Australia - Warning To Healthcare Liability Insurers – Medicare High Cost Claims Scheme Only Indemnifies Claims Against Individual Practitioners Not Their Employers.
Legal News & Analysis - Asia Pacific - Australia - Insurance & Reinsurance
26 November 2020
If a claim for damages is brought against a medical practitioner's employer and not the individual practitioner, is the employer's Insurer entitled to an indemnity from the Medicare high cost claim scheme (HCCS)?
The Federal Court decision of Guild Insurance Limited v Chief Executive Medicare  FCA 1170 considers this issue. Whilst the case provides clarity on an important issue, it may not be welcome news to healthcare liability insurers.
The Chief Executive of Medicare (Medicare) administers the high costs claims scheme (HCCS) established under the Medical Indemnity Act 2002 (the Act) on behalf of the Commonwealth Government. The HCCS works by contributing towards the cost of large settlements or awards paid by insurers who indemnify medical and allied health practitioners, by paying a high cost claim indemnity where certain statutory criteria are met.
In the proceeding, Guild Insurance (the Insurer) sought judicial review of two rejected applications for indemnity under the HCCS, namely:
A claim for indemnity involving Wellspring Chiropractic Centre Pty Limited and the alleged negligent conduct of its employee, Suzanne Jarschke, a registered chiropractor;
A claim for indemnity involving Kinnect Pty Ltd and the alleged negligent conduct of its employee, Clare Buckley, a registered occupational therapist.
The challenge to both decisions turned upon the proper construction of section 30(1) of the Act which provides that a high cost claim indemnity is payable to an insurer where, among other criteria, "a claim is made against a person (the practitioner)" for the purposes of section 30(1)(a) of the Act.
The Jarschke Case
Jarschke was the sole director of Wellspring Chiropractic Centre Pty Limited and was employed by the business as a registered chiropractor. Jarschke had a professional liability policy with the Insurer. Under the policy, the Insurer agreed to cover any claim made against Jarschke or Well Spring arising from a breach of Jarschke's professional duty as a chiropractor.
In 2013 Jarschke notified the Insurer of a potential claim made by a patient. In May of 2016, the patient filed proceedings in the Supreme Court of Queensland, naming Wellspring as the sole defendant. The Statement of Claim alleged that Jarschke had been negligent in performing spinal manipulation and that Wellspring was vicariously liable for the loss and damage caused. The claim was settled by a deed of release in October 2017 for $450,000. Subsequently, the Insurer applied to the HCCS for an indemnity.
Medicare rejected the application on the basis that under 30(1) of the Act the high cost claim indemnity was only payable to an insurer where a claim was made against a person (the practitioner). Medicare stated that there was no evidence of a specific claim being made against Jarschke and therefore no indemnity was payable.
The Buckley Decision
Kinnect operated an occupational rehabilitation business in Queensland and employed Buckley as a registered occupational therapist. Kinnect had a professional indemnity policy with the Insurer, which covered claims for breach of professional liability by employees of Kinnect. In April 2016, a patient issued a proceeding against Kinnect in the Supreme Court of Queensland claiming he had suffered injury from treatment provided by Buckley, and that Kinnect was vicariously liable. Buckley was not named as a defendant to the proceeding.
In September 2017 the proceeding settled for $300,000. Buckley was not a party to the deed of release. Subsequently, the Insurer applied the HCCS for a high cost claim indemnity.
Medicare rejected the application on the same basis as the Jaraschke decision.
S 30(1) provides that:
(1) Subject to section 31, a high cost claim indemnity is payable to an MDO or Insurer under this section if:
(a) a claim is, or was, made against a person (the practitioner); and
(b) the claim relates to:
(i) an incident that occurs or occurred; or
(ii) a series of related incidents that occur or occurred;
in the course of, or in connection with, the practice by the practitioner of a medical profession, other than practice as an eligible midwife; and
“Claim” is defined in s 4(1) of the Act as follows:
(a) means a claim or demand of any kind (whether or not involving legal proceedings); and
(b) includes proceedings of any kind including:
(i) proceedings before an administrative tribunal or of an administrative nature; and
(ii) disciplinary proceedings (including disciplinary proceedings conducted by or on behalf of a professional body); and
(iii) an inquiry or investigation;
and claim against a person includes an inquiry into, or an investigation of, the person’s conduct.
