Dr Richard Tjiong – Medical Indemnity Industry in Australia

The following article relates to the publication  Dr Richard Tjiong – The Centenary Speech- New South Wales Medical Defence Union [recommended reading as assumed knowledge of its content is the context for the following.]

Medical Indemnity Industry in Australia

As an industry, the provision of professional indemnity assistance to doctors and other health care practitioners in Australia has undergone some remarkable changes in the last 20 years. The industry used to be dominated by medical associations that simply provided assistance to their members by the discretion of the elected governing bodies, with no assurance or rights to indemnity. These discretionary medical defence organisations were not regulated under the federal insurance legislation. Many resisted “insuranisation”. Intervention by the Federal Government marked a new era after 2002.

I was involved with the industry for fifteen years from 1986 to 2001, and privileged in being able to serve on the board of governors of Australia’s oldest medical indemnity organisation– New South Wales Medical Defence Union Limited. When I joined in 1986, all the other state-based indemnity (“defence”) organisations in Australia were affiliated with the British based Medical Protection Society (MPS). MPS has a history dating back to 1889, and was formed as a breakaway group from the London-based The Medical Defence Union. MPS began its presence in Australia in 1949 at the invitation of the Medical Defence Society of Queensland to share in the provision of assistance to doctors practising in that State; after 1949, everyother state in Australia except NSW followed the Queensland example and MPS gained presence across the nation.

The century old rivalry between MPS and The MDU reached Australian shores in 1979 when the MDU opened up an office in Sydney and began recruiting for members nationally. The organisation I joined (NSW MDU) was somewhat of a minnow caught up between the two British giants. It was existing on its own, while to all other Australian state-based defence organisations were under the MPS umbrella.

The Centenary Speech of the NSW Medical Defence delieverd in 1993 foreshadowed wide ranging changes in the medical indemnity industry. The article Medical Indemnity Reform, reproduced in full below, is an expansion of the plan expressed in the Centenary Speech. It is also the leading part of a submission made to the NSW Parliament in March 1997.

Mergers and rationalisation in the industry commenced in earnest by mid 1997. The leadership in Medical Defence Society of Queensland saw the wisdom of joining forces with NSW Medical Defence, a merger that was amicable supported by MPS. This merger marked the birth of United Medical Protection Limited (UMP).

Further rationslisation saw The MDU departing from Australia  by January 1999. As a result, UMP came to cover around 70% of all of the practising doctors in Australia. Its strength facilitated the NSW Government’s introduction of the Health Care Liability Act (2001). This was followed by wide ranging reforms by the Federal Goevrnment, one of these reforms completed the “insuranisation” process that I had strived for for many years. Since July 2003, all doctors in Australia must have medical indemnity by way of insurance in order to practise medicine; this is much more than mere membership in an unregulated discretionary medical defence organisation, prevalent prior to NSW Medical Defence and UMP introducing insurance contracts to its members. Since 2003, all Australian doctors are now better protected; their patients – and the Australian community – get the ultimate benefits.

In 2009, the Medical Defence Association of Victoria merged with UMP and the group assumed a new name AVANT, which rightly boasts of majority membership of doctors in Australia.

Whatever the criticism directed at monopoly in commerce, it should be born in mind that medical indemnity insurance is much more than a mere commodity for trade the subject for commericial competition. PI Insurance is an essential part of medical practice and the federal government delivery of Universal Health Care. In a number of countries including Canada, France and The Netherlands, medical indemnity insurance is provided mainly by a minority of one provider. In fact, the Law Society in every Australian State is the sole provider of PI indemnity insurance for solicitors. There is strong public interest argument for such an arrangement.

Medical Indemnity Reform has come a long way in Australia since my retirement, but it has some further grounds to cover.


A Submission to the NSW Parliament,

March 1997.

Data from major medical indemnity organisations confirm that the incidence of malpractice civil suits issued against doctors have doubled in the past 5 years, while significant components of  awards for damages in the two largest Australian States have doubled in a matter of three years[1&2]. The current adverse litigation trend has affected other major professions, including lawyers, auditors, accountants, engineers, and architects[3]. It has also impacted on employers, motorists and local governments.

