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The Brief

Fall 2024 | Shipowners' Limitation of Liability

How the Apparent Agency Tort Doctrine Came Apart

Daniel Harris

Summary

  • The nondelegable duty doctrine holds companies responsible for an independent contractor’s negligence if the company owed the plaintiff an affirmative duty that the independent contractor failed to perform.
  • The apparent agency tort doctrine holds a company responsible for an independent contractor’s negligence if the plaintiff detrimentally relied on the company’s representation that the contractor was its employee.
  • Restatement (Second) of Torts section 429 relies on cases decided under the nondelegable duty doctrine but creates a rule that appears to be a liberal version of the apparent agency tort doctrine.
  • Misled by section 429, courts use the liberal version of the apparent agency tort doctrine in hospital cases instead of the more appropriate nondelegable duty doctrine.
How the Apparent Agency Tort Doctrine Came Apart
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Despite their authoritative phrasing, the blackletter rules set forth in the Restatements of the Law published by the American Law Institute are not law, and they are not always accurate restatements of the law that has been established by the courts. Sometimes, Restatement pronouncements are simply wrong.

A case in point is section 429 of the Restatement (Second) of Torts, which sets forth a rule governing when employers will be held liable for the negligence of their independent contractors. An examination of the seven precedents for section 429 and its illustrations listed in the reporter’s notes reveals that none of the precedents supports the rule stated in section 429. The supposed rule, in other words, had no basis in the law. Much like a bug in a computer program, this error has had negative consequences for the legal system, introducing confusion and incoherence where the law was once clear and straightforward.

Apparent Agency and Nondelegable Duty

By way of background, companies are normally not responsible for the negligence of their nonemployee independent contractors. This rule has exceptions. One exception, the nondelegable duty doctrine, holds companies responsible if the company owed the plaintiff some affirmative duty that the independent contractor failed to perform. Another exception, the apparent agency tort doctrine, holds a company responsible for the negligence of an independent contractor if the company represented that the contractor was its employee and the plaintiff detrimentally relied on that representation.

The problem is that the case law under the apparent agency tort doctrine is confusing. While liability normally requires proof that the plaintiff detrimentally relied on a representation by the defendant that the negligent actor was the defendant’s agent, courts will often hold hospitals liable for the negligence of independent contractor doctors under an apparent agency theory without proof that the hospital represented that the doctor was its employee and without proof that the plaintiff detrimentally relied on a belief that the doctor was a hospital employee. Recent illustrations of this special rule for hospitals include a 2023 decision from New York and 2022 decisions from Michigan, Maryland, and Indiana. The original cases that developed this special hospital version of the apparent agency doctrine often cited section 429 of the Restatement (Second) of Torts as justification.

This article argues that the confusion in the apparent agency case law is due to a defect in section 429. The Restatement provision did not accurately restate the precedents it claimed to be restating. Section 429 misstated precedents decided under the nondelegable duty doctrine, turning them into a liberal version of the apparent agency doctrine (one that did not require proof of detrimental reliance). As a result, courts used that liberal version of apparent agency in hospital cases when the nondelegable duty doctrine should have been used instead.

Section 429 and Its Precedents

According to section 429 of the Restatement (Second) of Torts:

One who employs an independent contractor to perform services for another which are accepted in the reasonable belief that the services are being rendered by the employer or his servants, is subject to liability for physical harm caused by the negligence of the contractor in supplying such services, to the same extent as though the employer were supplying them himself or by his servants.

To be an accurate restatement of the law, section 429 should not have used the words that are italicized, namely the phrase “which are accepted in the reasonable belief that the services are being rendered by the employer or his servants,” to describe the circumstances in which liability would be imposed on the employer because of the negligent performance of services by an independent contractor. None of the cases section 429 claimed to be restating said liability could be imposed simply because the plaintiff accepted services from the negligent actor in the reasonable belief that the actor was an employee of the defendant.

Instead, section 429 should have used the phrase “which the employer of the independent contractor has a duty to provide to the other pursuant to a contract or other legal obligation” to describe the circumstances in which the employer is responsible for negligent performance of services by an independent contractor. In other words, section 429 should have been clearly based on the nondelegable duty doctrine. As will be shown below, all of section 429’s precedents involved situations in which the defendant had a contractual duty to perform some service for the plaintiff and that service was not properly performed. In six of the seven precedents cited as support for section 429, liability was predicated on the nondelegable duty doctrine, and not based on any claim of apparent agency.

