Hospital Professional Indemnity: Claims-Made Cover and Consent to Settle
Harbour City Hospital, a 220-bed multi-specialty hospital in Chennai, holds a professional indemnity (medical malpractice) policy on a claims-made basis. The retroactive date is 1 April 2018; the limit is ₹5 crore any one claim and ₹10 crore in the aggregate; the deductible is ₹10 lakh each claim. In August 2024 a patient sues the hospital and a consultant surgeon for complications following a laparoscopic cholecystectomy performed in May 2019. The surgeon was an independent consultant with admitting rights, not an employee. The policy's consent-to-settle clause requires the insurer's written consent. The insurer appoints counsel and offers ₹80 lakh to settle, but the hospital's medical director wants to contest to protect reputation. A separate 2023 blood-transfusion error claim, already notified, has an estimated liability of ₹1.2 crore. The policy excludes claims arising from treatment by independent contractors unless the hospital has a written agreement indemnifying it.
1. Advise whether the 2019 surgery claim is covered under the policy. Address the claims-made trigger, retroactive date, independent-contractor exclusion and vicarious liability.
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Claims-made trigger. The claim was first made in August 2024. If the 2024/25 policy is in force and the claim was notified during the policy period, the trigger is satisfied. The date of the surgery is not the trigger.
Retroactive date. The surgery took place in May 2019, which is after the 1 April 2018 retroactive date. The occurrence therefore falls within the retroactive cover, unless the policy has a continuity condition that has been broken.
Independent-contractor exclusion. This is the main obstacle. The surgeon was an independent consultant, not an employee. The exclusion applies unless the hospital has a written agreement under which the surgeon indemnifies the hospital. The hospital should check the consultant's admitting agreement and the surgeon's own professional indemnity cover. If there is no written indemnity, the insurer may decline the hospital's vicarious liability.
Vicarious liability. Indian law can impose liability on a hospital for the negligence of an independent contractor in certain circumstances, particularly where the hospital owes a non-delegable duty or has failed to supervise or credential properly. The claim may also allege the hospital's own negligence in granting privileges, in which case the exclusion may not bite. The insurer should be asked to confirm its position in writing.
Conclusion. The claim is within the claims-made and retroactive structure, but coverage depends on the independent-contractor exclusion. The hospital should notify immediately, preserve the consultant agreement and avoid any admission.
2. The insurer offers ₹80 lakh to settle. Should the hospital consent? Consider the consent-to-settle clause, deductible, aggregate limit, the pending transfusion claim and reputational factors.
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Consent clause. The policy requires the insurer's written consent before settlement, but it also typically gives the insured a right to withhold consent. If the hospital refuses a reasonable settlement, the insurer may limit its liability to the amount at which the claim could have been settled, plus defence costs. The hospital should obtain that wording before deciding.
Financial analysis. A settlement of ₹80 lakh is within the ₹5 crore any-one-claim limit. The ₹10 lakh deductible leaves the insurer paying ₹70 lakh, assuming defence costs are outside the limit. The aggregate is ₹10 crore; the transfusion claim is estimated at ₹1.2 crore, so the aggregate is not exhausted. On pure numbers, settlement is affordable and does not jeopardise the second claim.
Reputation and merits. The medical director wants to contest to protect reputation, but a public trial may generate worse publicity and a higher award, including interest and costs. The hospital should ask counsel for a realistic view of liability and quantum. If liability is strong, a confidential settlement with no admission of liability is usually preferable.
Conditions. Any consent should be conditional on: a full release of the hospital and the surgeon; confidentiality; no admission of clinical negligence; and confirmation that the settlement does not prejudice the transfusion claim. The board should minute the reasoning, because a later coverage dispute may turn on whether consent was unreasonably withheld.
3. Recommend a risk-management and insurance programme for Harbour City Hospital after these claims. Address credentialing, contracts with consultants, claims notification and policy structure.
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Credentialing and privileging. Verify each consultant's registration, qualifications, experience and own professional indemnity cover before granting admitting rights. Re-credential at defined intervals and after adverse events. Maintain a central register of privileges and restrictions.
Contracts with consultants. Every independent consultant should sign a written agreement containing: an indemnity in favour of the hospital; a requirement to maintain minimum professional indemnity cover; a duty to cooperate in claims; and a consent-to-settle mechanism. The current exclusion makes this a coverage-critical control, not an administrative nicety.
Clinical governance. Introduce Morbidity and Mortality reviews, the WHO surgical safety checklist, a transfusion protocol with two-person verification, incident reporting and root-cause analysis. These measures reduce frequency and support a credible defence.
Insurance structure. Retain claims-made cover but review: the retroactive date (consider an unlimited retroactive date for prior acts); the aggregate limit relative to the number of consultants; whether defence costs are inside or outside the limit; the consent-to-settle wording; and an extension for independent contractors. Consider a separate limit for vicarious liability and a higher deductible only if the hospital can fund it.
Notification. Notify circumstances promptly, not just claims. Late notification is a common reason for coverage disputes. Keep a claims register and report it to the risk committee quarterly.