Doctors Indemnity not for Hospital: Supreme Court

Upholding the order of the NCDRC, the Apex court bench comprising of Justices DY Chandrachud and AS Bopanna noted, "The hospital was not the beneficiary of the insurance policies which were obtained by the doctors to cover the discharge of their own professional obligations. There was a manifest error on the part of the District Forum as well as the State Commission. The NCDRC had a valid basis to exercise its revisional jurisdiction."

"While it is true that the NCDRC has interfered in the exercise of its revisional jurisdiction, it was justified in doing so since a joint and several liability could not have been fastened on the insurer under insurance policies which were not obtained by the hospital. The submission of the hospital that it was the beneficiary of those insurance policies does not evidently have any basis," further noted the top court in its judgment.

The appellant, a charitable hospital registered under the Bombay Public Trust Act 1961, challenged the judgment of the National Consumer Disputes Redressal Commission dated 26 February 2014.

Between 21 and 23 June 2000, the appellant hospital conducted an eye camp where cataract surgeries were performed on 112 patients. The patients complained of negligence in the performance of the surgeries by the use of non-sterilized appliances, contaminated medicines and lenses of an inferior quality resulting in eye infections and loss of vision.

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Following this, the State Government had appointed a committee to enquire into the causes which resulted in the situation where several patients lost their eye-sight.

Meanwhile, a consumer organization had filed twenty-four complaints and the consumer complaints were instituted against the hospital and the insurance company. However, the insurance policies were obtained by the doctors from the insurer to cover claims of professional negligence. In fact, in the consumer case proceedings before the District Consumer Court, the doctors were not made parties even though affidavits had been filed by them.

On February 19, 2010, the District Forum had awarded an amount of Rs 1,70,000 as compensation to each of the twenty-four complainants together with a refund of registration fees (Rs 250), compensation for mental agony (Rs 3000), costs (Rs 1500) and interest at the rate of 9% per annum.

While passing the order, the District Consumer Court had further rejected the argument of the insurer that no liability could accrue to it as the doctors (who had taken the insurance policy) had not been made parties to the proceedings and in any case, were not negligent.

The Forum held that according to the report of the Expert Committee, negligence of the doctors and the staff of the appellant hospital had been established. Thus, the District Forum held that the liability of both the hospital and the insurer would be joint and several, but the award would be enforced only against the insurer. The award was not challenged by the hospital.

However, the insurer filed the appeals against the order of the District Forum before the State Consumer Disputes Redressal Commission, Gujarat. By its judgment dated 30 November 2012, the State Commission dismissed the appeals.

Following this, the insurer had filed a revision before the NCDRC, and the Commission in its order dated 26 February 2014, set aside the orders of the consumer fora holding the insurer liable. However, the insurer had clarified that t this would not affect the directions fastening liability on the hospital. In arriving at this conclusion, the NCDRC noted that the liability has been fastened on the hospital on the basis of six professional indemnity policies obtained by the doctors, though their business addresses were shown to be the concerned hospital.

The NCDRC held that this fact could not by itself fasten the liability on the insurer, particularly in the absence of any specific allegation of negligence against any of the doctors. Assailing the judgment of the NCDRC, the hospital approached the Supreme Court.

The senior counsel appearing for the hospital submitted that the hospital was entitled to lay a claim against the insurer as a beneficiary of the insurance policies and, consequently, the NCDRC was not justified in reversing the findings of the District Forum and the State Commission in revision.

He contended that as the doctors had participated in the proceedings by filing affidavits, it was open to the District Forum to fasten joint and several liability on the hospital as well as the insurer.

On the other hand, the insurance company submitted that there was no privity of contract between the insurer and the hospital and the professional indemnity policies were obtained by the doctors. There was no insurance cover in respect of the hospital or the staff. So, NCDRC was justified in entertaining the revision and directing that the insurer would not be liable to indemnify the hospital.

After perusing the records, the top court bench noted that the insurance policies were obtained by the doctors. These were professional indemnity insurance policies which would cover a claim for professional negligence which was made against the doctors.

At this outset, the top court bench further noted,

"Admittedly, the finding of negligence, as it appears from the order of the State Commission, is specifically against the hospital. The finding is that the hospital and its staff were negligent in the conduct of the cataract surgeries. The specific finding is that the equipment which was used were not properly sterilized, the staff was not properly trained and the medicines which were administered were not of the requisite quality and were contaminated. In this backdrop, the issue is whether the hospital could have claimed to be indemnified by the insurer. The hospital was not the beneficiary of the insurance policies which were obtained by the doctors to cover the discharge of their own professional obligations. There was a manifest error on the part of the District Forum as well as the State Commission. The NCDRC had a valid basis to exercise its revisional jurisdiction."

"In this backdrop, and for the above reasons, no fault can be found with the ultimate findings of the NCDRC. While it is true that the NCDRC has interfered in the exercise of its revisional jurisdiction, it was justified in doing so since a joint and several liability could not have been fastened on the insurer under insurance policies which were not obtained by the hospital. The submission of the hospital that it was the beneficiary of those insurance policies does not evidently have any basis," further noted the court.

"In the circumstances, we see no reason to entertain the appeals. However, all that needs to be clarified is that the dismissal of the appeals shall not come in the way of the appellant working out its equities or rights in law by adopting suitable proceedings against any other persons, who according to them may also be negligent in the discharge of their duties, on which this Court makes no observation or finding of fact whatsoever. Since the amount was deposited in pursuance of the interim order and has been permitted to be withdrawn by the patients, it also needs to be clarified that this aspect shall stand confirmed while disposing of the appeals. If any amount has not been disbursed to the original claimants, this shall be done expeditiously," read the top court order.

To read the top court order, click on the link below.