The details
If a healthcare professional has the benefit of a discretionary clinical negligence indemnity arrangement, assistance is provided at the discretion of the provider. The provider has no contractual obligation to support the healthcare professional. The potential benefit of this form of cover is that it may allow the indemnity provider to exercise its discretion in circumstances where the professional would not otherwise ordinarily have been covered had they held a contract of insurance due to indemnity caps and exclusions (this will depend on the scope of cover offered by commercial insurers).
The Government says it was only aware of a limited number of cases where MDOs have exercised their discretion not to support a member. For example, in the Paterson case an MDO (in that case the Medical Defence Union (MDU)) chose not to support a member who acted criminally. That said, commercial insurance cover would normally have exclude claims arising from deliberate malpractice. In 2012, the Government of the Republic of Ireland concluded a €45 million settlement agreement with the MDU, following a decision by the MDU not to exercise its discretion to provide assistance and indemnity to large numbers of consultant obstetricians in respect of historical liabilities for clinical negligence claims.
The risk is that a discretionary scheme member could be refused assistance if their provider chooses not to support them. This could be for any reason including the financial difficulty of the provider. Where the provider does not meet the claim the healthcare professional would be left without the backing of the provider and exposed to the compensation or costs payable. The same exposure arises if the professional is vicariously liable for the incident.
Discretionary indemnity arguably offers less certainty to regulated healthcare professionals than a contract of insurance. A contract of insurance is a contingent liability where there is a legal obligation to pay out if an incident is within the terms of the policy which should be clear to the policyholder/professional - at the point of purchase (and which may influence their decision to purchase). Although there may be some disagreement as to whether the incident is covered by a policy of insurance as a matter of law, the insurer does not have discretion as to whether to pay out. At the heart of a contract of insurance is a legally enforceable obligation to provide some form of benefit (usually in the form of a monetary payment) upon the occurrence of a certain event, which may be subject to specified caps and exclusions.
In contrast, MDOs offering discretionary indemnity do so on the basis that their discretion is absolute, that any assistance offered is at their sole discretion and they therefore are not obliged to pay out in any circumstances. Consequently, regulated healthcare professionals have less visibility, certainty, and assurance as to what incidents may or may not be covered under discretionary indemnity.
It should not be assumed that healthcare professionals purchasing insurance cover have a greater understanding of the product than those covered by discretionary indemnity arrangements. Having said that, most professionals (healthcare or not) purchasing professional indemnity insurance cover, do so with the assistance of insurance brokers, their role being to guide and advise the professional on the most appropriate policy, having regard to their practice and attendant risks, including the level of indemnity cover appropriate for their practice.
A related and crucial risk of discretionary indemnity is that the existence of discretion could leave the patient who has made the claim against the healthcare professional without recourse to an adequate remedy for the harm or injury sustained if discretion is exercised not to provide cover and if the professional has insufficient means to meet the claim. With contractual cover, regulated healthcare professionals need to ensure that the scope and risk of their practice are reflected in the terms and conditions of their contract of insurance – that it does not exclude any relevant activities and that the limit of cover is appropriate. With either discretionary indemnity or a contract of insurance, if this is provided on a claims-made or claims-paid basis, the regulated healthcare professional will need to purchase run-off cover (as just about all other professionals outside healthcare already do) to be protected for any claims arising after the period of their membership or after their policy expires for unreported incidents that occurred before their membership or policy ended.
The absence of regulatory oversight from the Financial Conduct Authority (FCA) into the provision of discretionary indemnity may also have consequences for healthcare professionals in terms of financial conduct and fair treatment. In the context of the insurance industry, it is a key principle of financial conduct regulation that policyholders are provided with information on the scope and circumstances under which they may be covered under an insurance contract, and are treated fairly. Regulated insurance companies must comply with the FCA’s Principles for Businesses. These include, but are not limited to:
- Integrity: A firm must conduct its business with integrity;
- Financial prudence: A firm must maintain adequate financial resources;
- Market conduct: A firm must observe proper standards of market conduct;
- Customers’ interests: A firm must pay due regard to the interest of its customers and treat them fairly. FCA guidance on treating customers fairly sets out 6 outcomes, including that consumers are provided with clear information and are kept appropriately informed before, during, and after the point of sale, and that consumers are provided with products that firms have led them to expect;
- Communications with clients: A firm must pay due regard to the information needs of its clients and communicate information to them in a way which his clear, fair, and is not misleading;
- Relations with regulators: A firm must deal with its regulators in an open and cooperative way, and must disclose to the FCA appropriately anything relating to the firm of which that regulator would reasonably expect notice.
Although the predominant providers of discretionary indemnity, the MDOs are mutual organisations with Articles of Association that set out their responsibilities in respect of their members, they are not subject to clearly defined regulatory duties to treat their members fairly. There is no regulatory framework for members to raise a complaint, should they consider their treatment by an MDO to be unfair. A member of such a mutual organisation would therefore have no recourse but to take legal action through the courts to receive any relief from unfair treatment, which may be a time consuming and expensive and ultimately futile. In contrast, policyholders under a contract of insurance are able to raise complaints with the Financial Ombudsman Service and seek compensation if they suffer from unfair treatment at the hands of their insurance provider, without incurring any cost. Alongside potential uncertainty about their exposure to financial risk, it is also unclear the extent to which regulated healthcare professionals are informed and aware of the terms and scope of their cover.
A survey commissioned by the Department of Health and Social Care showed that over half of surveyed GPs, or practice managers who responded on their behalf, are unaware of the type of cover they hold (specifically whether this is a claims-made, claims-paid, or claims-occurring product). It is also unclear the extent to which regulated healthcare professionals are aware of the differences between discretionary and contractual (insurance) cover.
Hopefully this article has raised some awareness of the issues, as the Government’s consultation was designed to. We await the outcome of the consultation with interest.