In Interstate Fire & Casualty Company v. Dimensions Assurance Ltd., 843 F.3d 133 (4th Cir. 2016), the United States Court of Appeals for the Fourth Circuit was asked to determine whether a nurse employed by a staffing agency also was an employee of the hospital where she performed her work activities. The determination in this case dictated the outcome of which insurance company owed the nurse coverage in connection with a medical malpractice claim. The Fourth Circuit held that the nurse was an “employee” of the hospital as well as the staffing agency.

In Dimensions Assurance, Favorite Healthcare Staffing (the “Staffing Agency”) assigned nurses and other health care professionals to perform work at Laurel Regional Hospital (the “Hospital”). According to the staffing agreement between the Staffing Agency and the Hospital, all practitioners assigned to work at the Hospital were employees of the Staffing Agency, not the Hospital. The staffing agreement also provided that the Hospital was responsible for “orient[ing]” practitioners to their “job description responsibilities and all policies and procedures necessary to meet [the Hospital’s] performance standards.” In addition, under the staffing agreement, the Hospital had the right to “float” practitioners assigned by the Staffing Agency “to areas to which they were not originally assigned and to immediately terminate any practitioner who refuses to float.” The staffing agreement further provided that the Hospital had the right to “dismiss any Practitioner at any time if [the Hospital] determines that a Practitioner is unsatisfactory.” The type of care provided to patients was dictated by the Hospital and, if a practitioner assigned by the Staffing Agency refused to comply with a Hospital directive, the Hospital had the authority to terminate the practitioner’s work with the Hospital immediately. No Staffing Agency employees supervised employees when they performed services at the Hospital.

Interstate Fire & Casualty Company (“Interstate”) issued a professional liability policy to the Staffing Agency that provided insurance coverage to doctors and nurses who were employed by the Staffing Agency and assigned to work at medical facilities. Dimensions Assurance Ltd. (“Dimensions”) issued an insurance policy to the Hospital that included general liability coverage, hospital professional liability coverage, and group physicians professional liability coverage. The Dimensions policy provided coverage to “protected persons.” In the professional liability section of the policy, “protected persons” was defined to include the Hospital’s “present and former employees, students and authorized volunteer workers” “while working or when they did work for [the Hospital] within the scope of their duties.” The general liability section included a similar provision, but the provision ended by stating, “[p]ersons working for [the Hospital] on a per diem, agency or contract basis are not protected persons.”

A former Hospital patient brought a medical malpractice claim against the Hospital and several doctors and nurses, including Nurse Cryer who had been assigned by the Staffing Agency to perform services at the Hospital. Dimensions refused to defend Nurse Cryer on the basis that she was not a “protected person” under its policy. Interstate undertook Nurse Cryer’s defense, incurring nearly $500,000 in defense costs, and settled the case for $2.5 million. Interstate subsequently filed suit against Dimensions, asserting an equitable contribution theory while claiming that Nurse Cryer was an “employee” of the Hospital and, thus, a “protected person” under the Dimensions policy. The United States District Court for the District of Maryland granted summary judgment to Dimensions, finding that Nurse Cryer was not an employee within the meaning of the policy. Interstate appealed to the Fourth Circuit.

Interstate argued that, although the general liability section of the Dimensions policy excluded by its terms Staffing Agency employees from those defined to be “protected persons,” the definition of “protected persons” in the professional liability section of the policy did not include a similar exclusion from the definition of “protected persons.” Interstate further argued based on legal principles governing contract interpretation that the insurance policy’s distinction between agency-provided employees in different sections of the policy required the court to find that Nurse Cryer was a “protected person” under the professional liability section of the policy. The Fourth Circuit agreed with Interstate, finding that the differential treatment in the different sections of the policy “must be understood as an intentional decision[,]” otherwise the court would not be able to give full effect to each provision of the policy.

Apart from the principles governing contract interpretation, the Fourth Circuit examined the professional liability section of the policy on its own. It noted that the policy provides coverage to Hospital “employees” without defining who is an employee. The court gave credence to Interstate’s argument that the term “employee” is an unambiguous term whose ordinary meaning can be determined from the common law “right of control” test that is applied when examining whether there is a master-servant relationship. In Maryland, the “right of control” test looks at a variety of factors, including “(1) the power to select and hire the employee, (2) the payment of wages, (3) the power to discharge, (4) the power to control the employee’s conduct, and (5) whether the work is part of the regular business of the employer.” When applying the “right of control” test, although the Fourth Circuit did not conduct a factor by factor analysis, the court concluded that “[t]here can be no question that Nurse Cryer qualifies as an employee of the Hospital.”

In reaching this conclusion, the Fourth Circuit rejected Dimensions’ argument that relied on the distinction between a “general employer” and a “special employer.” Dimensions had argued that, when a company loans an employee (the “general employer”) to another employer (the “special employer”), liability for the employee’s acts turns on whose work is being done and who can control that work, but, if the general employer and special employer have entered into a contract that assigns liability to one of the parties, courts will give effect to the terms of the contract. In this case, Dimensions had argued that the staffing agreement stated Nurse Cryer was an employee of the Staffing Agency and the Staffing Agency was liable for her acts. The court rejected this argument, however, because, to accept this argument would require the court to reject principles of law governing contract interpretation. In this regard, the insurance policy used the unambiguous term “employee” and the ordinary meaning of “employee” under Maryland law is governed by the “right of control” test. According to the court, when applying the “right of control” test to the facts of this case, Nurse Cryer clearly was an employee of the Hospital.

Dimensions Assurance is an important case in a few respects. First, although this case was decided in the insurance context and terms of the relevant policy provisions enabled the court to reach a decision without addressing employment law principles, the court still proceeded to apply employment law principles, namely the “right of control” test, which is applied in various forms in many jurisdictions. The application of the “right of control” test is an important reminder to companies in employee leasing situations that a “borrowed” employee may still be an employee of the borrowing company that creates various risk exposures for the company. Second, even where there may be attempts to allocate risk between the leasing and borrowing company in the contract governing that relationship, it may not be enough to overcome liability for the borrowing company where the “right of control” test establishes that the borrowed employee is an employee of the borrowing company.