Nonprofit Hospital Entitled to Liability Cap But Not Immunity, Says NJ Supreme Court

A unanimous New Jersey Supreme Court ruled on June 10 that a federally qualified nonprofit health center that provides healthcare to underserved populations is not entitled to immunity from a patient’s negligence suit under the state’s Charitable Immunity Act (CIA) that shields entities “organized exclusively for religious, charitable or educational purposes.”

Rather, Newark Community Health Centers, Inc. (NCHC) is instead entitled only to a $250,000 cap on damages as provided by the charitable immunity law because it is “organized exclusively for hospital purposes,” the high court found in reversing lower courts on the immunity issue.

The CIA that provides nonprofit entities immunity from negligence claims if they are “organized exclusively for religious, charitable or educational purposes,” also sets forth an exception to immunity for nonprofit corporations organized “exclusively for hospital purposes.” In those cases, the law limits their liability “to an amount not exceeding $250,000, together with interest and costs of suit, as the result of any one accident.”

The high court said there is no dispute that NCHC is not organized exclusively for religious purposes. Its mission statement and certificate of incorporation make clear that it is organized to provide healthcare — not an exclusively educational purpose. And it is not organized exclusively for charitable purposes because almost none of its funding comes from charitable sources. Instead, as a provider of medical and dental services, the high court concluded, NCHC is organized exclusively for hospital purposes for the purpose of the CIA.

Smith v. NCHC

Cassandra Gigi Smith alleges that she slipped and fell in 2019 when leaving the examination room at NCHC’s East Orange location, sustaining multiple serious and permanent injuries. NCHC moved for summary judgment of the lawsuit Smith brought against it, arguing that it was entitled to immunity under the CIA.

Smith argued that the NCHC is not entitled to full immunity but only to the $250,000 cap on damages. She contended that NCHC is not organized exclusively for educational purposes because it is “a comprehensive group of medical practices and facilities whose primary purpose is to provide medical treatment,” not to teach. And NCHC is not organized exclusively for charitable purposes because charitable contributions comprise “less than 3/10 of one percent” of its total revenue,” Smith maintained.

NCHC countered that it is organized exclusively for educational purposes because it “promotes, creates, and sponsors monthly outreach events to educate and inform the community on pressing healthcare topics, solutions and resources.” Its provision of healthcare services, NCHC maintained, “does not negate the fact” that it is “organized to provide educational services.”

NCHC also asserted that it meets the source-of-funding analysis required to be organized exclusively for charitable purposes and further contended that it is not organized exclusively for hospital purposes because it “is not owned nor operated by a hospital facility.”

Trial and Appellate Courts

The trial court granted summary judgment to NCHC, holding there was no genuine issue of material fact that NCHC is “organized exclusively for religious, charitable or educational purposes.” The trial court relied on the certificate of incorporation which it stated, “showed exclusively charitable and educational purposes” and on the testimony of NCHC’s chief operating officer. The trial court held that “providing health care services” was part of NCHC’s objectives and purposes but it concluded that NCHC was not “organized exclusively for hospital purposes” because the certificate of incorporation “shows a wider range of purposes and powers than providing health care services.”

The Appellate Division affirmed, holding that the medical services rendered “did not thwart defendant’s educational purpose.” Because the court concluded that NCHC was organized exclusively for educational purposes, it did not undertake a source-of-funding analysis that is required for nonprofits organized exclusively for charitable purposes. The Appellate Division also rejected the argument that NCHC was organized exclusively for hospital purposes, because NCHC is “neither owned nor operated by a nonprofit hospital.”

The state Supreme Court has now reversed the Appellate Division’s judgment and remanded the case for further proceedings. The high court relied on the evidence submitted by NCHC.

According to its website, NCHC was founded “to address growing health disparities plaguing underserved populations” in the city of Newark.” Its mission is “to provide affordable, high quality, and accessible healthcare to the communities that we serve.” The mission statement explains that NCHC’s “primary goal is to eliminate health disparities and help people live stronger, healthier, and happier lives.”

NCHC’s certificate of incorporation states that it was “formed for scientific, educational and charitable purposes” and lists 16 separate purposes. NCHC’s chief operating officer testified that as a federally qualified health center, NCHC works to deliver “primary care to patients, regardless of their ability to pay.”

According to the high court, the terms “educational” and “religious” have limited and commonly understood meanings and should be read literally. The word “charitable,” on the other hand, defies precise definition. For proof of charitable purpose, courts engage in a source-of-funds assessment.

After explaining that an entity’s dominant motive determines its purpose and reviewing the evidence NCHC submitted, the high court concluded that NCHC’s dominant motive is providing healthcare, not education.

Further, NCHC fails any source-of-funding analysis because almost none of its revenue comes from charitable contributions. The court noted that NCHC’s 2019 tax return showed that out of total revenue of $33,819,482, just $102,988, or 0.3%, came from charitable fundraising events or other contributions, gifts, and grants. NCHC is therefore not organized exclusively for charitable purposes either, the high court concluded.

Rather, NCHC is organized exclusively for hospital purposes under the CIA. The high court cited a similar 2015 case (Kuchera v. Jersey Shore Family Health Center) that found that a modern hospital is “organized to engage in a series of activities relating to the improvement of human health and the provision of care to the sick, injured, and disabled.”

The Supreme Court said that description perfectly identifies NCHC’s work. NCHC is therefore not entitled to immunity, but is entitled to the $250,000 cap on damages under the CIA.