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THE CRISES OF INDEMNITY INSURANCE

An issue of justice

An issue of global prosperity and quality of life

The wider issues

• I. Introduction. Justice for all parties, not just the litigant.
  • Medical liability insurance
  • I. Twelve current problems with legal liability
• II Towards solutions.
• i. The concept of Limited Liability
• ii. Personal Liability. Six strategies to improve personal responsibility.

• iii. Trust funds from compensation awards.
• III. Six possible outcomes of these proposed changes

• IV. The ethics of insurance

1. Justice for all

 Justice: : Fairness: exercise of authority in the maintenance of right . . (OCD) Integrity: impartiality: retribution: desert .. (Chambers).

That is, the concept of justice includes a social dimension, as well as the last two personal definitions of deserving and retribution. It is common justice that anyone who is wronged should have the right to sue for redress, if this does not automatically follow from a legal conviction of the wrong-doer.

How can this right operate in a just and prosperous society?

Here we consider justice in prosecutions for damages and compensation, resulting from a plaintiff's alleged negligence.

• Justice for the plaintiff - but also

• Justice for the defendant,

• Justice for those who finally analysis pay for damages and costs,

• Justice for those who suffer similarly from accidents that cannot be blamed on someone

• Justice for the common weal.

At present the manner of operation of legal liability is resulting in manifest social injustices, and even to the detriment of the prosperity of the country. A brief overview of these perceived problems is followed by consideration of possible solutions - other than the present proposed expedient of government subsidies to support the insurance or legal industries, with the whole business of liability litigation continuing on its merry escalation.

The two chief concepts proposed are of Limited Liability, as with the precedent of Limited Liability for business companies, and Personal Liability, which puts some legal onus on the responsibility of an individual to assess and accept or avoid risks according to their capacities.

Medical Liability Insurance

iv. The concept of 'limited liability' such as already operates for business companies.

I. Twelve current problems with legal liability

1. Massive rises in insurance premiums result from increases in litigation and massive payouts to plaintiffs. The costs of insurance for the social body are stopping too much of the life-blood running through the capillaries and even the arteries of the social body.

2. Closure or threats of closure to events and activities run by charities, communities, schools and many other worthy and volunteer organisations. News items increasingly report that increasingly unbearable insurance costs are closing down much that is for the public good and quality of life - even agricultural shows and children's educational excursions, sausage sizzles and adventure games. Schools and councils dare not provide playground and other exciting experiences that involve the slightest risk. It is sad that children today cannot have the joys and freedom that I and my generation had, even if falling off a merry-go-round or seesaw or out of a tree in the playground could be dangerous. Why should a fascinating old steamroller that's been there for years and years be removed from our local playground in case some nipper falls off it?

It is also sad that many schools are running scared of having excursions, including for handicapped children who most need the experiences.

It is ridiculous that a landowner should close off a right-of-way along the banks of the Yarra River on the grounds that he could be sued if someone fell in.

3. Closure or threats of closure of businesses which provide pleasures in life such as pony-riding, tours, and entertainments.

4. Medical insurance is becoming a public hazard. Doctors are opting out of specialties and operations most at risk to litigation, country doctors are abandoning obstetrics as the insurance costs are far greater than the income, doctors are feeling that they must go overboard in ordering tests and referrals, upping medical costs excessively, and patients suffer from the tactics of 'defensive medicine' (See, for example, the report on Radio National Bush Telegraph, 5 March 2002)This is a growing burden on medical staff, taxpayers and the public weal.

5. Insurance costs to small and enterprising businesses reduce their uncompetitiveness against foreign rivals. Engineering businesses for example, can be ruined by insurance costs running into the millions.

6. It is unjust when huge damages to individuals must be paid by the innocent - taxpayers and donors to charities - especially when so much of the payment of insurance premiums is taken up by the insurance companies as justified profit in return for the risks undertaken, and so much of the damages and costs in liability litigation is taken up by the lawyers. In one recent British case, it was estimated that lawyers absorbed 70% of the sum awarded, which was hundreds of thousands of pounds, paid ultimately by taxpayers. And this is not uncommon.

7. Most people who suffer from the negligence or culpability of others do not in fact sue; people permanently handicapped by accidents that cannot be sheeted home to anyone do not get the aids to living awarded to victorious litigants; the sums awarded to the successful vary in unfair degrees according to the particular jury or judge - and the apparently bottomless coffers of insurance companies can urge to generosity, disregarding the fact that the money that these companies pay out eventually comes from other human beings.

