Differences between Discretionary and Contractual medical indemnity
Discretionary and contractual Medical Indemnity are the two types of protection available to doctors. What exactly is the difference between these forms of cover―and why is it critical to get the contractual indemnity?
Medical Indemnity is a complex matter, but the difference between discretionary and contractual indemnity is simple:
Discretionary indemnity means just that, discretionary―there is no guarantee that it will pay out
Contractual medical indemnity is guaranteed cover within the terms of the policy and surgeons involved in private work are among the medical professionals who need this sort of protection
Contractual cover shows the specifics and the details―discretionary does not
Contractual Medical Indemnity is regulated.
With the right insurance policy in place, doctors can be certain about the level of protection provided under regulated contractual Medical Indemnity with rights of recourse.
But with unregulated discretionary indemnity from traditional medical defence organisations (MDOs), the risk to livelihood, reputation and finances is real.
Contractual indemnity: full cover in writing
Discretionary cover simply cannot compete, says Ian Redbourn, “and the facts speak for themselves”. As a Partner at Paragon International Insurance Brokers Ltd (Paragon), he has an expert understanding of the benefits of contractual indemnity from specialised insurers.
There is an easy means, he adds, for doctors to see for themselves the problem with traditional discretionary cover:
“If you simply ask what’s covered by the policy wording in the member organisation’s indemnity, it’s not long before a doctor discovers there simply is no policy wording.”
Paragon believes the Medical Protection Society (MPS) acts like a public body, after all, the only recourse you have if they do not pay out is Judicial Review. However, if you send a formal request for the full extent the MPS have declined to cover doctors under the discretionary clause you will not be given an answer because Freedom of Information law does not see the MPS as a public body.
“These matters are too important not to have them down in black and white, but the reason the traditional mutuals don’t detail the levels of indemnity is that the cover is discretionary. There simply is no guarantee of full cover that could be put in writing.”
What is in writing, in the ‘articles of association’ of the MDOs, is a disclaimer about discretion.
Traditional cover: it is always just discretionary
The following parts of the articles of association are the clauses that turn the indemnity provided by the MPS into just discretionary cover (we have used italics to highlight the disclaiming phrases).
MPS, item 40(1):
“The grant of an indemnity shall be entirely in the discretion of the council, who shall have the power to impose such terms and conditions on the grant of any indemnity as it thinks fit, and may in its absolute discretion limit or restrict such indemnity or decline altogether to grant the same.”
“A qualifying applicant shall, in relation to any qualifying claim in respect of which an indemnity has been requested and/or granted, comply absolutely with the directions of the society…”
The stakes are high of course. Contractual indemnity spells out the legal representation that will be provided against claims of clinical negligence.
But with discretionary indemnity, how do you know whether a case can be taken up in the first place? We spoke to a senior medical defence lawyer based in London, who fights claims of medical negligence lodged against doctors, sometimes all the way to court.
She outlined the case of an ophthalmologist left unprotected by their MDO. (We can’t name the lawyer because of the duty to client confidentiality.)
Specialist doctor funding six-figure sums because of discretionary indemnity
The ophthalmologist had received three “pretty large claims in quick succession.” The compensation levels being alleged were: one in the £50,000 bracket, a second approaching £200,000 and a third around £300,000.
“The total was over half a million.”
Yet the ophthalmologist received the MDO’s decision that it would not pay the compensation claims.
Nor would monthly legal fees be covered to deal with the claims. These fees, including input from medical experts, clock up into tens of thousands of pounds.
The MDO did not even give any detailed reason for deciding to use the discretionary clause.
The defence lawyer felt “awful” because their client was losing everything he had worked so hard for, and even then, the amounts he could afford to pay in compensation were not really going to be enough to pay the care costs that the claimant needed to cope with their ongoing disabilities.
Working “only to pay the claim” ― and potentially facing personal financial ruin―the ophthalmologist was being left high and dry by the discretionary indemnity.