There may well be a number of reasons for the increase in the incidence of malpractice claims. An Australian observer has cited the following factors behind the American litigation crises: medical advances, better educated consumers, growth of women’s movement, media treatment, inadequate welfare system, public attitude to litigation, advertisement by lawyers and contingency fees [4]. Justice Michael Kirby as President of the NSW Court of Appeal reflected that the existence of insurance is an important part of assisting the compensation for malpractice injuries [5].

Whatever the adverse litigation experience may have been in Australia to date, it is set to increase. The Harvard studies suggest that, in the relevant population, only one out of eight negligent outcomes led to a civil suit, and there were four times non-negligent adverse outcomes than there were negligent incidents [6].  It could be argued that the Harvard figures may suggest that the potential pool of malpractice claims may be 32 times those already in the system. Add to this the recent emphasis by governments on the need to improve access to justice and the number of unmeritorious claims which have been brought against doctors in recent times, the prospect is that the frequency of claims for compensation will only increase.

A responsible profession such as the medical profession ought to own up to its obligation to compensate patients for the true negligence of its members. This desirable principle can only be put into practice if we are not paying compensation for non-meritorious claims, and if the compensation for true negligence is reasonably affordable and yet fair to the injured persons. There is therefore a need for an urgent review of the compensation arrangements currently in existence in Australia in at least three areas: the common law as a system for determining liability and damages, the indemnity industry as a source of funding the compensation, and the health care industry’s approach to quality management so as to reduce the incidents requiring compensation.

These three areas are so inextricably linked together that reforms must be comprehensive and integrated. They are referred to in the Professional Standards Act, 1994 (NSW), which unfortunately does not apply to compensation arrangements for personal injuries.


The  law to be applied for malpractice claims is largely made by the common law judges. It is derived from England, but has been modified and added to by Australian judges over the years. Accordingly, judges, sometimes with the assistance of juries, determine whether a plaintiff is entitled to compensation, and if so, how much. To date parliaments have not seen fit to give judges much guidance in this regard.

From the perspective of the health care professions, the following areas of health care litigation deserve urgent review and reform. They involve both substantive and procedural matters.

Substantive Reform

First, “negligence” needs a better definition. This is the benchmark by which liability is established.

On a doctor’s duty to advise the risks associated with a proposed treatment, the reasonable peers test as embodied in Bolam v Friern Hospital Management Committee [7] was displaced by the High Court of Australia in  Rogers v Whitaker [8]. The tests to be applied now are the “reasonable” patient and the “particular” patient tests. However, contrary to a similar decision made by the highest court in Canada in Reibl v Hughes [9], the  High Court did not resolve the very important causation issue (Table A).  Parliaments should intervene and adopt the objective test.

With regards to the technical areas of diagnosis and treatment, again the Bolam test has been subtly displaced  by the High Court in Rogers v Whitaker, to the effect that it is the courts and not the medical profession who adjudicate on what is the appropriate standard of care in medical negligence cases, but with evidence of accepted medical practice as a useful guide.

In Woods v Lowns & ors [10] Justice Badgery-Parker misapplied the High Court’s ruling on the use to which medical expert evidence should be put in malpractice cases, in finding that one defendant, a paediatric neurolgist, was negligent. That case, however, does highlight that the function of expert witnesses is to be  impartial experts, and not to be  champions for the litigants who ask them to give evidence. In Woods, Dr. G. Hosking, imported from England, was found by the trial judge to have abandoned the role of an independent expert in favour of that of the plaintiffs’ advocate [11]. In the usual course, part of the judge’s role is to decide what is the accepted medical practice when competing expert witnesses have different views. Sometimes those experts are not true “experts” in the fields upon which they give their opinions. Courts are not necessarily well equipped to sort the “wheat” from the “chaff”, and as a result unreasonable standards are sometimes set for the doctor on trial. For example, a GP was judged by the standards of a gynaecological oncologist [12]. Suggestions are made below as to how these present deficiencies might be overcome.

Secondly, parliaments must give guidance to the common law judges as to what are the reasonable maximum awards to be given for any particular injury.

When assessing compensation, common law judges look at the circumstances of the individual cases before them, to which they apply the common law that has been developed over the years by other judges. They do not tend to take into account the impact of their decisions on society as a whole.