8 While some people are culpably negligent and even persistently so, all of us are capable of a five-minute or even ten-minute lapse or failure that may never be repeated but that has some disastrous consequence. None of us are omniscient, even in medicine. The stress, time and financial loss taken up by litigation consequent on a single alleged lapse like this is unfair, and when doctors, for example, are subject to frequent litigation when they are in fact blameless, this is a serious handicap to their continuing efficiency.

9 While insurance companies themselves and their backers may make enormous profits - or they may be destroyed by the number of huge claims, with devastating social consequences. If sums paid out are less, then the situation can be more stable.

10. Waste. The litigation in this field is growing in numbers and in length of many cases. This is not just a cost for the legal system, but it is also a waste of many of the best brains we have, as highly trained lawyers move into this lucrative field. Our country is short of brainpower - here is a source that could be diverted to more socially profitable ends.

11 When the court cases are lengthy, there is a similar waste in time and energy out of the lives of everyone involved - including the stress placed on the main characters on both sides.

12. While organizations and professionals need to be kept on their toes with awareness of penalties if they are negligent, a constant sword of Damocles can be unnerving. It is not pleasant to live with even one threat or writ a year from parents or patients who may just be wanting to 'take it out' on someone.

II. Towards solutions

In an ideal world, court cases would not be necessary when someone suffered loss or damage through the negligence of another. Compensation would be through friendly negotiation - and this happens more often than not, including situations covered by insurance. Most people in these situation do not, in fact sue. 'No-fault' insurance cover for many types of accident also saves litigation.

Problems result when personal damage is perceived as serious and/or long-term, and/or the financial compensations and costs are so large that many such cases threaten the viability of the insurance company or result in intolerably high insurance premiums for any professional or organisation.

Strategies currently being publicly discussed include the practical one of capping payouts, but any precedents for governments to back up or subsidise insurance payouts by private insurance companies are not good. Their effect will be mainly to transfer public money to insurance companies and lawyers.

Other strategies could include:

1. The concept of limited liability

Our economy could not function without Limited Liability for business companies.

Soon our society will not be able to function except ironically in a crippled way, unless we have Limited Liability for the essential professions like medicine and engineering, and for charitable, voluntary and worthy public organisations.

'Limited liability' legislation could provide for speedy official investigations and possible criminal prosecutions on all charges of serious negligence laid by members of the public. Situations occasioning the accidents can be remedied and prevented elsewhere. It would be public-spirited for anyone to inform the authorities of any serious negligence or fault that had resulted in injuries, but the authorities would be the ones to take action from that, to fine and to ensure no recurrence. Where cases accumulated on an independent professional register to indicate that 'negligence' was not a one-off mishap, those involved could be disciplined and de-registered as appropriate. This is just making more effective provisions that already exist.

Limited liability insurance. Essential professions, organisations and events could register to limit their liability to speedy payment of bills for medical treatment and necessary equipment as they occur, not in a lump sum. Damages would not be paid for long term maintenance, or assistance with future employment, which should be available from social welfare regardless of cause of disablement, for the sake of justice to all whose disabilities cannot be blamed on others. The provision of suitable housing and equipment for the disabled should be a matter of public provision, for all the disabled, not just for those who can pin the cause of their disability on a human being. The relevant voluntary organisations can be given support and encouragement so that all who are disabled can live as fully and comfortably as possible, with comunity support.

Damages would not be paid for psychological trauma, which surely cannot be cured by money. Awards for psychological/psychiatric treatment would be limited to one year.

Everyone participating in or benefiting from health care, registered events etc. must know and accept this limited liability, set out on any tickets, notices etc., which would have legal validity as they do not at present.

Without such 'limited liability', much community life is liable to collapse.

The 'Limited Liability' provisions would mean that an event's or organization's insurance could fix up small cases, without legal intervention within a week or so; while for more serious injury a short court hearing might be required. This would be of great value to victims, whose suffering is increased by long-drawn out and stressful litigation.

Any serious operator negligence or fault would be liable to public prosecution and fines, with victims and their supporters putting in evidence, but there should be no need for them to wage their own civil cases. Minimisation of costs for the taxpayer and organisation for government administration if data on possibly culpable negligence and consequent prosecution are matters for government to deal with rather than isolated individuals or groups. Such persons would contribute their statutory declarations, evidence and witnesses to build up cases.