Both parties accepted that the reference to "a person" in section 30(1)(a) of the Act was a reference to an individual "practitioner", as opposed to a medical practice entity which might employ them.
The issues for consideration therefore centred around whether the reference to "a claim" in section 30(1)(a) extends to claims against employers of medical practitioners where the employer is sought to be held vicariously liable for the practitioner's alleged breaches of duty, but no remedy is sought against the practitioner.
The Insurer submitted that the term "claim" was broadly defined and encompassed claims where the employer was vicariously liable, but no remedy was sought directly against the practitioner, because for the employer to be vicariously liable, there must be a legal entitlement to damages against the employee practitioner. The references to Jarschke in the statement of claim and the specific allegations of a breach of duty by her evidenced the existence of a legal entitlement to damages from Jarschke which was the foundation of the vicarious liability claim against her employer.
Alternatively, the Insurer submitted that the definition of "claim" in the Act encompassed a "claim or a demand of any kind". The references to Jarschke in the statement of claim and Deed of Release were sufficient to be considered "a demand of any kind", notwithstanding that Jarschke was not a party to either document.
In response, Medicare submitted that the intention of the Act was clear and that in the context of litigation, a claim must be made against an individual practitioner. Jarschke was not a party in the proceeding, and no relief was sought against her. Medicare further noted that no notice under the PIP Act had been issued against Jarschke, even though such a notice was a necessary precondition to institute proceedings for personal injuries in Queensland.
In the Buckley claim, the plaintiff's solicitors provided Buckley with a s9A notice under the PIP Act. The Insurer claimed that the s9A notice was sufficient to qualify as a claim against Buckley for the purposes of s30(1)(a) of the Act. However, Medicare contended that the notice was not "a claim" against Buckley, as its purpose was merely to inform a party of a proposed claim and request that person to provide documents held by that person relevant to the medical services provided. As with Jarschke, Medicare submitted that the claim was not against an individual practitioner, and therefore, the Insurer was not entitled to an HCCS indemnity.
Perry J dismissed both claims. He accepted Medicare's arguments that there had been no claim made against either medical practitioner. He determined that the Act was limited, in the litigation context, to a claim made against a natural person not against a company employing a medical practitioner. Perry J held that:
Vicarious liability of the employer was not a sufficient basis for asserting that a claim had been made against the practitioner;
Service of a notice pursuant to section 9A of the PIP Act could not be properly characterised as a claim against the practitioner, rather it was in effect a statutory mechanism for a form of preliminary discovery.
The effect of the judgment is that a high costs claim indemnity will only be available if an aggrieved patient issues a proceeding against the individual practitioner and not their employer. If the patient decides to commence a proceeding against the practitioner's employer which is indemnified by its healthcare liability insurer, no claim for contribution or indemnity can be brought by the employer against the individual practitioner. This is because s 66 of the Insurance Contracts Act 1984 precludes a subrogation claim being brought by an insurer against the employee unless there is serious or wilful misconduct. The ruling is likely to lead to other capricious decisions by Medicare, as healthcare liability insurers have little control over a patient's decision to sue which party – individual or corporate. The fact that the entitlement to a benefit under s 30(1) is dependent on the conduct of a disinterested plaintiff seems quite odd and doesn't appear to be in keeping with the underlying purposes of the high costs claims scheme, which is to defray the costs borne by healthcare liability insurers and enable medical and allied health practitioners to have access to affordable medical indemnity insurance.
For further information, please contact:
Nicole Wearne, Partner, Clyde & Co