They assess compensation once and for all at the time of the trial. This often involves the judges making predictions about long-term future contingencies, such as the life expectancy of the claimant.

In Australia, common law alone used to be applied in determining compensation for most personal injuries.  Successive financial crises in the funds for compensating injuries arising out of motor traffic and workplace accidents have shown the inadequacies of the unfettered common law in an environment of increasing claims incidence. Governments on both sides of politics have responded by reviewing the processes of compensation in these two areas from time to time.

They have introduced significant statutory reforms to ensure not only that claimants are appropriately compensated, but also that the premiums for employers and motorists are maintained at affordable levels and that the compensation funds remain viable. By way if illustration, the important features of the compensation scheme under the Motor Accidents Act 1988 (NSW) are shown in Table B.

Handley JA of the New South Wales Court of Appeal invited parliamentary intervention in the event society would have thought the judgment in the case in question was excessive. In that case, the future care cost of an injured motorist was assessed at $3,998,779, and allowed for private hydrotherapy pool, special car, live-in carers and their locums [13].

In the early 1990’s the then NSW State Government recognised that awards for personal injuries made against individuals and bodies such as local councils were exceeding appropriate and sustainable levels. The Personal Injuries Damages Bill, 1991 was tabled in Parliament but was never passed and has now lapsed. The measures in the Bill were, in part, modelled on those in the Motor Accidents Act, 1988, but were in many respects significantly watered down. The idea behind the Bill was to make awards for persons with severe injuries fair and reasonable, yet to reduce the amounts payable for trivial injuries. It is understood that the present Government in NSW is reviewing the Bill.

Whilst the Bill has its deficiencies, such as allowing the use of structured settlements to be at the parties’ discretion and the failure to require quality management, it is a convenient base upon which to build a model for Australia-wide tort law reform in the medical negligence arena.

Finally, there is a need to explore alternatives to the lump sum system for awarding damages to successful plaintiffs. A system of structured settlements whereby an injured plaintiff receives an annuity rather than lump sum could help to overcome some of the problems associated with the current compensation system.

Procedural Reform

First, consumers have been vocal in their concern that patients’ lack of access to their records hampers their claims for negligent injuries. Whatever the validity of this assertion, in the scheme of reform under proposal, health care professionals should recognise their responsibility to provide patients with information about their care  This must involve a frank, full and early discussion between doctor and patient should an adverse outcome occur.

Secondly,  court processes need streamlining so the litigation becomes cheaper, more accessible and expeditious. It is unacceptable that medical negligence cases, on average, take 9 years to resolve [14]. Medical negligence is both long tail and volatile. All efforts should be made to ensure that potential claimants bring their claims early and prosecute those claims, rather than allowing them to lie dormant in the court registries years. Statutes of Limitations should be strictly enforced by the courts.

Thirdly, the common law process is adversarial. In one sense common law cases are lotteries. The eventual outcomes are very uncertain. The outcomes of the trials depend only on the facts which are adversarially presented at the trial. The judge presides essentially as a chairman and determines the law to be applied, and acts to make the conclusive judgment based on the evidence which the parties choose to present. It has often been said that the adversarial system picks out winners, it does not necessarily find out the truth and serve justice. The European system of law is inquisitorial, with the presiding judges actually participating in the fact finding process. However, the total abolition of the adversarial system is very unlikely to be acceptable, as it does involve a complete overhaul of our civil justice system.

Fourthly, alternative dispute resolution measures need to be implemented to bring about the early resolution of claims in a non-adversarial setting, and preferably before the litigation process is commenced. Much could be done to process and resolve claims before an eventual adversarial trial. Greater use could be made of expert panels to screen claims at the unlitigated stage.

Expert panels can also be used to determine  appropriate standards and are particularly able to address developments in medicine as they arise. A model worthy of further investigation exists in Texas, USA, where parliament has established a Medical Disclosure Panel, which determines what meets the required informed disclosure for particular procedures [Table C].

A panel of  relevant experts appointed  jointly by the courts and the profession (preferably through the learned colleges) may serve a number of functions: it may serve as a sorting house to determine if there is prima facie negligence. In the event of an affirmative finding, it may  recommend further investigation and make a finding on  liability; it may then proceed to quantify damages.

