Professional indemnity insurance and the uninsured practitioner

A cause of action is worthless to a Claimant unless the Defendant has the means to satisfy any judgment which the former may obtain. In the great majority of clinical negligence cases this is not an issue. Either the Defendant is a body corporate with the benefit of NHS indemnity or he or she is an individual who is indemnified by one of the defence organizations. But in a small but significant number of cases the proposed Defendant is not insured, or the Defence organization refuses to provide indemnity. The purpose of this article is to explain the nature of professional indemnity insurance and the statutory framework within which it will soon operate, and to provide some suggestions as to how difficulties for a Claimant caused by the absence of insurance might be overcome.

It may surprise a member of the public to learn that there is at present no statutory obligation on a doctor or dentist to have professional indemnity insurance. Amendments have been made to the Medical Act 1983 and the Dentists Act 1984 imposing such an obligation, but the relevant sections are not yet in force. For the present therefore the matter remains governed only by the professional standards imposed by the General Medical Council (GMC) and the General Dental Council (GDC). In its publication Good Medical Practice, ¹ the GMC lays down that the practitioner ‘must take out adequate insurance or professional indemnity cover for any part of [his] practice not covered by an employer's indemnity scheme, in [his] patients’ interests as well as his own'. In Standards for Dental Professionals ² the GDC requires registrants to ‘make sure that [their] patients are able to claim any compensation they may be entitled to by making sure that [they] are protected against claims at all times, including past periods of practice’. It is to be noted that the GDC's standard does not specifically mention insurance. Given the relatively low value of most dental claims, a dentist might argue that self-insurance would meet the professional requirement, but it would be a risky course. Professional requirements such as the above are enforced through the regulators' fitness to practise panels, and there have been cases in which practitioners have been summoned before their regulator for not having insurance cover. While this may act as a general deterrent against bad practice, it does not directly assist the Claimant who has a cause of action against a practitioner who was uninsured.

The statutory regimes to be established for doctors and dentists are similar. On 19 July 2006 a new section 44C was introduced into the Medical Act 1983. ³ It requires that ‘a person who holds a licence to practise shall have in force in relation to him an adequate and appropriate indemnity arrangement which provides cover in respect of liabilities which may be incurred in carrying out work as a medical practitioner’. An ‘indemnity arrangement’ need not necessarily be a policy, or contract, of insurance, but the GMC is given power to make regulations about what is an ‘adequate and appropriate’ arrangement. It may also make regulations about the information about indemnity arrangements which is to be provided to the Registrar by a person applying for, or holding, a licence to practise. Breach of the requirements of the section or regulations made under it may result in withdrawal of the practitioner's licence to practise or may be treated as a matter of misconduct under the fitness to practise procedures. The equivalent section for dentists is section 26A of the Dentists Act 1984, introduced on 19 July 2005. ⁴ It requires a registered dentist to be covered by ‘adequate and appropriate insurance’ throughout the period during which he is registered, and there is a similar requirement under section 36L for dental care professionals. The use of the term ‘insurance’ however does not mean that by statute the practitioner must have the benefit of a contract of insurance. Sections 26A(10) and 36L(11) define ‘insurance’ as including not only a contract of insurance but also an arrangement for the purpose of indemnifying the practitioner against any liability incurred in the course of his work. Obligations to provide information to the Registrar about insurance arrangements are included within the statute itself, and again failure to comply with the requirements of the section may lead directly to loss of registration or to referral of the practitioner to be dealt with under the fitness to practise procedures.

The statutory provisions extend the definition of an indemnity arrangement or insurance beyond a contract of insurance because in this country there has been a long tradition of the provision of discretionary indemnity by defence organizations to healthcare professionals. One of the defence organizations (the Medical Defence Union) has in recent years moved to contracts of insurance, but the other leading defence organizations continue to provide discretionary indemnity. Self-evidently if the practitioner has a contract of insurance, he has a contractual right to be indemnified against his liability to his patient, provided that no contractual exclusion applies and he has complied with his own obligations under the contract. Contractual insurance cover is provided on a commercial basis and is regulated by the Financial Services Authority. It tends to be claims-based, so that the practitioner is covered if he was a policy-holder when notified of the claim. By contrast discretionary indemnity is provided on a not-for-profit basis by mutual organizations which are owned by their members. There is no automatic right to an indemnity, but in determining whether or not to indemnify a practitioner in respect of a particular claim the Board of Directors must comply with the Memorandum and Articles of Association of the organization. Discretionary indemnity tends to be occurrence-based, so that a practitioner is covered if he was a member of the organization at the time when the event giving rise to the liability occurred.

