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Defense Digest

The Continuing Evolution of Derivative Claims

Defense Digest, Vol. 28, No. 12, December 2022

December 1, 2022

by Maura Waters Brady

Key Points:

  • Through derivative claims, plaintiffs often seek to find additional sources of funds to cover judgments or settlements in cases valued in excess of a doctor’s usual $1 million liability policy.
  • These attempts need to be evaluated, as they may place a health care provider’s personal assets at risk.

It is obvious to all of us who practice in the health care defense litigation field that both judgments and settlements have increased in value. In contrast, the availability of insurance coverage to cover those claims has actually decreased. While most doctors continue to maintain the minimum required $1–$3 million policy for their own liability, many of their practices have switched their policies to shared limit policies, which do not provide the “excess coverage” that has been traditionally available in a separate group policy.

For plaintiffs, the obvious question is where to find additional sources of funds to cover judgments or settlements in cases valued in excess of that usual $1 million policy. If plaintiffs are thinking about this, we should be thinking about it, too. In the last few years, we have seen plaintiffs file a variety of motions seeking to expand liability, including attacking the charitable immunity status of hospitals based upon their profits and seeking to obtain information about the personal assets of individual physicians who own thriving practices. These lines of attack have only resulted in minimal success and will need legislative input to support such approaches.

However, working within the confines of the current case law, we are now seeing new approaches to hold parties in cases on derivative claims for the negligence of another physician. In recent trial court opinions, we have seen corporate defendants brought into cases as direct defendants where a franchisee has been named as a defendant and, in another, a surgeon held in on a derivative claim in a case against a defendant anesthesiologist. In both of these cases, the rulings arguably put physicians’ personal assets at risk.

Estate of Cordero v. Christ Hospital, 958 A.2d 101 (N.J. Super. App. Div. 2008) confirmed that when a hospital provides a doctor to a patient and the circumstances are such that a reasonable patient would believe that the doctor’s care is rendered on behalf of the hospital, an agency relationship is presumed unless rebutted. Accordingly, it has become common practice to make patients aware that the physicians were not employees of the hospital but of a different practice group.

In a case where the treating medical care provider worked in a franchise location, the doctor was questioned during his deposition as to what information was provided to the patient to make it clear that he was not an employee of the corporate franchisor. The doctor denied having specifically advised the patient that he was not an employee of the corporation; consequently, the corporation was then joined as a defendant on a theory of “apparent authority.” However, pursuant to the franchise agreement, the corporate defendant had a right to seek indemnification from the provider. In the event that a judgement is entered against the defendant/provider for an amount in excess of his policy limits, he will be personally liable to the corporation for the excess amount.

In another case, the court denied a motion for summary judgment brought by the defendant surgeon and the surgeon’s practice, which owns a surgical center, in a case brought against the codefendant anesthesiologist on a claim of “apparent authority.” The court found the defense argument that Cordero did apply, as it the practice group was not a hospital, was “a distinction with no relevance.” The practice group was in the business of offering medical care that required the services of an anesthesiologist, and the difference, therefore, was merely “one of semantics.” The court noted that the anesthesiologist was identified as a member of a different practice and, arguably, was an independent contractor.

Nonetheless, the extent to which the practice group represented that they “would provide the anesthesiologist” and that “the anesthesiologist was part of the surgical team” was an indicator of an apparent agency relationship upon which a reasonable fact finder could find the practice group “vicariously liable” for the actions of the anesthesiologist. That fact, therefore, remained in dispute, and the jury was required to decide whether the defendants could overcome the presumption of agency.

The court made it clear it was not holding the doctor in the case under a theory of “Captain of the Ship,” which is not a recognized doctrine in New Jersey, but there remained an open question as to whether the doctor could be vicariously liable for the actions of other individuals involved in the surgical procedure. Of greater concern is the fact that the surgeon maintains a policy of insurance relative to his medical care of a patient. The practice group maintains a policy of insurance that “shares” policy limits with the doctor’s policy but denies coverage for any other physician’s medical care. Should the jury find that a reasonable patient would have concluded the practice group was vicariously liable for the care of the anesthesiologist, the group could be held responsible for any judgment in excess of the anesthesiologist’s policy. However, since there is no coverage for another physician’s care, the plaintiff could argue the physician who owns the group is personally liable for the excess judgment.