The existence of such a system of expert panels may not preclude an ultimate adversarial trial in the event of continuing disputes between the litigants. Again, before the ultimate trial, an appropriate law court judge may be involved in a  process of determining indicative liability, that is, the judge may take into account the findings and recommendations of the expert panel and make a non binding indication to the litigants as to what the outcome of an adversarial trial based on the facts presented to the expert panel is likely to be. It remains free for the litigants to proceed to trial, however the same judge should not preside at the trial.

Another alternative to ensure that appropriate, independent expert witnesses give evidence already exists in the NSW Supreme and District Courts. Those courts have the power to appoint their own expert witnesses to advise. I understand that this facility is rarely used. Another alternative is that courts can refer all or some of the issues in claims to expert referees. Again there is provision for this already in the NSW Supreme and District Court Rules, and the system is used regularly and with great success in building and engineering disputes. To date, however, they are not used regularly in medical negligence cases.


Inherent within a scheme of compensation is a notional indemnity fund. Such a fund could be underwritten competitively by several mutual and commercial indemnity organisations. The size of the market in Australia will ultimately determine the number of effective underwriters. Competition will benefit the members of the profession only if there is a level playing field and the industry is subject to the appropriate statutory regulation.

The scheme of funding must provide a high level of security, which could be provided only if the indemnifiers are financially and soundly managed, and if the cover offered to the members is contractually binding.

Sadly, neither of these elements characterise the prevalent current professional indemnity  arrangement for doctors, which with notable exceptions are offered by discretionary medical defence organisations (MDO). Contrary to the beliefs of many, members of discretionary MDO in fact do not enjoy the security of insurance; they do not have a legal right to be indemnified by their discretionary organisations, nor is there a guarantee that their defence organisations are truly financially solvent with respect to all the claims and occurrences which members have already notified to the organisations, let alone for the incidents incurred [but] not reported, the so-called IBNR.

In line with the indemnity cover required of other professionals such as auditors, accountants, engineers and lawyers, all health care professionals should carry proper insurance arrangement which is commensurate with the compensable risks that their activities generate.

While discretionary cover might have been appropriate in days gone by when patients rarely claimed against doctors, it is outmoded in the current climate where the incidence of legitimate claims  and the size of awards are substantial.

As a result of their not being licensed as insurers, there has been no real significant accountability by discretionary organisations. With notable but few exceptions (15), most discretionary MDO do not state their claims liabilities in the balance sheets of their accounts, they still tend to resort to cash rather than accrual accounting, and most significantly, their only explanation for the steep subscription rises in recent years is claims escalation. Accountability is sadly lacking with respect to the management aspects of their corporate affairs, especially with regards to the management of  claims risks and of the investment of members’ funds.

Insurance rather than discretionary cover for doctors means security at two levels: the indemnity cover is contractually binding, and the MDO are required to conform to the minimum standard of management and accounting demanded under the insurance laws. Just as defence organisations require their members to conform to the minimum standard of practice by registration with their respective medical registration boards, these organisations should themselves conform to the minimum standard practised in the indemnity industry by reference to the industry licensing body, the Insurance and Superannuation Commission established under the Insurance Act, 1973 (Cth).

Until defence organisations mature into insurers, the least they could do is to take the initiative of embracing a uniform minimum standard of accounting, viz., the Australian Accounting Standard Board [Rule] 1023, for their known claims. Three Australian medical defence organisations have already taken these initiatives, and their members and the public are therefore better able to rely on their published annual financial reports.

Champions for the retention of discretionary rather than insurance cover argue that discretionary cover is mutual and insurance is not, and that discretionary covers extend the scope of indemnity while insurance is limited to the terms of the contract. The fact is that mutuality is not the monopoly of discretionary funds, two of the biggest insurers in Australia are mutual: Australian Mutual Provident Society and  NRMA Insurance Limited. Secondly, nothing stops a mutual insurer from exercising a discretionary grant of assistance outside and in addition to the terms of an insurance contract [16].

