Search

Law change aiming to insure outcomes

PRESSURE on professional indemnity insurance premiums may ease with the expected passing of Commonwealth changes to the Trade Practices Act that water down liability for professions ranging from real estate agents and stock brokers to accountants and doctors.

Currently before Parliament, the TPA changes are part of the Corporate Law Economic Reform Program and will introduce the notion of proportionate liability in recovery for misleading and deceptive conduct under section 52 of the Trade Practices Act.

In other words, professionals would only be liable for the loss they directly caused, not necessarily the whole loss of a client as it currently stands.

There are several objectives of the proposed changes. 

The first is to prevent “deep pocket” syndrome where plaintiffs institute actions because defendant insurers have the capacity to pay large damages awards. 

The changes will also allow insurers to more accurately price risk and allow professionals to obtain suitable cover at more reasonable premiums.

The key to these three objectives is to limit the liability of defendants for the loss suffered by a plaintiff to the extent to which each defendant is responsible for the plaintiff’s loss.

Proportionate liability means the liability rests with all defendants in proportion to their contribution to the plaintiff’s loss. This is contrasted against joint and several liability (the current law in relation to section 52 of the Trade Practices Act) where a defendant can be held liable for the total loss sustained, even if they only contributed to the loss in a small way.

The amendment follows recent State moves to introduce proportionate liability into the Fair Trading Act, which have been assented to, but are yet to be proclaimed.  New South Wales and Victoria have also introduced similar legislation.

Importantly, the changes will remove inconsistencies between State and Federal legislation. State Fair Trading Acts apply to unincorporated bodies and the Trade Practices Act applies to corporations. 

Prompting the changes are several prominent cases that have resulted in the expansion of the frontiers of professional responsibility beyond what most people would see as reasonable.

As a consequence, insurance premiums have rapidly increased. The situation has also been exacerbated by the collapse of HIH (which represented 35 per cent of the professional indemnity market) and a worldwide downturn in investment returns.

This has led to concerns that some professionals are operating without adequate insurance cover.

Other professionals have limited their services as a result of the insurance crisis.

The Institute of Chartered Accountants reported in a 2003 survey of members that more than half were considering ceasing or had ceased offering services, particularly auditing, because of increasing insurance costs.

Trade Practices barrister Paul Mendelow said the amendments upheld the purposes of the Trade Practices Act to protect the consumer.

“It is very important that people do not engage in misleading and deceptive conduct but to place the entire burden on a person who has done a wrong and then had this wrong exacerbated by a plaintiff’s or other persons actions, is unfair,” he said.

However, the Commonwealth amendments have been criticised by some commentators as having a very narrow application. The critics say there is a need to further widen the law to have the desired impact.

If the reforms are passed, an immediate reduction in premiums is not likely.

Allens Arthur Robinson insurance partner Jenny Thornton said that benefits may not be seen for several years.

“Only once it becomes evident that the reforms have a significant impact in reducing claims will insurers be likely to introduce lower premiums,” Ms Thornton said.

Add your comment

BNIQ sponsored byECU School of Business and Law

Students

6th-Australian Institute of Management WA20,000
7th-Murdoch University16,584
8th-South Regional TAFE10,549
9th-Central Regional TAFE10,000
10th-The University of Notre Dame Australia6,708
47 tertiary education & training providers ranked by total number of students in WA

Number of Employees

BNiQ Disclaimer