Where a practitioner is indemnified under a contract of insurance, the person to whom he is liable has the benefit of the Third Parties (Rights Against Insurers) Act 1930. That Act provides a statutory exception to the principle of privity of contract. It provides that where an insured person becomes bankrupt, and either before or after his bankruptcy he incurs a liability to a third party in respect of which he is insured, on the bankruptcy the insured's rights against the insurer vest in the third party. ⁵ A similar transfer of contractual rights occurs where the insured dies leaving an insolvent estate. ⁶ Section 2 of the Act imposes a duty on the bankrupt and others to provide to any person claiming that the insured is under a liability to him such information as may be reasonably required for the purpose of ascertaining whether any rights have been transferred to that person under the Act.

The bankruptcy of an insured practitioner is however only one example of the difficulties which an injured Claimant may face. Some of these potential difficulties are reflected in the minimum essential requirements for adequate and appropriate contractual and discretionary indemnity proposed by the GDC in its draft consultation paper of September 2008. The injury may have been sustained in a novel or peripheral area of the practitioner's practice which does not fall within the scope of the indemnity; where the indemnity is claims-based, the practitioner's cover may have ceased before the claim is notified to the insurer; the indemnity may not be sufficient to cover the whole value of the claim; it may be contingent on payment by the practitioner of an excess which the practitioner cannot or will not pay; more generally, the practitioner may be uncooperative in notifying his insurer or otherwise or he may not be traceable; or the indemnity may cover only liability arising out of the acts or omissions of the practitioner himself and not of those for whom he is vicariously liable. In the case of discretionary indemnity, the Board of Directors may be exercising their discretion not to indemnify the practitioner. Issues such as these are likely to be addressed in the statutory rules and regulations to be made by the GMC and the GDC specifying what will constitute adequate and appropriate indemnity cover for the future.

If a cause of action is likely to prove valueless because of insurance difficulties, the first consideration must be whether there is valuable claim against another, indemnified Defendant, whether in respect of the same acts or omissions or in respect of the same injury. A Claimant who can show that separate and distinct acts or omissions by another tortfeasor have also caused or contributed to his injury will be fortunate, but experience shows that it does happen. The second tortfeasor may have no legal relationship at all to the first, but it may happen that for example a practice principal, who cannot be shown to be vicariously responsible for the acts or omissions of his locum or associate, is primarily liable to the injured patient because he has given instructions to the locum or associate to work in a particular way, or to use a particular material.

In most cases however the injured Claimant will be restricted to considering whether another person or body is legally responsible for the acts or omissions of the uninsured practitioner. Under section 10 of the Partnership Act 1890 a firm is liable for the acts or omissions of one of its partners acting in the ordinary course of business of the firm, where by those acts or omissions loss or injury is caused to a third party. More commonly there will be a question of whether any person or body can be said to be an employer of the uninsured practitioner, such that he or it is vicariously responsible for that practitioner's acts or omissions. The difficulty for the injured Claimant here is that while each case will depend upon its own facts, and the label attached to the relationship will not be determinative of whether it constituted a contract of service or a contract for services, the courts have tended to find, at least in disputed cases in the primary care context, that doctors and dentists are independent contractors for whose acts or omissions the practice principal is not responsible. This is no doubt in part because such practitioners are professionals exercising their own professional skill and judgment and tend not to be subject to significant control by the principal. It can in most cases reasonably be said that they are in business on their own account. A judge sitting in the Employment Appeal Tribunal in a case dealing with the nature of the relationship between a health authority and a general practitioner in its area ⁷ agreed with the submission of counsel that ‘it is hard to think of a clearer example of a self-employed “independent contractor” than a general practitioner’.

