What is the difference between discretionary & contractual 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 Incision Indemnity, he has an expert understanding of the benefits of contractual indemnity from specialised insurers.

“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.”

Incision Indemnity believes the MDOs act like public bodies―after all, the only recourse you have if they do not pay out is Judicial Review. Incision wanted to know the full extent they have declined to cover doctors under the discretionary clause. Yet we can’t send Freedom of Information requests. The traditional mutuals are not answerable even to these, because “Freedom of Information” law does not see them as public bodies.

“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 MDOs’ articles of association are the clauses that turn their indemnity into just discretionary cover (we have used italics to highlight the disclaiming phrases)

MPS (Medical Protection Society), item 40(1):5

“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” and: “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…”

MDU, object 3(iv):6

“To indemnify wholly or in part and on such terms and conditions as may from time to time seem expedient any member [against claims]…”

MDDUS (Medical and Dental Defence Union of Scotland), object 2.2(b):7

“…to defend members when they are attacked; provided always that any advice, assistance or defence provided by the union shall be provided solely at the discretion of the board” and, in 2.2(c): “The grant of any indemnity … shall be entirely in the discretion of the board who shall have power to impose such terms and conditions on the grant of any indemnity as the board thinks fit and may in the Board's absolute discretion limit or restrict any indemnity or decline altogether to grant any indemnity.” Finally, 2(c): “To grant indemnities…subject to such exclusions and limitations as the board from time to time determines…”

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 £50k bracket, a second approaching £200k and a third £300k.

“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 ongoing 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 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 General Medical Council (GMC).

Legal representation is strongly recommended―“in a doctor’s best interests” in fact. 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.

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.

“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.

Will discretionary indemnity survive?

The government consultation on discretionary indemnity is open until 28 February 2019. The four objectives of the government’s policy are clear:

• “Appropriate compensation” for patients;
• “Stable and sufficiently funded” clinical negligence cover;
• “Greater clarity and confidence about the security and terms” for healthcare professionals; and
• “Greater clarity and confidence” for patients of their “recourse to any compensation”

University research bodies and pharmaceutical companies that engage doctors in their work, fertility clinics, and groups of surgeons are all among many in the independent healthcare sector who need regulated contractual indemnity and may wish to respond online to the government consultation report.

All three of the mutuals entice medical students with free membership. But in the years after medical school, how many doctors pick up that the indemnity is overridden by these discretionary clauses? As soon as indemnity is really important for doctors―in their paid professional work―MDO membership falls very short.