Insurance Crisis

1. Insurance Crisis Oueensland Law Reform

2. Insurance Issues • Background • Insurance Taskforce & National Ministerial Forum • Proportionate liability • Professional Standards Legislation

3. Background • Not for Profit Community Groups • Unavailability & premium increases • Small business • Premium increases • Professional groups • Premium increases, higher deductibles & unavailability of cover in selected categories • Medical Indemnity • collapse of largest doctors mutual - UMP

4. Contributing Factors • September 11 • largest insurance loss in history • reinsurers sustained significant losses • changes to reinsurance coverage and increased premiums • HIH collapse • largest corporate loss in Australian history • major Australian underwriter of liability classes

5. Contributing Factors • Commonwealth Regulatory Changes • APRA - Increased prudential requirements for “long tail” classes • Economic conditions • Lower investment returns • Wage inflation • Litigious culture • Increasing claim frequency • Higher claim costs

6. US Case Law(Fictitious cases) • 1 January 2000: Kathleen Robertson of Austin Texas was awarded $780,000.00 by a jury of her peers after breaking her ankle tripping over a toddler who was running amuck inside a furniture store. The owners of the store were understandably surprised at the verdict, considering the misbehaving tyke was Ms. Robertson's son. • 2 June 1998: A 19 year old Carl Truman of Los Angeles won $74,000.00 and medical expenses when his neighbor ran his hand over with a Honda Accord.Mr. Truman apparently didn't notice someone was at the wheel of the car whose hubcap he was trying to steal.

7. US Case Law(Fictitious cases) • 5 May 2000: A Philadelphia restaurant was ordered to pay Amber Carson of Lancaster, Pennsylvania $113,500.00 after she slipped on a spilled soft drink and broke her coccyx. The beverage was on the floor because Ms. Carson threw it at her boyfriend 30 seconds earlier during an argument. • Kenmore Inc., the makers of Dorothy Johnson's microwave, were found not liable for the death of Mrs. Johnson's poodle after she gave it a bath and attempted to dry it by putting the poor creature in her microwave for, "just a few minutes, on low," The case was quickly dismissed.

8. Law of Negligence ... there is a substantial body of anecdotal evidence of undesirable side effects of the present system: rural GP’s that have ceased doing obstetrics; councils that have removed such lethal instruments as swings and seesaws from children’s playgrounds; charitable fund raising events that have been cancelled. The only reason why all our rock ledges and cliff tops are not festooned with signs is that nobody believes that they would actually affect the outcome of litigation and would probably make things worse… NSW Chief Justice James Spigelman on 27 April 2002 http://www.agd.nsw.gov.au/sc/sc.nsf/pages/spigelman_270402

9. Government Response • Taskforce established in Qld in January 2002 • Ministerial Forum • National Insurance Issues Working Group • Justice Ipp Report • Tort law reform • Procedural reforms - Personal Injuries Proceedings Act 2002 • Common law principles modified - Civil Liability Act 2003

10. Professional Indemnity Market • HIH, FAI, GIO and AMP in 1997 held >50% of professional indemnity market • By 2002 these insurers had ceased to exist or had withdrawn from the market • In 2002 Suncorp had withdrawn along with major overseas underwriters including Markel & St Paul

11. Civil Liability Act 2003 • s22 Standard of care for professionals • A professional does not breach a duty arising from the provision of a professional service if it is established that the professional acted in a way that (at the time the service was provided) was widely accepted by peer professional opinion by a significant number of respected practitioners in the field as competent professional practice. • However, peer professional opinion can not be relied on for the purposes of this section if the court considers that the opinion is irrational or contrary to a written law. • The fact that there are differing peer professional opinions widely accepted by a significant number of respected practitioners in the field concerning a matter does not prevent any 1 or more (or all) of the opinions being relied on for the purposes of this section. • Peer professional opinion does not have to be universally accepted to be considered widely accepted. • This section does not apply to liability arising in connection with the giving of (or the failure to give) a warning, advice or other information, in relation to the risk of harm to a person, that is associated with the provision by a professional of a professional service.

12. Proportionate Liability • Argument for change • “deep pocket” concept • professional groups a soft target • damages payable aligned to loss contribution • Contra arguments • the law has been stretched on causation but now rectified • the general law of negligence and its application to professionals has significantly tightened • plaintiff may not recover appropriate damages (defendant impecunious) • plaintiff may not be aware of all defendants (eg contractual arrangements) • no evidence that it will make any difference for insurance availability or reduced premiums

13. Proportionate Liability • Not supported for personal injury • Commonwealth amending the Trade Practices Act 1974 • Civil Liability Act 2003 • economic loss claims above a $500,000 threshold (subject to proclamation) • strong underlying principle of protection for consumers • Provision currently under review. Options include • retaining joint & several liability • apply proportionate liability from 1st dollar • a consumer carve out linked to the definition of “consumer” under TPA

14. Professional Standards Legislation • Introduced in NSW in 1994 & WA in 1997 • Limited application - currently can be circumvented by TPA • All other jurisdictions currently considering its introduction • On agenda at next Ministerial Forum -Adelaide 6 August

15. Professional Standards Legislation • Arguments in favour • Places an upper limit on a professional’s liability • Cap would be set at a level above anticipated claims • Creates an equal playing field in the market for professionals • Improved risk management under a scheme • Discipline procedures incorporated in scheme • Contra arguments • Why should a professional have such an advantage • Potential to leave a plaintiff financially exposed • Calls for extension to personal injury (eg medical profession) • Is it simply a transfer of liability to principals and financial institutions

16. Professional Standards LegislationIssues • Capping • Can the features of PSL be adopted without capping liability • Contracting out • Should two parties be able to contract to vary the capped liability under a scheme • Will capping simply transfer insurance obligations to a principal • How will financial institutions view increased financial exposure on large projects

17. Professional Standards LegislationOperational Issues • NSW Professional Standards Council to take on a national role • Cost of operation • What role will the individual States have • What will be the situation if one State is at odds eg level of cap, risk management requirements

18. 6th Ministerial Forum • Adelaide 6 August • Key agenda items • Proportionate liability • Professional Standards legislation