4th Cir. Holds Hopsital Insurance Policy Includes Duty to Defend Staffing Agency’s Nurse, Notwithstanding Staffing Agreement

In Interstate Fire and Casualty Company v. Dimensions Assurance Ltd., the U.S. Court of Appeals for the Fourth Circuit determined that a contract nurse who worked for a hospital through a staffing agency was covered under the hospital’s liability insurance policy, and therefore the insurer was obliged to tender a defense in a medical malpractice lawsuit.

The Court determined that the the definition of "employee" under the insurance policy was unambiguous, and tracked the common-law "right-to-control" test used to determine the existence of a master-servant relationship.  Therefore, determining that the nurse met the requirements for such definition, the Court disregarded as irrelevant the classification of the nurse under the staffing agreement between the hospital and its staffing agency.

A copy of the opinion can be found here.


Nurse working at Hospital through a Staffing Agency was named as a defendant in a medical malpractice lawsuit, together with other professionals and the Hospital itself.  Hospital’s insurer refused to defend Nurse, arguing that Nurse was not a Hospital employee.   Staffing Agency’s insurer tendered a defense instead, settling the claims against Nurse for $2.5 million, and incurring roughly $500,000 in defense costs.

Staffing Agency’s Insurer filed an equitable contribution action against Hospital’s Insurer, asserting that under the Hospital’s insurance policy, Nurse qualified as an employee of the Hospital.  Further because the Hospital’s insurance coverage was primary, and Staffing Agency’s coverage was “excess,” its Insurer argued that Hospital’s Insurer was responsible for the entire amount paid to defend and settle the claims against Nurse. Op. at 5.

The District Court granted summary judgment in favor of the Hospital’s Insurer.  Relying on the terms of the staffing agreement, the District Court ruled that agency-provided workers were not employees within the meaning of the insurance policy. Op. at 6.

Staffing Agency’s Insurer appealed, arguing that Nurse qualified as a hospital employee under the plain language of the insurance policy, and that the District Court erred in relying upon the staffing agreement to determine whether Nurse was covered under the policy.


The Fourth Circuit agreed with the Staffing Agency, vacated the judgment, and remanded the case to the District Court for further proceedings.

Construing the insurance policy, the Court observed that under the professional-liability section of the Hospital insurance policy, agency-provided practitioners were not clearly excluded, whereas they were specifically excluded from the general-liability section of the policy. Thus, the Court agreed that because the exclusion language was used in one section of the policy, and not in the other, the insurance policy intentionally did not exclude agency-provided employees from the professional liability section. Op. at 8-9.

Moreover, the Hospital insurance policy, which provided coverage to employees, was not ambiguous and included workers provided to the hospital by the staffing agency that the hospital controlled under the five-pronged common law “right-to-control test” in Whitehead v. Safway Steel Prods., Inc., 497 A.2d 803, 808-09 (Md. 1985) (“This Court has traditionally considered five criteria in determining whether or not an employer/employee relationship exists between two parties. These criteria . . . include (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.”).

Because the hospital had control over the nurse’s assignments at the hospital and termination from assignment, under the Whitehead common-law “right to control” test, the nurse was a hospital employee, even though the nurse was employed by the staffing agency. Op. at 14.

Consequently, the Court determined that Hospital’s Insurer had an independent duty to provide coverage to workers who met the definition of employee under its policy, regardless of how those workers were classified under the staffing agreement between Hospital and Staffing Agency.  Op. at 29-30.

The Court rejected Hospital’s Insurer’s argument that term “employee” must be interpreted based on the staffing agreement between Hospital and Staffing Agency, explaining: “[a]ccepting [such] argument that the Staffing Agreement controls the meaning of the Policy would be inconsistent with Maryland principles of contract interpretation.  As we have concluded, the Policy is not ambiguous, despite its failure to define ‘employee.’  Maryland law therefore requires us to look only to the Policy itself and to interpret it as written.” Op. at 19 (emphasis added).   Moreover, the Court concluded that since neither Hospital nor the Staffing Agency were parties to the action, any agreement between them related to allocation of liability was irrelevant under the Fourth Circuit precedent in Travelers Property and Casualty Co. v. Liberty Mutual Insurance Co., 444 F.3d 217 (4th Cir. 2006), which held that where an insurer had an independent duty to provide coverage, an indemnification agreement between the insured and another party was irrelevant.  “[A]s we made clear in Travelers, the contract between the Hospital and the Agency simply has no impact on [Hospital’s Insurer]’s independent obligation to provide the coverage undertaken in the policy.” Op. at 24.

Accordingly, the Court reversed the grant of summary judgment in favor of Hospital’s insurer, and remanded the case for further proceedings.