The security offered by insurance arrangements must be reflected in the contents of the insurance. Doctors as the insureds must not be left with their personal assets exposed. Doctors and the public must have the security of knowing that compensable incidents occurring in any one year period are covered by the arrangement and that the levels of insurance are commensurate with the reasonable levels of awards for damages set out within the statutory provisions introduced under tort reform. These matters have already been the subject of a recent article in the Medical Journal of Australia [17]

Insurance cover must be mandatory for all health care providers, both individuals and institutions. The common law doctrine of joint and several liability permits the successful plaintiff to access the deepest pocket. Thus in the event of a negligence committed by a midwife in private practice, a doctor in the health team who might have made a small contribution toward the tort may become the chief payer for the damages. To avoid such injustice, the midwife in the example should be carrying  malpractice insurance at  a level commensurate with the risks.


Health authorities and learned colleges have for some time recognised the need to ensure the delivery of quality health care. Several initiatives are already in operation. The Health Minister in New South Wales has issued a directive to collect data on and manage adverse incidents in public hospitals. Learned colleges have started compulsory programs for postgraduate education. The Australian Council for Healthcare Standards makes incident-monitoring and quality assurance programs mandatory for accreditation. The list goes on.

However, there is no system of integrated incidents monitoring and quality health care management throughout the health care industry. Mutual medical insurers as an industry have vested interests beyond just simply cost minimisation. If the proper insurance scheme is established, early and comprehensive data will be available; it will enable the industry to develop preventive strategies.

“Risk management” might have been a term initially used in the insurance industry to reduce the insurers’ costs, but to mutual medical insurers it is synonymous with quality management. The full ambit of a risk and quality management program that befits the proposed scheme of compensation is beyond this paper to explore. However, there are some key principles which should be recognised.

First, such a program must involve the whole profession. It must address the fluid nature of risk, recognising that risk is dependent on technological developments, clinical skill requirements, patient expectation and the law. As such, activities aimed at maintaining and improving medical skill and knowledge must be linked with the learned colleges and the health authorities. Activities addressing consumer expectations and satisfaction must aim to assist practitioners to marry the needs of the patient to realistic medical outcomes.

Secondly, the chief objective of such a program is  to uphold and raise the standard of health care. The program should have two arms of operation: one to deal with health care policy or guideline matters, the second to manage the plight of the individual erring professionals.

Thirdly, insurers do have financial tools which should be used to their full effects but short of usurping the role of the medical registration boards. These tools by their very nature will assist practitioners to treat patients within their skill base, and in so doing, proactively assist in avoiding preventable adverse events.


The incidence of negligence and compensation awards are substantially more significant today and will continue to increase in the future.  It is, therefore, imperative that the system of compensation for personal injuries caused through health care have the same scope and degree of comprehensiveness as that which is associated with personal injuries sustained on the roads and in the work place.

The use of common law alone in determining compensation for personal injuries is not financially viable in the 1990s within an environment of increasing claims incidence and spiralling costs.  Secondly the requirement that all health care providers have mandatory insurance cover rather than discretionary cover is a reform which is long overdue. Finally, quality management in health care must involve the whole profession, it must as its objective raise the standard of health care and utilise the financial tools that are available through the insurers.

This paper proposes a comprehensive approach to reform of the current system which is operational at a number of levels. To approach reforms on an ad hoc or singular level would ultimately be an injustice not only to the profession, but to the community as a whole.

Dr Richard Tjiong

Chairman of the Board

United Medical Defence


A special thanks to Ms Louise Mallon, solicitor, for her considerable help in preparing this article, and to Dr Belinda Bennett (since appointed professor of law), seconded from the University of Sydney, for her research behind this and other submissions to the NSW Parliament.