The seven precedents of section 429 are listed in the reporter’s notes. The notes cite Hannon v. Siegel-Cooper Co., Mahany v. Kansas City Rys. Co., Sciolaro v. Asch, Maryland Dredging & Contracting Co. v. Maryland, and Jenkins v. Charleston General Hospital & Training School in support of the rule stated in section 429; the notes cite John J. Radel Co. v. Borches and Dunne v. Boland as the bases for the illustrations in section 429.

Hannon. The first of these cases, Hannon v. Siegel-Cooper Co., involved the idea of agency by estoppel, which (like other forms of estoppel) requires proof of reasonable and detrimental reliance on a misleading representation by the defendant. In the Hannon case, the defendant, Siegel-Cooper Co., operated a department store in New York City that “advertised itself as carrying on the practice of dentistry in one of its departments.” Plaintiff Mary Hannon visited the store, employed the company to perform work on her teeth, and paid the company for doing so. The dentistry work was performed “so carelessly, negligently, and unskillfully” that the plaintiff’s “jaws and gums were injured,” so she sued the company for malpractice.

At trial, the company argued that it was not liable because its dentistry department was owned and controlled by an independent contractor, a Mr. Hayes. With respect to this defense, the trial court instructed the jury that it could find the company liable, even if the dentistry department was really owned by Mr. Hayes, if the company “made representation to the plaintiff, on which she relied, that they were conducting a dentist business in their store, and if she, because of those representations,” hired the dentist in the defendant’s store “with no knowledge that the business was conducted by Mr. Hayes individually.”

The jury found for the plaintiff, and the appellate division affirmed. In the New York Court of Appeals, the company did not deny “the general doctrine that a person is estopped from denying [its] liability for the conduct of one whom [it] holds out as [its] agent against persons who contract with [it] on the faith of the apparent agency,” but insisted that this agency by estoppel doctrine was inapplicable because the malpractice action against the company was “brought in tort and not on contract.”

The New York Court of Appeals conceded that the defense argument “may very well be [valid] where the duty, the violation of which constitutes the tort sued for, springs from no contract with, nor relation to, the principal.” In such circumstances, the court acknowledged, “a party [would] not be estopped from denying that the wrongdoer was [its] agent,” even though the principal had held the wrongdoer out as such, because “the representation of the principal would be no factor in producing the injury complained of.” The court then distinguished that hypothetical case from the case before it because there was a contractual relationship between the parties. The court said: “whenever the tort consists of a violation of a duty which springs from the contract between the parties, the ostensible principal should be liable to the same extent in an action ex delicto as in one ex contractu.”

The court of appeals then dealt with the defense argument “that the representation that the operating dentists were the defendant’s servants did not mislead the plaintiff to her injury, and therefore should not estop the defendant from asserting the truth” (namely, that the dentist was not really its servant). The court rejected this argument, holding that there was in fact detrimental reliance because “the plaintiff had a right to rely, not only on the presumption that the defendant would employ a skillful dentist as its servant, but also on the fact that if that servant, whether skillful or not, was guilty of any malpractice, she had a responsible party to answer therefor in damages.”

Because this decision was one of the supposed precedents for section 429, it is important to note that liability in Hannon required much more than the plaintiff’s reasonable belief that the negligent actor was an employee of the defendant. The plaintiff’s proof satisfied all the elements of traditional estoppel. The plaintiff showed that the defendant made a representation to the plaintiff that it was operating the dentistry business in its store and that the plaintiff relied on that representation to her detriment. The jury was specifically instructed that it had to find such reliance to rule for the plaintiff.

The other six precedents for section 429 involve the nondelegable duty doctrine, a legal concept now summarized in section 7.06 of the Restatement (Third) of Agency, which says: “A principal required by contract or otherwise by law to protect another cannot avoid liability by delegating performance of the duty, whether or not the delegate is an agent.”

Sciolaro. In Sciolaro v. Asch, the defendant, Asch, owned a building with a manually operated elevator. An employee of one of Asch’s tenants was injured due to the negligent operation of the elevator. The New York Court of Appeals upheld a verdict against Asch, even though the elevator operator was the employee of an independent contractor, on the theory that a covenant in the lease between Asch and the building tenants imposed on Asch a duty to provide elevator service “with reasonable care and prudence,” and the contract between Asch and the company responsible for the elevator service “did not relieve” Asch from this duty.

The court also said that, as the building owner, Asch had a duty to ensure “that the premises were in a reasonably safe condition for access and egress.” Asch could not escape that duty through delegation. Quoting a treatise, the court said: “One who is personally bound to perform a duty cannot relieve himself from the burden of such obligation by any contract which he may make for its performance by any other person.” The quote went on: “His obligation is to do the thing, not merely to employ another to do it.”

