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2002
THE PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF REPRESENTATIVES
MEDICAL INDEMNITY AGREEMENT (FINANCIAL ASSISTANCE-BINDING COMMONWEALTH OBLIGATIONS) BILL 2002
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister
for Revenue and Assistant Treasurer,
Senator the
Hon Helen Coonan)
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The following abbreviations are used in this explanatory memorandum.
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AMIL
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Australasian Medical Insurance Limited
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UMP
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United Medical Protection Limited
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The Bill
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Medical Indemnity Agreement (Financial Assistance-Binding Commonwealth
Obligations) Bill 2002
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IBNRs
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Incurred But Not Reported Liabilities
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MEDICAL INDEMNITY AGREEMENT (FINANCIAL ASSISTANCE-BINDING COMMONWEALTH OBLIGATIONS) BILL 2002
2.1 The purpose of the Bill is to appropriate funds for payments in accordance with an indemnity agreement between the Commonwealth and UMP/AMIL and to confirm the Government’s commitments relating to UMP/AMIL. The Medical Indemnity Agreements covered by this Bill will be legally binding quite apart from this Bill.
2.2 On 29 April 2002, the Government announced that it would provide a short-term indemnity to UMP/AMIL to allow members of UMP/AMIL to continue practising following the decision by the UMP/AMIL boards to seek the appointment of a provisional liquidator.
2.3 On 1 May 2002, the Minister for Health and Ageing wrote to medical practitioners stating that the Commonwealth would guarantee to the provisional liquidator the obligations of UMP/AMIL to pay any amount properly payable in the period 29 April to 30 June 2002 for claims under a current or past policy. Interim arrangements for the payment of some claims were entered into on 22 May 2002 and approved by the Supreme Court of New South Wales on 24 May 2002. It is intended that these arrangements will be incorporated into the deed referred to in paragraph 2.7 below.
2.4 The Commonwealth also committed to providing a guarantee to the provisional liquidator or to any subsequently appointed liquidator to enable the provision of cover in respect of valid claims that arise at any time for:
• holders of a current policy, for events that occur between 29 April and 30 June 2002; and
• holders of a policy that expires and is renewed by the provisional liquidator before 30 June 2002, for events that occur between 29 April and 30 June 2002.
2.5 On Friday 31 May 2002, the Prime Minister announced an extension of the guarantee to 31 December 2002 on modified terms. These arrangements allow the provisional liquidator to:
• meet claims notified in the period 29 April to 31 December 2002 under an existing (or renewed) claims made policy;
• renew policies on a claims made basis for the period until 31 December 2002; and
• continue to meet claims that were notified before 29 April 2002 and are properly payable in the period 1 July 2002 to 31 December 2002 (this is an extension of the arrangements set out in the letter from the Minister for Health and Ageing referred to above).
2.6 The Prime Minister also announced on 31 May 2002 that the Commonwealth would introduce a levy to fund any liability incurred by the Commonwealth under a Medical Indemnity Agreement as a result of the measures referred to in paragraph 2.5 above, as part of a broader levy to meet the unfunded IBNRs of medical defence organisations.
2.7 It is intended that a deed of indemnity between the Commonwealth, UMP/AMIL, and the provisional liquidator of UMP/AMIL will be entered into and will form a binding legal agreement between the entities to give effect to the arrangements announced by the Government.
2.8 This Bill provides for an appropriation out of the Consolidated Revenue Fund for the purposes of payments in accordance with the Bill. Essentially, these will be payments under a Medial Indemnity Agreement between the Commonwealth, UMP/AMIL and an insolvency representative of both companies. While funding is not required immediately, the Bill will provide for the funds when required.
2.9 It is intended that any liability of the Commonwealth under a Medical Indemnity Agreement as a result of the measures referred to in paragraph 2.5 will be met by way of a levy on certain medical practitioners. Separate legislation for the levy and the IBNR scheme will be introduced once the details have been finalised.
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3
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3.1 Upon enactment, the Act would be known as the Medical Indemnity Agreement (Financial Assistance-Binding Commonwealth Obligations) Act 2002.
3.2 Clause 2 provides for the Act to commence on Royal Assent.
3.3 Clause 3 defines certain terms used in the Act.
3.4 An insolvency representative means:
• a liquidator or provisional liquidator of the company;
• a receiver, or receiver and manager, of property of the company;
• an administrator of the company;
• an administrator of a deed of company arrangement executed by the company; or
• a trustee or other person administering a compromise or arrangement made between the company and any other person or persons.
3.5 Initially, it is expected that the insolvency representative of AMIL and UMP will be a provisional liquidator. However, the Bill is drafted to cover other insolvency representatives, should AMIL or UMP move into some other form of administration.
3.6 The definition of Medical Indemnity Agreement covers an agreement between the Commonwealth, AMIL, UMP, and an insolvency representative of both companies. The definition also includes such an agreement that has been amended. The Bill will cover any agreement between these parties. This would include a situation where a different insolvency representative is substituted for the initial insolvency representative in an agreement.
3.7 This clause imposes a statutory obligation on the Commonwealth to make payments that it is contractually obliged to make under a Medical Indemnity Agreement. The Commonwealth will be legally obliged to make such payments even in the absence of this clause.
3.8 This clause does not imply that any future Commonwealth indemnity needs to be supported by a similar provision. There is no doubt that the Commonwealth can enter into binding obligations without legislation. The clause is included in the Bill because of the unique circumstances of the present case, and provides a mechanism to determine the amounts which are to be appropriated under clause 5.
3.9 Under clause 4, the Commonwealth must pay the amounts (if any) which under a Medical Indemnity Agreement, the Commonwealth is required to pay to:
• AMIL;
• UMP;
• the insolvency representative of either AMIL or UMP; or
• any other person.
3.10 Clause 5 would provide an appropriation out of the Consolidated Revenue Fund for the purposes of clause 4.
3.11 Clause 6 requires the Minister to table a statement regarding payments made in any financial year by the Commonwealth to AMIL, UMP, a relevant insolvency representative, or any other person under a Medical Indemnity Agreement. This clause is an accountability provision that ensures that Parliament is aware of amounts paid under the appropriation.
3.12 This clause requires a Medical Indemnity Agreement to be tabled in Parliament after this section has commenced or an agreement is entered into. Amendments must also be tabled. This ensures that the Parliament is informed of the contents of the Medical Indemnity Agreement.
3.13 Clause 8 has been included to avoid any argument that a Medical Indemnity Agreement is confined to provisions relating to indemnities.