  1. Gorman D, The Increasing Incidence of Litigation in the Health Care System a paper presented at UMD Seminar “Increasing Health Care Litigation – Can Australia Afford It”, 9 September 1995.
  2. Letter to the Editor, “Australian Doctor”, 15 March 1996, from Medical Defence Association of Victoria.
  3. Mills M, Lessons from America: Professional Liability and Tort Reform (1995) 12 Australian Bar Review 210.
  4. Moyes M, Medical Malpractice in the United States. What are the Lessons for Australia? Journal of the Australian Insurance Institute Vol 17 September 1994.
  5. Kirby M, An Era of Change paper presented at the 1992 IIR National Medico-Legal Congress.
  6. Brennan et al Incidence of Adverse Events and Negligence in Hospitalized Patients – Results of the Harvard Medical Practice Study Parts 1 and 2 The New England Journal of Medicine 7 February 1991 at p 370.
  7. Bolam v Friern Hospital Management Committee (1957) 1 W.L.R. 582.
  8. Rogers v Whitaker (1992) 175 CLR 479.
  9. Reibl v Hughes (1980) 114 DLR (3d) 1.
  10. Woods v Lowns, Procopis & Anor by his next friend Harry Woods  New South Wales Supreme Court (Unreported, 9 February 1995).
  11. above at p. 13.
  12. O’Shea v Sullivan (1994) Australian Torts Reports 81-273.
  13. Bacha v Pettersen (unreported) NSW Supreme Court, 9 September 1994.
  14. O’Dowd C, Medical Defence Subscriptions a paper presented at the UMD Seminar “Increasing Health Care Litigation – Can Australia Afford It?” September 1995.
  15. United Medical Defence, Medical Defence Association of Victoria and Medical Defence Association of Western Australia.
  16. Article 61(a) of the Articles of Association of New South Wales  Medical Defence Union before 4 November 1982.
  17. Tjiong R, MJA Vol 164 18 March 1996 at p. 371.

Annexure A

Duty of Disclosure and Causation


Once a plaintiff has succeeded in proving to the court that the defendant doctor had failed to disclose a material risk associated with the operation in question, the plaintiff has to prove that had he or she been warned of the material risk, he or she would not have proceeded with the operation.

The current rule that guides Australian courts to determine this issue is the “subjective test”, laid down by the Court of Appeal in Ellis v Wallsend Hospital. This test was appropriate in the days when the standard for disclosure was based on the Bolam test.

Now that the standard of disclosure has been changed by the High Court in Rogers to the reasonable and or the particular patient test, the causation issue should not be determined by the subjective test, as to do so would put a premium on hindsight – every patient would naturally assert that he or she would not have proceeded with the operation!

  1. The “subjective” test

“.. the question to be asked is, whether, in the particular circumstances,  the risk was such that the particular patient should have been told and, if told, would not have accepted the treatment.”

Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Kirby P at p. 559

  1. The “objective” test

“..the objective standard would have to be geared to what the average prudent person, the reasonable person in the patient’s particular position, would agree to or not agree to, if all material and special risks of going ahead with the surgery or foregoing it  were made known to him.”

Reibl v Hughes (1980) 114 D.L.R. at p. 16

Annexure B

Summary of assessment of damages under the Motor Accidents Act, 1988 (NSW)

  • Plaintiff must prove that their ability to lead a normal life has been impaired for a continuous period of 6 or 12 months (depending on when the accident occurred).
  • A formula involving thresholds and deductibles applies and is aimed at eliminating minor claims. At present the threshold is $19,500 and the deductible is $1000.
  • There is a maximum payment for non-economic loss that is indexed for inflation annually. At present the maximum is $235,000. It is payable in only the “most extreme cases”.
  • There are restrictions upon the amounts that can be awarded for home care services in that a minimum requirement must be met before there can be recovery and there is a maximum rate that can be claimed based on the average weekly wage.
  • Generally no interest is payable on damages for the pre-trial period.
  • The defendant is entitled to the benefit of payments made to the plaintiff from certain collateral sources, such as victims’ compensation.
  • The discount rate applied to lump sum future economic loss is 5% rather than 3%.

Annexure C


Medical Liability and Insurance Improvement Act Tex. Rev.Civ.Stat.Ann.art.4590i #6.02

Texas informed consent law requires explanation only of risks incident to medical procedures. The scope of disclosure for medical care or surgical procedures performed after 29 August 1977 is prescribed by the Act.

Under the Act a Medical Disclosure Panel determines the standard of disclosure that is required to satisfy the law of informed consent for particular procedures. The Panel decides whether procedures require disclosure or not. It then sets forth the risks that must be disclosed for those procedures that are deemed to require disclosure. If a procedure requires disclosure then if the doctor has disclosed the risks prescribed by the Panel then he has a defence to an informed consent claim.

Dr Richard Tjiong

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