The only small consolation, the lawyer said, was that there were no General Medical Council (GMC) proceedings for the specialist to also have to find the money to fight.
The key problem, as the specialist legal practitioner reminded us, is that with discretionary indemnity:
You cannot rely on any guarantee of MDO support
They do not have to tell you any reasons for the decisions they make, or at least not in enough detail
There is no recourse if an MDO declines discretionary indemnity to a doctor in trouble (except the extremely arduous route of Judicial Review).
Contrast that with the guarantees under contractual indemnity:
Insurers providing specialist contracts of insurance are regulated to detail the cover and make their pay-out decisions crystal clear
They are bound by a legal ombudsman service that is free, quick and set up to deal with insurance disputes properly
Contractual indemnity insurers are ultimately answerable to the High Court.
In short, providers of contractual Medical Indemnity cannot hide behind impenetrable cloaks of discretion. And they must be backed by large financial reserves.
Medical negligence cases and GMC hearings
Added to the expensive legal complexities and sheer personal risks faced by a doctor having to answer medical negligence claims, surgeons, physicians, general practitioners and others needing contractual indemnity can also find themselves in fitness-to-practise cases heard by GMC.
Legal representation is strongly recommended―“in a doctor’s best interests” in fact.1 The service hearing fitness-to-practice cases reminds medical practitioners of the GMC requirement for “adequate indemnity and insurance cover”. You simply cannot risk being without it. And the law states that this cover must be appropriate to the particular risks and scope of a doctor’s practice.2–4
UK government action on discretionary indemnity
A number of very specific concerns about discretionary indemnity are laid out by the UK Government, in the December 2018 report Appropriate clinical negligence cover.4
“At the heart of a contract of insurance,” the report says of commercial cover, “is a legally enforceable obligation.”
The report refers to contractual indemnity as regulated insurance. This is a key differentiator between contractual and discretionary, leading to the following clear benefits of a specific contract of cover:
Commercial providers legally have to pay out, and the policy wording must make covered activities completely clear
Insurance companies must hold enough reserves for insurance claims, and enough capital for any unexpected losses.
“In contrast,” to legally enforceable duties, the report says, “MDOs offering discretionary indemnity do so on the basis that their discretion is absolute … they therefore are not obliged to pay out in any circumstances.”
Traditional cover might pay out, at whatever level the MDOs “see fit”. So are they really prepared for the rising indemnity risks in healthcare?
Contractual insurance is better. It spells out the high ceilings, and these regulated providers definitely are prepared with enough cover―simply because they are required to be.
1. Medical Practitioners Tribunal Service. Guidance for decision makers on fit and proper persons to provide representation at medical practitioners tribunals, interim orders tribunals and investigation committee hearings (https://www.mpts-uk.org/-/media/mpts-documents/dc4482-guidance-on-fit-and-proper-persons-48098096.pdf, accessed 30 January 2019).
2. General Medical Council. Insurance indemnity and medico-legal support (see ‘The statutory requirement for doctors to have insurance or indemnity’ at https://www.gmc-uk.org/registration-and-licensing/managing-your-registration/information-for-doctors-on-the-register/insurance-indemnity-and-medico-legal-support, accessed 30 January 2019).
3. Statutory instruments 2014, number 1887. Health care and associated professions. The Health Care and Associated Professions (Indemnity Arrangements) Order 2014 (available at https://www.gmc-uk.org/-/media/documents/health-care-and-associated-professions-indemnity-order-20141887-en_pdf-57062848.pdf, accessed 30 January 2019).
4. UK Government, Department of Health and Social Care. Appropriate clinical negligence cover: a consultation on appropriate clinical negligence cover for regulated healthcare professionals and strengthening patient recourse (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/762296/clinical-negligence-cover-consultation.pdf, accessed 30 January 2019).
MDO articles of association:
MPS. Memorandum and articles of association (https://www.medicalprotection.org/docs/default-source/pdfs/financial-information/mps_memoarts.pdf, accessed 30 January 2019).