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Why the Supreme Court denied Liability coverage to a hospital

Why the Supreme Court denied Liability coverage to a hospital

In 2000, a charitable hospital conducted an eye camp where cataract surgeries were performed on 112 patients.

Soon after, over 24 of those patients filed lawsuits against the hospital for negligence.

Their complaint stated that the hospital and its staff had used non-sterilized appliances, contaminated medicines and substandard lenses that had resulted in eye infections and loss of vision for patients.

The hospital had to pay compensation to these patients. And they thought that their Professional Indemnity Insurance policy would cover it.

You see, Professional Indemnity Insurance helps the policyholder pay compensation to third parties for claims of negligence or misconduct during the course of professional duties. It also assists in managing the legal expenses of the policyholder in the event of a lawsuit.

But there was a problem here: the insurance company argued that the Professional Indemnity Policy had been obtained by the doctors of the hospital and not the hospital itself.

Both the District Forum and the State Commission had rejected this argument and held the insurance company liable to pay compensation. However, the company went on to file for a revision of this decision before the NCDRC (National Consumer Disputes Redressal Commission) and subsequently the Supreme Court.

The NCDRC noted that there was no specific allegation of negligence against the doctors that had procured the Liability policies. And so, it held that the insurance company is not liable on behalf of the hospital.  

And in December 2021, the Supreme Court upheld this order, further observing that if a hospital is not the beneficiary of the Professional Indemnity Insurance policies obtained by the doctors, the insurer is not liable to cover claims made against the hospital.

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Further Reading

How does Professional Indemnity Insurance work?