Professional Services under Threat

Australia’s professional practitioners – from veterinarians, physiotherapists and engineers to doctors, lawyers, accountants and surveyors – are under threat.

The threat stems from the fact that professionals have become obvious – and often unjustified – targets when something goes wrong and the “victim” looks around for someone to blame.

In our increasingly litigious society, professionals are being seen as “easy targets” because they have reputations to protect, they are often covered by professional indemnity insurance and they are regarded as having deep pockets.

Professionals are being sued more frequently today than at any other time in our history – and there is an alarming escalation in the size of the judgments being awarded against them. Claims for alleged negligence by professionals have out-stripped the capacity of those professionals – and the insurance market – to cover them. In other words, even where litigation is successful, plaintiffs may well have trouble recovering the damages the Courts award.

The Nature of the Threat

The costs of defending claims, insuring against them and paying the ones that are successful are borne, eventually, by the whole community. This is because in the professions, as in all sections of commerce and industry, these business costs are unavoidably passed on to their clients and customers. However, there is another down-side. As more professionals realise the nature of the threat they face, they are tending to respond to this dilemma by:

  • giving their clients more cautious and/or defensive advice;
  • recommending more costly approaches;
  • taking legally proper action to ensure that they own very few assets;
  • carrying no or only a bare minimum of insurance; or
  • in some cases, notably obstetricians, withdrawing from the very type of work which the community needs them to do.

What can be Done?

Australia has been in the position before where claims have out-stripped the capacity of defendants and insurers to pay. This has happened with motor vehicle accidents, worker’s compensation and aviation accidents. In each of these areas, legislation has been introduced to limit the amounts which can be claimed. It is now time for governments to come to grips with the four factors which are at the heart of the problem facing professional practitioners. These factors are:

Unlimited Liability
To overcome the exposure of professionals to unlimited liability, the amount of damages that can be awarded must be capped. In return for capping, professionals would be obliged to undertake continuing education to maintain high standards, take out appropriate levels of professional indemnity insurance and adopt appropriate risk management, complaint handling and disciplinary procedures. The New South Wales Parliament has enacted legislation, the Professional Standards Act 1994, to this end.

Joint and Several Liability of Defendants
This legal principle can lead to the unjust situation where a professional who may be only 10% responsible for a plaintiff’s loss pays 100% of the damages. Professionals are frequently the main target in legal actions even where their involvement is minimal because their professional indemnity insurance is the most obvious source of assets. Legislation is needed to replace joint and several liability by proportionate liability, where the liability of defendants is apportioned according to their respective degrees of responsibility. This approach already exists in the USA and a joint Federal/NSW Government study has recommended that it should also apply in Australia. Model legislation to introduce proportionate liability has been prepared and should be implemented by governments as a matter of high priority.

Vicarious Liability for Co-Partners
This is a concept under which the partners in a professional practice are responsible for the acts or omissions of all other partners. To overcome this, the professions should be permitted to incorporate with limited liability. This would put them on the same footing as every other service provider. Preventing professionals from having this right is unjust and unjustifiable. The incorporation of professionals is permitted in the United Kingdom and in most States of the USA.

When does Professional Liability end?
Because of the difficulty of determining when a cause of action arises and the varying periods of limitation, both between States and between different statutes, it is often unclear when the professional liability of a professional for a particular act or omission ceases. In some instances the liability remains indefinitely. The interests, both of the community and of professionals, call for time limitations to be uniform, based on clearly ascertained dates, and of reasonable length.

Australia’s professional practitioners accept that they must bear appropriate liability for negligence. They also acknowledge that the community should have the right to recover reasonable damages where professionals are negligent. However, professional practitioners should not be asked – as they are now – to bear unlimited or disproportionate liability.

How can Reform be Achieved?
Achieving these reforms will require co-operation between the State and Federal Governments. Australia needs a national, co-operative scheme whereby the States adopt uniform legislation and there is complementary Federal legislation.

We can help bring about change by supporting current moves seeking the required legislation for a national scheme to achieve reasonable limitation of professional liability.

The Nture of the Threat

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