Do Medical-Malpractice Time Bars Apply to Hospitals’ Indemnification Suits Against Doctors?

Columbia/CSA-HS Greater Columbia Healthcare System, LP v…., — S.E.2d — (2015), 2015 WL 249536 (S.C. 2015)

The South Carolina Supreme Court has recently decided that a hospital’s indemnification suit against doctors whose malpractice made it pay compensation to the aggrieved patient is subject to the same time bars as patients’ actions against defaulting physicians. Chief Justice Jean Hoefer Toal wrote a vehement dissent in which she was joined by Justice Kaye Hearn. In that dissent, she wrote that “The majority’s holding represents a fundamental misunderstanding of the nature of indemnification actions which I fear will have far-reaching effects on the ability to seek indemnification.”

The Chief Justice is absolutely right.

Facts underlying this important decision included the following:

The Providence Hospital of Columbus, SC, settled a viable malpractice action filed in connection with its physicians’ failure to detect an ongoing heart attack back in 1997. This settlement was made on June 10, 2004. On June 7, 2007, the Hospital filed an indemnification suit against the physicians (who worked at the Hospital as independent contractors). The physicians relied on the state’s statute of repose, S.C. Code Ann. § 15–3–545(A), according to which “[Any action] to recover damages for injury to the person arising out of any medical, surgical, or dental treatment, omission, or operation by any licensed health care provider … acting within the scope of his profession must be commenced within three years from the date of the treatment, omission, or operation giving rise to the cause of action or three years from date of discovery or when it reasonably ought to have been discovered, not to exceed six years from date of occurrence, or as tolled by this section.” Specifically, the physicians claimed that, since their alleged malpractice took place in 1997, they became immune against any suit in connection with that event as of 2003.

The South Carolina Supreme Court agreed with the physicians, but that was a wrong decision. The conceptual basis of indemnification rights is the law of unjust enrichment. To the extent the hospital paid the aggrieved patient any amount of money on the physicians’ behalf as tortfeasors, they are obligated to reimburse it for that payment. This is what the law of unjust enrichment says. The hospital’s indemnification suit therefore was not an “action … to recover damages for injury to the person arising out of any medical, surgical, or dental treatment, omission, or operation.” Rather, it was an action for remedying the physicians’ failure to abide by their independent legal duty to reimburse the hospital. The physicians’ malpractice was one of the reasons for them having that duty, but reasons are one thing and a cause of action is a completely different thing. Statutes of repose extinguish causes of action, not reasons.

The Hospital’s cause of action – indemnification pursuant to the law of unjust enrichment – consequently did not accrue before the physicians’ refusal to reimburse it for the compensatory payment it made on their behalf. This refusal took place after June 10, 2004, the day on which the hospital made a settlement with the aggrieved patient and his wife. If so, the Hospital had a three year window for filing its indemnification suit against the physicians, as prescribed in S.C. Code Ann. § 15-3-530(1) for actions “upon a contract, obligation, or liability, express or implied.” Indeed, under S.C. Code Ann. § 15–3–20, “Civil actions may only be commenced within the periods prescribed in this title after the cause of action has accrued” (emphasis added). The Hospital therefore properly filed its suit on June 7, 2007. Alas, the South Carolina Supreme Court saw it differently.

What should hospitals do in light of this precedent? First, they will do well to implead doctors as third parties whenever possible. Second and equally important, hospitals should write into their agreements with doctors an indemnification obligation from which a doctor would only be released if he proves that he committed no malpractice against the patient who sued the hospital. This indemnification clause would completely remove medical malpractice from the hospital’s cause of action against the doctor.