The Hon'ble Supreme Court in a recent judgment in Sheth M L Vaduwala Eye Hospital v. Oriental Insurance Company Limited and Ors.1 held that a hospital could not claim to be indemnified under an insurance issued in the name of the doctors in a case concerning claims of professional negligence. In this article, we briefly examine the facts and findings of the aforementioned case.

Brief Facts

The appellant Sheth M L Vaduwala Eye Hospital (Appellant) is a charitable hospital registered under the Bombay Public Trust Act, 1961. Between 21 June 2000 to 23 June 2000, the Appellant conducted an eye camp and performed surgeries on 112 cataract patients. Soon after the operations, it was alleged by the patients that there was negligence in performing the said surgeries (in terms of using non-sterilized appliances, contaminated medicines and lenses of an inferior quality) which had caused eye infections and even loss of vision for many. Pursuant to this, the State Government appointed a committee (Committee) to probe into the matter. In the meanwhile, as the doctors had obtained insurance policies to cover claims of professional negligence, 24 consumer complaints were instituted against the Appellant and the insurance company (Respondent) by a consumer organisation named Jagrut Nagrik Trust. Even though affidavits were filed by the doctors, they were not a party to the proceedings before the District Consumer Disputes Redressal Forum, Vadodara (District Forum).

The Committee, in its report held the doctors and the staff liable for medical negligence and the resulting damage to the eyes of the patients. Based on the report of the Committee, the District Forum vide an order dated 19 February 2010 (District Order), awarded an amount of INR 1,70,000 as compensation to each of the 24 complainants together with a refund of registration fees of INR 250, compensation for mental agony of INR 3,000 and costs of INR 1,500 and interest at the rate of 9% per annum. The District Forum held the Appellant and the Respondent would be jointly and severally liable but the award would only be enforced against the Respondent.

Aggrieved by the District Order, the Respondent filed an appeal before the State Consumer Disputes Redressal Commission of Gujarat (State Commission). The appeal was dismissed by the State Commission vide its judgement dated 30 November 2012. Consequently, a revision petition was filed before the National Consumers Disputes Redressal Commission (NCDRC) by the Respondent. The NCDRC by its impugned order dated 26 February 2014, set aside the orders of the consumer fora holding the Respondent liable. It, however, clarified that this would not affect the directions fastening liability on the Appellant. In arriving at this conclusion, the NCDRC noted that the liability had been fastened on the Appellant on the basis of six professional indemnity policies obtained by the doctors where the business address was that of the Appellant. The NCDRC held that this could not by itself fasten the liability on the Respondent as an insurer of the doctors particularly in the absence of any specific allegation of negligence against the doctors.

Aggrieved by this judgment of the NCDRC, the Appellant filed the present appeal before the Hon'ble Supreme Court of India.

Issue

Whether the Appellant could be a beneficiary of the insurance policies that its doctors had obtained, and be covered by the same in the instant case?

Contentions of the parties

The Appellant submitted that it was entitled to lay a claim against the Respondent as a beneficiary of the insurance policies and, consequently, the NCDRC was not justified in reversing the findings of the District Forum and the State Commission in revision. The Appellant relied on the observations of the NCDRC that there was no finding of negligence on part of the doctors. Further, the Appellant also submitted that the doctors had participated in the proceedings by filing their affidavits, in which event it was open to the District Forum to fasten joint and several liability on Appellant and the insurance company.

On the other hand, the Respondent submitted that there was no privity of contract between the Respondent and the Appellant and the professional indemnity policies were obtained by the doctors. There was no insurance cover in respect of the Appellant or the staff. Hence, it was submitted that the NCDRC was justified in entertaining the revision and directing that the Respondent would not be liable to indemnify the Appellant.

Decision of the Hon'ble Supreme Court

The Hon'ble Supreme Court noted that the professional indemnity insurance policies were obtained by the doctors. Thus, the insurance policies would only be of any assistance when the claim is against the particular doctor and not the Appellant.

The Apex Court noted that admittedly, the finding of negligence, as per the order of the State Commission is specifically against the Appellant. The finding of the State Commission showed that the equipment which was used was not properly sterilized and the staff was not properly trained and the medicines which were administered were not of the requisite quality and were contaminated.

The Appellant was not the beneficiary of the insurance policies which were obtained by the doctors to cover discharge of their professional obligations. The Apex Court opined that there was a manifest error on part of the District Forum as well as the State Commission. Accordingly, the NCDRC was held to have a valid basis to exercise its revisional jurisdiction.

The Hon'ble Supreme Court also acknowledged that the NCDRC had interfered in the exercise of its revisional jurisdiction, however the same seemed to be justified as the joint and several liability could not have been fastened on the insurer under insurance policies which were not obtained by the Appellant at the first place. Therefore, the argument that the Appellant is a beneficiary of the professional indemnity insurance policies of the doctors held no water.

Comments

In the present case, there was no privity of contract between the hospital (Appellant) and the insurer (Respondent). Therefore, the hospital could not have claimed any right in the insurance policies obtained by the doctors. Further, it is pertinent to note that there were no allegations made against the doctors and it was only the hospital which was found at fault by the State Commission. Taking these facts into account, the Hon'ble Supreme Court has rightly upheld the decision of the NCDRC.  

Footnote

1. Sheth M L Vaduwala Eye Hospital v. Oriental Insurance Company Limited and Ors., Civil Appeal Nos. 7611-7636 of 2021.

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