In some cases, the negligence is quite apparent and should not require more than two months to make clear. Negligent doctors and hospitals will be likely to have a run of unnecessarily unfortunate outcomes. Persons considering their case resulted from negligence would register it with an independent authority, for the sake of the public good, to prevent further such cases. Any buildup of accusations would require even more careful investigation. Punishments, fines and deregistrations would be a matter for the public purse and to pay costs, rather than for the complainant. The complainants' satisfaction would be in seeing justice done and future cases prevented, rather than a swag of money.

How Limited Liability' could work

i. A charity or community event could apply for 'Limited Liability' insurance' at a small premium chosen according to size and nature of the event. It could be better for this to be government-run insurance, not a commercial business that requires profit to be factored in, for many reasons.

a. It would not be very profitable for commercial insurers.

b. State-organized 'Limited Liability' insurance could be much simpler to operate as well - possibly thru the local council, which can be in a good position to know the bona fides and reports of events within its boundaries.

c. Payouts for medical bills would average out sustainably, to be no burden on the taxpayer.

ii. The event would include 'Limited Liability' in its publicity, tickets and entrance notices. At the entrance would be a poster stating what Limited Liability involved, if necessary in several languages.

Everyone attending would be assumed to accept the conditions of Limited Liability (just as everyone is expected to know the parking regulations.) iii. Everyone who attended would be assumed to accept the conditions of Limited Liability (just as everyone is expected to know the parking regulations.) If they did not accept them, they should not come.

Anyone who afterwards tried to buck this condition and claim for the current present style of large damages could receive media publicity for the action they took in suing the charity or voluntary organisation, and for consequent effects on the organisation they are suing.

Since children cannot be expected to understand Limited Liability, I suppose we cannot return to our more exciting (and less expensive) equipment in our open-to-all park playgrounds . But it might be possible to have fenced 'Adventure Playgrounds' where all children under a certain age must be accompanied by an adult. The marvellous adventure playground at Warrnambool, with its flying fox and other sources of joy for teenagers should not have had to be reduced to sedateness.

Limited Liability could be obtained by schools for excursions and other events. Parents would be accepting the Limited Liability clause if they allowed their children to attend events.. They may sign an acknowledgment either at the commencement of a year/term or for each event. Culpable negligence would be a matter for administrative investigation and could be followed up by the public prosecutor, not a civil law case.

iii. The principles also extend to insurance for the medical and teaching professions, to great public benefit.

iii. An eye for an eye and a tooth for a tooth. This form of Lex Talionis is generally assumed to be a vindictive attitude to justice. In fact it was a bulwark for justice in its original Biblical context and still is today, because it sets out that the punishment should be no more than the crime.

It is not just under this aspect of the law that a beachside council should be ordered to pay millions of dollars in damages because a drunken man dived into a shifting sandbank that appeared between the flags, or a school pay similarly because a boy playing truant got hit in a stone-throwing fight.

It might even be advisable to have some sort of index of damages that capped the generosity of juries and judges - and was not based on some injudicious precedents. Let us have a public debate about rating scales - and not calibrate them differently according to the celebrity of the victim. Here still there should be 'equality before the law'.

2. Personal liability and responsibility

1. A democracy cannot function adequately unless citizens can bear some personal responsibility according to their capacities. The definition of an adult as someone able to bear considerable responsibility for their actions must override the widespread concept of an adult as someone free for antisocial behaviour denied to children.

2. One first requirement for a legal concept of personal responsibility is legal validity for acceptance of printed 'at your own risk' formalities set out in legally valid terms, when someone undertakes an activity that is known to have some degree of risk, however minimal, whether it is allowing a child on an excursion, playing a sport, swimming between the flags, attending some function, joining the armed forces, or whatever.

3 It should never be a defence or an excuse to have been rendered irresponsible by any form of deliberate intoxication.

4. The public must accept that in all human affairs there is bound to be certain degree of incompetence that is not culpable negligence. Pity help all of us if we were copped for every gap in our concentration that could cause injury to others. In the case of medical accidents, there can be far too much of 'Who Knows?', decisions and diagnoses can be extremely difficult, and if everyone sued for a misdiagnosis, probably no human doctor would escape suing. Doctors are still not as gods.

