Hospital Cannot Claim To Be Indemnified By Insurer Under Insurance Policies Obtained By Doctors To Cover Claims Of Professional Negligence: Supreme Court

The bench of Justices DY Chandrachud and AS Bopanna was hearing appeals against a judgment of the National Consumer Disputes Redressal Commission of February, 2014. The appellant was a charitable hospital registered under the Bombay Public Trust Act 1961. Between June 21 and 23, 2000, the appellant 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. The state government appointed a Committee to enquire into the causes which led, inter alia, to several patients having lost their eye-sight.

Meanwhile, twenty-four complaints were filed by a consumer organization, Jagrut Nagrik Trust. The consumer complaints were instituted against the hospital and the insurance company. The insurance policies were obtained by the doctors from the insurer to cover claims of professional negligence. The doctors were not parties to the proceedings before the District Consumer Disputes Redressal Forum, Vadodara, though affidavits were filed by them. The District Forum by its order of February, 2010 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. The District Forum 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.

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

A revision was filed before the NCDRC by the insurer. The NCDRC by its impugned order of February, 2014, set aside the orders of the consumer fora holding the insurer liable. It, however, clarified that this would not affect the direction 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 Vaduwala Eye 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 was in appeal before the Supreme Court.

The bench observed, "From the record, it emerges 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. 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."