Insurance ruling to shake up industry

Insurance companies could now be forced to cover professionals and organisations for indemnity claims even after the policy has expired, following a High Court judgment.

But some commentators believe the decision could lead to higher professional indemnity insurance fees. The High Court was asked to decide on a matter between FAI General Insurance Co and a private hospital owner after FAI had refused to cover the hospital’s owner because its policy had expired.

The case arose after a patient contracted septicemia following surgery at the Gold Coast’s Pindara Private Hospital, which is owned by Australian Hospital Care. AHC did not notify its insurer FAI of the potential claim because it believed that no claim was likely.

But when a claim was made and AHC sought indemnity from FAI, the insurer refused on the basis AHC had failed to notify of the potential claim during the policy period.

AHC was insured with a different insurer at the time the claim was made and the new insurer also refused to indemnify AHC. But the High Court determined that even though AHC had failed to notify its insurer about the possible claim, FAI was unable to refuse to cover the hospital.

McLaughlins Solicitors’ Associate Chris Stride said the insurance industry was likely to begin re-writing the terms of their policies in an attempt to circumvent the implications of the decision. Mr Stride, who represented AHC, said the finding meant that any person holding a professional indemnity insurance policy, such as doctors, lawyers and accountants, may now be entitled to retrospective cover.

He said insurance companies must now indemnify professionals in relation to claims that were lodged after such a policy had expired, even if knowledge of such a claim was only known by a policyholder during the period of insurance cover. The insurance industry had previously adopted a practice of declining such claims unless the policy-holder had given the appropriate notice to the insurer within the policy period.

Australian Private Hospital Association executive director Michael Roff welcomed the decision, saying it provided greater certainty for hospitals with professional indemnity insurance. But he said insurers may now adjust their premiums to try to cover any increased claims under this decision.

“This decision provides a greater degree of financial certainty for hospitals and their patients,” Mr Roff said. Insurance Council of Australia corporate affairs manager Rod Frail last night agreed that the decision would have a major impact on insurers, but he refused to be drawn on whether it would lead to higher indemnity fees.

“Insurers will now have to revise estimates of outstanding claims and that will have an impact on insurers’ solvency”, Mr Frail said. “They will need to be recalculated and may have to increase their reserves to cover such claims.”

Source: The Courier-Mail