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Hospital’s captive insurer must cover nurse from staffing agency

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Hospital captive insurer must cover nurse from staffing agency

A nurse provided by a staffing agency should be considered a hospital employee for purposes of insurance coverage, even though she was employed by the agency, said a federal appeals court in overturning a ruling against the staffing agency’s liability insurer.

Richardson, Texas-based Favorite Healthcare Staffing Inc. is an employment agency that provides nurses and other health care professionals to Laurel, Maryland-based Laurel Regional Hospital, according to a Dec. 6 ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, in Interstate Fire & Casualty Co. v. Dimensions Assurance Ltd.

No agency supervised these medical practitioners, and the hospital dictated the type of care they provided, according to the ruling.

Interstate Fire & Casualty Co., a Chicago-based unit of Fireman’s Fund Insurance Co., issued a professional lability policy to Favorite that covered doctors and nurse employed by the agency to work at various medical facilities, according to the unit. Meanwhile, Cayman Island-based Dimensions Assurance Ltd., the hospital’s captive insurer, had issued the hospital a liability insurance policy.

In 2012, a former patient brought a medical malpractice action against the hospital and several of its doctors and nurses. One of the defendants was a nurse who had been placed by the agency at the hospital, according to the ruling. 

Dimensions claimed she was not a hospital employee and refused to defend her. Interstate then undertook her defense and ultimately settled the case against her for $2.5 million while incurring nearly $500,000 in defense costs, according to the ruling.

Interstate subsequently filed suit against Dimensions in U.S. District Court in Greenbelt, Maryland, alleging that the nurse qualified as a hospital employee. 

The District Court granted summary judgement in the captive’s favor, ruling that agency-provided workers were not employees within the hospital policy’s meaning.

A three-judge appeals court panel unanimously overturned that ruling. The 4th Circuit ruling cited the “right-to-control test.” Under this test, “one who works in the service of another who has the right to control the details of the work is the employee of the entity with the right to control,” said the ruling.

The panel said under this test, the nurse was a hospital employee, and therefore the captive was obligated to provide coverage. “We conclude that the provision in the professional-liability section of the (hospital’s) policy extending ‘protected person’ status to ‘employees’ of the hospital is unambiguous,” said the ruling.

“The plain and ordinary meaning of the ‘employee’ includes those who qualify as employees under the right-to-control test, and the evidence in the record establishes that (the nurse) qualifies as an employee of the hospital under that test,” said the ruling, in remanding the case for further proceedings.