5. More 'preventive' education in the community, so that people grow up with more personal resources to cope with psychological trauma and shocking events - which we must all suffer at some time as part of being human. In such times, the help of each other is of more value than monetary compensation, and we should all grow up knowing how to support our family, friends and community in times of need.

6. Personal information about 'what is what'. All school-leavers and immigrants should be given an indexed citizen's record book of basic information about the law, and about their own responsibilities, which can be added to and amended. (It is ridiculous for all 'public education' to have to be by extremely expensive TV campaigns with ephemeral effects.)

The record book would include a chapter with a list of basic safety precautions, such as Never dive in anywhere unless you have checked the depth and that there are no snags. Expect that any cliff could be dangerous and rockfalls occur.

A Legal Liability Trust Fund

One reason for very high insurance premiums is the large multi-million sums awarded to litigants.

Could it help if when sums were awarded, they were in 2 parts:

1. for imediat capital provision (housing, equipment) and 1. At the rate of so much per year, indexed for inflation, and taking account of eligible pensions. This second sum went into a general revenue trust fund in Social Security, to be awarded each year like a pension, but as a lump sum to be used as needed and decided by the recipient or the recipients guardians.

This common fund would have many advantages, including

• general social security revenue if the beneficiary died (rather than relatives who were not the victims)

• easier recognition of disparities in awards for similar disabilities

• easier research into the value of psychotherapy and counselling in mitigating handicaps, and the cost-benefits of such treatments.

• easier tables of comparability available for juries, unaffected by lawyers' possible manipulations or selections

Costs of such a Legal section in a Social Security department. One competent fulltime employee, who also fitted in to the work of others. This would save much needless outgoing of funds to the legal and other private sectors.

III. Outcomes of reforms

Good for all, including less psychological pressure on people no longer suing.

1. Organizations and individuals could afford the small premiums.

2 People would have little incentive to sue, and so will be saved the immense psychological pressures involved in litigation.

3. Organizations would still bear responsibility not to be negligent.

4 Organizations and individuals would not be bankrupted by having to pay out enormous damages - which can cripple charities, churches, and other organizations set up to help others.

5. Organisations freed of the fear of bankruptcy through paying out enormous damages would be less tempted to cover-up anything that happened, as is happening even now.

6. A legal industry which at present wastes valuable and scarce brainpower in running such litigation could turn to more socially worth-while activities - including perhaps to pursuing adults who mentally abuse children between the ages of 0-5 by sustained verbal maltreatment. How much damages for "I nearly aborted you and I wish I had" ? The awareness that such verbal maltreatment of children was culpable could initially surprise adults, but could lead to greater appreciation of their children as human beings as well as to more adult behavior towards them.

IV. The Ethics of Insurance

Irony, irony, that insurance, intended to protect us from the accidents of the future, can now be so stifling for the present.

Insurance costs now take a sizable proportion of Australia's economy.

Every day newspapers add to the list of activities which are becoming restricted or even no longer possible , because insurance costs are levied which cannot easily be borne, or not at all. At what stage must there be a balance between the right to claim high damages for accidents, and a reasonable insurance against such claims?

Why if someone can be blamed for an accident, can the victim gain greater recompense than from an accident through apparent chance?

Can there be some distinction between criminal negligence and the fact that no-one is perfect? Humans are still not the gods we would like to be.

As the Institute of Engineers, Australia has put it, there are limitations to all technology, and no engineering feat can ever completely guarantee safety. 'Engineers do not really solve problems. They choose between options for the deployment of available resources, in the face of considerable uncertainty and gaps in knowledge.' (Perspecs, 21 October 1991.)

'The perception that engineering equates sith mathematical wizardry is a powerful and dangerous one' (or any other profession or trade)

The practice of medicine is still not perfect.

We may fear that our lives are so pre-determined that we have no free-will at all, and what happens will happen. Nevertheless, we have to live like atoms tossed around, unable to see our patterns. Kismet. Not Kismet at all, cries the modern mind.

We expect security like nobody before us has ever been able to expect security. Doctors should cure us, engineers build bridges that never fall, businesses not fail, accidents not happen - it must be someone's fault.

Insurance is a way to protect us against the buffetings of chance - to save the future for us, whatever happens.

'You all know,' said the Guide, 'that security is mortals' greatest enemy.' (C S Lewis, The Pilgrim's Regress, bk 10, ch 1.)

The search for perfect security can turn out to be hazardous.

And, we should be asking, where is all that insurance money going - that sizable hunk of our incomes?

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