Borches. In John J. Radel Co. v. Borches, the plaintiff was injured while returning from a funeral in a carriage provided by the undertaker company. The Kentucky Court of Appeals held the company liable even though the carriage was owned and operated by an independent contractor. The court reasoned that “in arranging for the transportation of the decedent’s relatives and family, the undertaking company owes the same contract obligation to each of them,” even if the company did not know their names, and the company’s liability under that contract was not affected by its delegation of performance to an independent contractor. The court explained:

The rule is clear beyond argument that one who undertakes by contract to do for another a given thing cannot excuse [itself] to the other for a faulty performance, or a failure to perform, by showing that [it] has engaged another to perform in [its] place, and that the fault or failure is that of another or independent contractor.

Dunne. A 1916 precedent, Dunne v. Boland, involved very similar facts. In connection with a funeral, “a neighbor of the deceased,” named Fox, ordered from the undertaker, named Boland, a car to transport mourners to and from the funeral, with directions that Boland should charge Fox for the use of the car. On the way back from the funeral, the car had an accident that injured a mourner passenger. The Illinois Appellate Court held that Boland was liable to the injured passenger, even though the driver of the car was an independent contractor. The court said that Boland’s position “was that of a private carrier for hire,” and that “the contract for hire was for the benefit of each occupant of the automobile invited by Fox, and imposed the same duty towards each.” As a private carrier for hire, Boland had a contractual duty to ensure that the passengers were driven with “ordinary skill,” and “[w]hether he or his chauffeur did the driving” did not make any difference.

Maryland Dredging. The nondelegable duty doctrine was also the basis for liability in Maryland Dredging & Contracting Co. v. Maryland. The Patapsco Ship Ceiling & Stevedore Company transported its workers to various locations in Baltimore harbor, sometimes using its own boats and sometimes using boats owned by others. One day, the Stevedore Company contracted with another company to carry workers to a pier in the harbor. The hired boat passed too close to the cables holding another vessel to the pier, causing one of the workers being transported to be knocked into the water and drowned. The U.S. Court of Appeals for the Fourth Circuit held that the Stevedore Company was responsible even though the negligence that caused the death of its worker was that of an independent contractor. The court explained that since the company had “contracted to convey its employees to their work,” the company’s “obligation to use reasonable care in the carriage is implied as a part of the contract,” and the company “cannot shift this obligation to another by an independent contract to which the employees were not parties and to which they did not assent.”

Jenkins. In Jenkins v. Charleston General Hospital & Training School, the plaintiff came to the hospital with a broken arm and suffered permanent injuries to that arm due to the negligence of an independent contractor radiologist employed by the hospital. The West Virginia Supreme Court of Appeals held that the hospital could not avoid liability by shifting the blame to the independent contractor radiologist because the hospital had “its own contract and undertaking to diagnose and treat the injury.” Presumably, this referred to the contract between the hospital and the plaintiff. Invoking the nondelegable duty doctrine, the court said: “Farming out work to be done under a contract never relieves from the obligation of the contract.” The court also noted that a person cannot avoid a contractual obligation “by devolving performance thereof upon a stranger.”

Mahany. In Mahany v. Kansas City Rys. Co., the plaintiff contracted with the defendant for transportation from a funeral in a car driven by a chauffeur, was injured due to negligent driving by that chauffeur, and successfully sued the firm for damages. On appeal, the defendant argued that it was not liable because the chauffeur was not its employee. The Missouri Supreme Court said that it did not matter because the defendant “violated the contract of carriage if it failed to exercise due care to carry [the] plaintiff safely” and “could not avoid its contractual obligation in that regard by contracting with a third party to carry the plaintiff.”

The Confusion Wrought by Section 429

When these seven precedents are compared to the text of section 429, it becomes apparent that section 429 included a serious drafting error. As argued above, the language “which are accepted in the reasonable belief that the services are being rendered by the employer or his servants” was a mistake. The reference to the reasonable belief of the person accepting services makes it appear that section 429 is a species of apparent agency that requires only reasonable belief, not reliance. In fact, as we have seen, section 429 was based on nondelegable duty precedents. Moreover, it was included in the chapter of the Restatement (Second) of Torts devoted to nondelegable duties. The law would have been much clearer if section 429 had followed the language of its nondelegable duty precedents and not substituted confusing language about reasonable belief.

