Proportionate liability: implications for professionals and professional indemnity insurance29 September 2017 | Professional Indemnity & Financial Lines
The benefits of proportionate liability for professionals and insurers
The introduction of the proportionate liability schemes by the Commonwealth and the various states has made life easier for both insurers and professionals, as the risk of litigation has been shifted from the professional and the insurer to the claimant.
From a legal perspective, the statutes limit a professional’s liability to a claimant by taking the contributing conduct of others into account. In this way, the regimes protect professionals who are only marginally at fault for the claimant’s loss and damages. In practical terms, professionals and their legal representatives are able to use the relevant proportional liability provisions as part of their defence to a claim.
The impact of proportionate liability on settlement negotiations
Proportionate liability legislation is also a valuable tool in settlement discussions and negotiations. Claimants and their legal representatives have become increasingly aware of the risks in running matters to trial solely against professionals who are only marginally negligent. These risks often translate into fruitful settlement discussions and help professionals avoid the incursion of further legal costs.
The true impact of proportionate liability legislation is difficult to quantify, due to the confidential nature of settlements. This means that there is a lack of empirical evidence. Nevertheless, there is anecdotal evidence from insurers and professionals indicating that they are securing favourable outcomes by pleading proportionate liability.
The financial benefits of proportionate liability for professionals
The proportionate liability provisions have led to financial benefits for professionals, as they have allowed insurers to reduce premiums with the knowledge that, in many instances, their insured’s liability will be limited. This means that professional indemnity insurance has become more attainable and affordable to professionals since the introduction of the various proportionate liability statutory regimes.
The most recent National Claims and Policies Database report released by the Australian Prudential Regulation Authority (APRA) on 28 June 2017 demonstrates a continued and steady reduction in premiums since 2003 for both domestic and Lloyd’s syndicates. Admittedly, it is difficult to determine the direct impact that the proportionate liability schemes have had on the cost of premiums for professional indemnity policies (noting the effect of other external factors such as market pressures and specific industry reforms). Nevertheless, the overall impact is undoubtedly positive and has assisted in providing a more stable insurance market.
A final word on the consequences of introducing proportionate liability legislation
Ultimately, the proportionate liability schemes have proved to be beneficial for professionals and their insurers by providing greater protection against claims in circumstances in which their relative responsibility is small.
 APRA National Claims and Policies Database report 28 June 2017 for National Insurers – http://www.apra.gov.au/GI/Publications/Documents/National%20Policy.pdf
 APRA National Claims and Policies Database report 28 June 2017 for Lloyd’s Australia – http://www.apra.gov.au/GI/Publications/Documents/Lloyds%20policy.pdf