On the defense side, we should be facing these issues head-on. We know that in cases where facts are very specific, appeal of issues such as these can often lead to unfavorable precedent. The risk of personal liability could require recommending settlement of an otherwise defensible case. Medical care providers who own or have relationships with other corporations, such as surgical centers, urgent care centers or corporations with multiple sites and franchises, should be made aware of these risks. We should anticipate arguments like these and evaluate the practices of both the provider and the corporation to determine whether an argument for vicarious liability would be successful and potentially expose the doctor to personal liability. Even if it is not an issue in the case in front of us, it may be an issue in a future matter. Evaluating and addressing these issues now may go a long way to preventing an unfavorable opinion in the future when, inevitably, this issue is considered on appeal.

Firm Highlights

Thought Leadership

Legal Update for Special Education Law: Recent Positive Outcomes From the Group

Hearing Officer Confirms District Acted Appropriately Under IDEA and Section 504 William J. McPartland (Scranton) obtained a finding in favor of our client, a school district, on all issues following a due process hearing. The parent had filed a due process complaint alleging that the school district had breached its child find duty under the IDEA and Section 504, that the school district had discriminated against the student on the basis of disability in violation of Section 504, and that the school district had denied a free and appropriate public education to the student both by developing inadequate IEPs and via an actionable procedural violation.  Specifically, the student had received a Section 504 evaluation in October 2023, after a number of behavioral infractions culminating in a fight in September 2023, was identified as having anxiety and a sleep disorder, and received appropriate Section 504 accommodations. The student had never previously demonstrated signs of a learning disability, and the parent denied the school district permission to evaluate the student for special education needs in November 2023, and January 2024. The parent granted the district permission to evaluate the student in October 2024, after a private psychologist diagnosed the student with Attention Deficit Hyperactivity Disorder, possible Oppositional Defiance Disorder, a learning disorder, and anxiety. The school district issued a special education evaluation report in December 2024, finding that the student had an emotional disturbance and other health impairment, and an IEP providing an itinerant level of emotional support, as well as instruction in academics and social skills, was issued in January 2025, and amended in February, March, and April 2025. The student withdrew from the school district in April 2025, to attend a cyber charter school. The hearing officer determined that the school district had not violated its child find duty to the student in violation of either the IDEA or Section 504 where the district developed a Section 504 plan for the student within a month and a half of the parent’s first request for a Section 504 evaluation and where the parent repeatedly denied consent to conduct an IDEA evaluation of the student. The hearing officer noted that the student’s sporadic record of behavioral infractions prior to September 2023, did not suggest that the student had a disability prior to the parent’s initial request for an evaluation. The hearing officer further determined that no evidence had been produced to suggest that the student was discriminated against on the basis of disability in violation of Section 504. Additionally, the hearing officer determined that the IEP offered to the student was substantively adequate and that, to the extent the social and emotional programming offered by the school district was not received by the student, this resulted from the parent’s refusal to accept the same. The hearing officer finally determined that the school district did not commit an actionable procedural violation by delaying development of an IEP for the student where the parent repeatedly denied consent to evaluate the student. Court Dismisses Three of Four Claims Against School District Christopher J. Conrad and Daniel P. McGannon (Harrisburg) achieved a significant early victory on behalf of a school district client in. The team successfully obtained dismissal of three of the four claims asserted in the plaintiff’s amended complaint. The former district superintendent brought multiple claims arising out of his alleged “forced resignation,” including age discrimination under the ADEA, a Section 1983 Equal Protection claim, a Pennsylvania Whistleblower claim, and breach of contract. On behalf of the district, the defense team moved to dismiss the complaint in part, arguing: The plaintiff failed to plead sufficient facts to support a prima facie case of age discrimination. The equal protection claim was barred because the ADEA provides the exclusive federal remedy for age-based employment claims. The breach of contract claim could not stand because the underlying employment agreement had expired prior to the alleged breach. The court agreed, dismissing the ADEA, equal protection, and breach of contract claims in their entirety. As a result, only a single claim under the Pennsylvania Whistleblower Law remains pending. This outcome substantially narrows the scope of the litigation and positions the client for a more efficient defense moving forward.

