hiring may be asserted against a healthcare facility that grants privileges to a physician who has failed to satisfy the statutory requirement. The Court explained that an essential element of obtaining surgical privileges is the possession of a medical license in the State of New Jersey and that, in order to obtain and maintain a medical license in the state, a physician must obtain and maintain a malpractice insurance policy in compliance with state law. According to the Court, a healthcare facility has a duty to withhold clinical privileges from physicians who do not satisfy the requirement for a medical license in the state, including the statutory requirement to obtain and maintain malpractice liability insurance. Although Defendant had malpractice insurance, the Facility knew that his policy expressly excluded spinal fusion procedures. As a result, the Court reversed the dismissal of Plaintiff's negligence claim against the Facility.

The most interesting lesson from the Court's decision is the affirmative obligation that it has created. Before granting privileges to physicians, the credentialing bodies of New Jersey hospitals and healthcare facilities will need to obtain copies of the malpractice insurance policies of each of the physicians applying for privileges in order to review and identify any exclusions therefrom. Alternatively, the credentialing bodies may require physicians applying for privileges to represent and warrant that they have all necessary and appropriate malpractice insurance coverage and to indemnify the hospital or healthcare facility for any breach of such representation and/or warranty. Failure to do so may now expose the New Jersey hospital or healthcare facility to liability for negligent hiring of a physician.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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