The mistaken language in section 429 has confounded the law. Courts have generally used section 429 in cases like Jenkins in which the plaintiff visited a hospital for treatment and suffered injury due to the negligence of an independent contractor doctor selected by the hospital. If section 429 had been drafted to reflect its precedents, courts could have applied the nondelegable duty doctrine to these cases, just as the West Virginia Supreme Court did in Jenkins. Instead, the law took a much more complicated path.

In cases in which the hospital selected the negligent physician, courts merged section 429 into the apparent agency doctrine to create a version of the apparent agency doctrine that does not require proof of detrimental reliance. For example, in a 1994 case involving a hospital emergency room, the Ohio Supreme Court specifically rejected any requirement “that the plaintiff must show that she was induced to rely upon the apparent-agency relationship,” noting that such a requirement was inconsistent with the law of other jurisdictions holding hospitals liable on an apparent agency theory.

Indeed, courts have gone so far as to hold hospitals liable under this special version of the apparent agency doctrine even when the hospital had notified the patient that the negligent doctor was an independent contractor rather than a hospital employee. Thus, the actual decisions are much more in line with the nondelegable duty doctrine. Despite the apparent agency rhetoric, the driving idea seems to be that when a hospital selects the treating physician, the hospital assumes a duty to the patient that cannot be evaded by delegation to an independent contractor physician.

That the hospital cases are apparent agency decisions in name only becomes more evident when one looks at how the apparent agency doctrine is applied in cases outside the institutional medical care situation or when the plaintiff chose the negligent doctor. In this setting, liability typically requires proof that the defendant held out the negligent actor as its agent plus proof that there was actual, justifiable, and detrimental reliance by the plaintiff on the representation of an agency relationship.

For example, in 2016, the Connecticut Supreme Court held that when the plaintiff chose the allegedly negligent doctor and then sued the hospital on an apparent agency theory, the plaintiff would have to show not only that she reasonably believed, based on the principal’s acts, that the negligent doctor was an authorized agent of the defendant, but also that she “detrimentally relied on the principal’s acts, i.e., the plaintiff would not have dealt with the [negligent doctor] if the plaintiff had known that the [doctor] was not the principal’s agent or employee.” The court explained: “It would make little sense to hold a principal vicariously liable for the negligence of a person who was not an agent or an employee of the principal when the plaintiff would have dealt with the apparent agent regardless of the principal’s representations.”

This detrimental reliance requirement is consistent with the general rule in apparent agency cases. For example, in 2023, a federal court in California held that Amtrak was not liable on an apparent agency theory for injuries the plaintiff suffered from the alleged negligence of a supposedly associated bus company because there was “no evidence that Plaintiff relied upon an understanding that Amtrak was responsible for bus operation and such reliance caused her injury.” The opinion also noted that there “is rarely any basis on which the principal may be held liable in tort [for the acts of an apparent agent]. The essential element of reliance on the representations or conduct of the principal is usually lacking.”

A Clearer Restatement of the Law

Currently, courts follow two versions of the apparent agency tort doctrine. Under the normal version, plaintiffs must prove their detrimental reliance on a false representation of agency made or allowed by the defendant. In a special version generally limited to hospital emergency room cases, a representation of an agency relationship is presumed, proof of detrimental reliance is excused, and belief in an agency relationship between the defendant and the negligent actor is presumed.

The law would be much cleaner if the version of the apparent agency doctrine used in emergency room cases were replaced with the nondelegable duty doctrine. If the nondelegable duty doctrine were used, courts could impose liability on the hospital on the much simpler ground that by selecting the doctor who treated the plaintiff, the hospital undertook a nondelegable duty to the patient to provide quality medical care. Depending on their preference for private ordering, courts could either base the nondelegable duty on implied contract (which could be changed by agreement) or on public policy.

This application of the nondelegable duty doctrine would not be an innovation. Rather, it would be consistent with the decision of the West Virginia Supreme Court of Appeals in 1922 in Jenkins and other decisions from that era that section 429 was supposedly restating.

In short, the law would be improved if section 429 were rewritten so that it is consistent with the nondelegable duty doctrine cases it was supposed to be restating and does not contain language associated with the apparent agency doctrine. A possible rewrite, in more contemporary language, would be as follows:

One who employs an independent contractor to perform services for another which the employer of the independent contractor has a duty to perform for the other pursuant to a contract or other legal obligation is subject to liability for physical harm caused by the negligence of the contractor in supplying such services, to the same extent as if the employer were supplying the services directly or through employees.