Medical Negligence and Professional Indemnity Insurance

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Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion.


Background Paper No. 02/2001 by Rachel Callinan


The purpose of this paper is to comment on the professional indemnity insurance ‘crisis’ among doctors in New South Wales and several proposals for reform in this area.

Introduction (page 1)
In the past few months the media has reported a ‘crisis’ among doctors in New South Wales, caused by the escalating cost of professional indemnity insurance premiums. In late February 2001, the Minister for Health, the Honourable Craig Knowles MP, announced a ‘rescue package’ of measures designed to create an enduring solution to the problem of escalating medical indemnity insurance premiums. This paper reviews several of the measures contained in the Government’s package. It also examines other reform options proposed in the context of this debate.

The issue of professional indemnity insurance premiums and suggestions of reforms to combat the rise in premiums is not new, nor is it particular to New South Wales. From 1991-1995 the Federal Government conducted an extensive review called: The Review of Professional Indemnity Arrangements for Health Care Professionals. The Victorian Parliament Law Reform Committee inquired into the legal liability of health care providers in 1996 and 1997. The paper draws on these works.

Adverse outcomes, medical negligence and professional indemnity insurance (page 2 -8)
Injuries sustained during medical treatment are commonly referred to as ‘adverse outcomes’. A medical practitioner is liable for adverse outcomes caused by his or her negligence. Professional indemnity insurance is a form of insurance that indemnifies the insured against the consequences of a breach of professional duty, particularly, negligence. Most commonly, doctors take out private professional indemnity cover though membership of an Medical Defence Organisation (MDO). MDOs are discretionary mutual organisations. They operate on a ‘not for profit’ basis and offer discretionary, rather than contractually defined, cover. Because they provide discretionary cover, MDOs are not subject to the same regulation as commercial insurance providers.

The professional indemnity insurance ‘crisis’ in New South Wales (pages 8 - 12)
In November 2000, the largest MDO in New South Wales, United Medical Protection (United), made a call-up equal to a full year’s premium and announced a general increase in its premiums of 8%. Most of the other Australian MDOs have made call-ups in recent years and there has also been a steady increase in premiums nationwide. The main reasons for the call-ups and increases cited are: an ‘explosion’ of medical negligence litigation; and the lack of regulation of MDOs. However, there is considerable disagreement about the underlying causes, particularly the nature of the so called litigation ‘explosion’.

After United’s call-up, it was reported that many doctors, particularly specialists in rural areas, were finding that the viability of their practices were threatened by the rising cost of indemnity insurance. However, without accurate data it is difficult to make a conclusive assessment of the effect of the call-up and general increase in premiums on New South Wales doctors. Some people refute the idea of a crisis altogether. While the precise nature of the cause and effect of the increase in premiums on New South Wales doctors needs clarification, the current situation has resulted in pressure on the New South Wales Government to make changes to the current scheme for compensating medical treatment. This paper addresses several of these reform options.

Reform proposals (pages 13 - 50)
Mandatory professional indemnity insurance (pages 13 - 19): The New South Wales Government proposes to introduce compulsory professional indemnity insurance for medical practitioner’s in New South Wales. The most obvious means of implementing this proposal is to amend the Medical Practice Act 1992 (NSW) to make indemnity insurance a pre-requisite for registration as a medical practitioner in New South Wales.

Mandatory reporting of professional negligence claims (pages 19 - 22): In November 2000, the Parliament of New South Wales Joint Committee on the Health Care Complaints Commission recommended the introduction of mandatory reporting of medical negligence litigation in New South Wales. This recommendation is particularly relevant to the current medical indemnity debate, as the lack of data about medical negligence claims has consistently been raised in discussion of reform in this area.

Changes to court procedures for handling medical negligence cases (pages 22 - 30): The New South Wales Government has proposed two changes to the way medical negligence cases are dealt with by the courts: the introduction of a specialist list for medical negligence in the District Court of New South Wales; and compulsory mediation for medical negligence cases.

Reform of compensation awards for medical negligence (pages 31 - 41): The New South Wales Government’s reform package contained a proposal to cap damages for future loss of earnings and general damages. It has also been announced that the Government has recently written to the Federal Government to request that they make changes to Federal tax laws to facilitate the use of structured settlements for compensation for personal injury. There is also speculation that the Government plans to change other aspects of compensation awards: increasing the discount rate of damages for future economic loss; and abolishing exemplary damages.

Alternatives to the common law tort system for compensating adverse outcomes (pages 42 - 45): Analysis of the state of medical negligence litigation and professional indemnity insurance raises the issue of whether there is a better alternative scheme to compensate adverse outcomes than the common law tort system. No-fault compensation schemes have been adopted in the area of workers compensation in all States and Territories in Australia and in for injuries caused by motor vehicle accidents in three Australian States. Many individuals and organisations advocate a no-fault scheme for adverse outcomes for medical treatment, such as exists in New Zealand. The AMA has developed a proposal for a State Medical Services Commission to deal with adverse outcomes of medical treatment.

Good samaritan legislation (pages 45 - 50): The New South Wales Government has announced its intention to implement good samaritan legislation. Good samaritan legislation provides protection from legal liability to medical practitioners who provide assistance in an emergency. There are several related legal issues that contribute to an understanding of good samaritan legislation including: the position of rescuers at common law; medical practitioners and the duty to rescue; a medical practitioners professional responsibility to provide assistance in an emergency.