Thought Leadership

Featured Conversations... Key Takeaways from A.M. Best’s Webinar on the Misuse Defense in Product Liability Claims, Featuring Michael Salvati

Michael Salvati, shareholder in our Philadelphia office, was a panelist for the April A.M. Best webinar, “The Misuse Defense: Strategic Approaches to Defending Product Liability Claims for Insurers.” During the program, Michael and his fellow panelists offered practical, jurisdiction‑specific guidance on how misuse and failure‑to‑warn theories intersect in modern product liability litigation. Michael emphasized the unique challenges these claims present—particularly in states like Pennsylvania, where evidentiary rules diverge sharply from those applied in many other jurisdictions. Failure to Warn as the “Flip Side” of Misuse Salvati explained that failure‑to‑warn allegations often arise as a direct counter to a misuse defense. As he noted, “If our misuse defense is that the plaintiff didn't use a product properly or safely, then the failure to warn claim is that we didn't tell them how to use it properly.” He emphasized that these claims can stem from either the absence of warnings or criticisms of existing warnings, such as insufficient specificity or lack of clarity about risks. Pennsylvania’s Unique Evidentiary Landscape One of Salvati’s most notable points was the stark difference in how Pennsylvania treats evidence of compliance with industry standards. He highlighted that Pennsylvania is “one of the only states…where that evidence is not admissible” in strict liability cases. Manufacturers cannot rely on compliance with ANSI, UL, ISO, or even federal safety standards to defend the product against a strict liability claim—because the focus is solely on the product itself, not the manufacturer’s conduct. Salvati acknowledged the challenge this creates for defense counsel and clients who expect such compliance to carry weight. Understanding the Three Defect Theories Salvati also walked through the three primary defect theories recognized in many jurisdictions: - Design defect – a flaw in the product’s intended design - Manufacturing defect – a deviation affecting a specific unit - Failure to warn – inadequate instructions or warnings He noted that warnings claims are increasingly significant and sometimes stand alone when design or manufacturing theories are weak. As he put it, plaintiffs often default to warnings claims because “the default position seems to be, ‘If I got hurt, there must be something wrong.’” Warranties and State‑by‑State Variations Salvati addressed how breach‑of‑warranty claims fit into the broader framework, explaining that implied warranties—such as merchantability—often overlap with strict liability in Pennsylvania. He emphasized the importance of understanding local nuances, as warranty law and admissibility rules vary widely across states. Looking Ahead: The Growing Importance of Warnings In his closing remarks, Salvati stressed that warnings should never be treated as an afterthought in product liability defense. He observed that warnings‑only claims are becoming more common and urged manufacturers and insurers to continually evaluate the clarity and completeness of their instructions and warnings. His takeaway: “We should always be talking about what are the instructions that come with our products…to bolster a misuse defense.” Listen to the complete webinar here: https://www3.ambest.com/conferences/events/eventregister.aspx?event_id=WEB1074.

Result

No-Cause Jury Verdict Secured in Wrongful Death Trial

We successfully obtained a no-cause jury verdict in a 13-day wrongful death trial. The decedent, a 59-year-old man, was admitted to the emergency room on February 15, 2019, with complaints of abdominal pain, decreased appetite, and constipation, despite the use of laxatives. The patient did not complain of any nausea, vomiting, or diarrhea. He had a significant medical history including diabetes, hypertension, prior coronary artery stenting, morbid obesity (with past gastric bypass surgery), longstanding ventral hernia, and back pain. A CT scan revealed multiple hernias and a potential closed-loop bowel obstruction, leading to a surgery consultation. Our client, an emergency general surgeon, interpreted that the patient did not have a closed loop or any significant obstruction and recommended non-surgical management. The patient was approved to have clear liquids, and had a vomiting incident shortly after, but our client was not notified. The patient was returned to NPO status, and after improving overnight, he was returned to “clears” and additional medical and renal consults were ordered. Our client did not receive any communications from the residents/nurses of any changes in the patient’s condition. On February 18, 2019, two rapid responses were called due to increased heart rate and vomiting. It is believed that the vomiting resulted in aspiration, causing sepsis, ultimately leading to the patient’s death. During the trial, the plaintiff’s sole medical expert highlighted imaging on the wrong hernia, which called into question all of his opinions in the case. We made key objections related to the expert testimony, limiting what the allegations were, and preventing new allegations from being made. After approximately two and a half hours of deliberating, the jury returned a no-cause verdict.