The first instance decision in Fennell v Croad ⁸ provides a good example of an unsuccessful attempt by a Claimant to fix a dental practice principal with vicarious liability for the acts or omissions of an associate. In that case the principal engaged the associate as he had been required to retire through ill health. The associate, who had previously been practising in Germany, assured the principal that he had appropriate indemnity cover, but this was not in fact the case. Under the agreement the associate paid 50% of his earnings to the practice in return for a licence to work at the practice, the use of a dental surgery and the cost of equipment. The Claimant was injured by the uninsured associate. When the principal discovered that the associate was not adequately insured he refused to allow him to work at the practice until the matter was sorted out. The judge found that the associate was an independent contractor. He had his own patients and was not supervised by the principal. He decided what hours he worked and the length of his holidays. He was self-employed for fiscal purposes and payment was made to him not by the principal but by the patients or the Dental Practice Board. It did not matter that the principal had excluded the associate on finding out that insurance was not in place nor that the associate was working in what was clearly the principal's business. By contrast in Bickley v Powell-Mayne ⁹ a dental ‘associate’ was found to be an employee. It was of significance that she had been personally selected for the post after a period as a trainee; there was some control over her working practices; she worked set hours and had a fixed holiday entitlement; her contract contained many restrictive and post-termination covenants; and the patients which she saw were those of the practice and not her own.

In Fennell the judge observed in passing that there was no doubt that the principal should have checked the insurance position properly, but that default did not affect the legal relationship between principal and associate. A question arises however whether there may be circumstances in which a principal may be liable to an injured third party for loss caused to him by breach of a duty to check the insurance position of an independent contractor. There is limited authority on the point. In Gwilliam v West Hertfordshire Hospitals ¹⁰ the Defendant health authority had organized a fun fair on its premises and hired equipment from an independent contractor. The Claimant was injured on the equipment due to the negligence of the contractor's employees. Unfortunately the contractor's public liability insurance had expired. The Claimant sought to recover damages from the health authority for breach of an alleged duty to ensure that the contractor was adequately insured. A majority of the Court of Appeal found that in the particular circumstances there was a duty to check the insurance position, but that it had not been breached because there had been an oral inquiry and it was not reasonable to expect the health authority to check the policy document. Sedley LJ held that no duty was owed. Waller LJ specifically stated that there was no general duty to check the insurance position of an independent contractor. In Naylor v Payling ¹¹ the Claimant had been injured by the negligence of a bouncer at a nightclub. The bouncer was employed by an independent contractor who did not hold public liability insurance. The Claimant sought to recover damages from the owner of the nightclub on the basis of breach of an alleged duty to ensure that the contractor was insured. The Court of Appeal rejected the claim. The court rejected the submission of counsel for the Claimant that the employer of an independent contractor owed a duty to ensure that he was not only competent, but also suitable, for the task in question. It held that in the absence of special circumstances, there was no free-standing duty to ensure that an independent contractor was insured. It was of relevance that the nightclub owner himself was not under a statutory duty to carry public liability insurance. Neuberger LJ observed that special circumstances might arise where such a duty existed.

What implications might these cases have in the clinical context? There will of course shortly be a statutory duty on the medical and dental principal to carry insurance, and in the individual case there might be circumstances, such as the practitioner arriving in this country from overseas, which might give rise to doubt about the adequacy of his insurance cover. On the other hand, the associate or locum will himself be a healthcare professional with his own professional and legal duty to be insured. Moreover his professional duties under the agreement with the principal may be carried out over a significant period of time, and it may not in the circumstances be reasonable to require the principal to continue to monitor the insurance arrangements. That a duty exists is arguable but far from straightforward.

It is to be hoped that the imposition of the statutory requirement to be adequately and appropriately indemnified will reduce the numbers of uninsured practitioners and that to provide information about indemnity cover to the regulator will assist Claimants dealing with uncooperative practitioners. The purpose of the new statutory regime is to reduce the risk that an injured Claimant with a valid claim will go uncompensated. It is likely to achieve that aim, but the risk will not be eliminated. Those advising Claimants will continue, in some cases, to need to look for ways of overcoming the injustice to their client of valid claim against an uninsured practitioner.