Omission to provide service covered under PI policy
July 4, 2017
AAI Limited v GEO Group Australia Pty Ltd  NSWCA 110
GEO was the private operator of a prison in NSW. As part of its contract with the State, it had to provide psychological and counselling services to inmates. A NSW government agency provided medical services within the prison.
GEO held a medical malpractice civil liability insurance policy. It provided cover for claims ‘resulting from the conduct of the Healthcare Services’. They were defined as ‘the healthcare service described in the Schedule, and no other, of the Policyholder’. The Schedule described the ‘Healthcare Services’ to be ‘the provision of medical services and treatment including services and treatment provided by psychologists and counsellors’.
An inmate in the prison, who suffered chronic schizophrenia, threw himself off a landing in the prison and suffered serious injuries. He sued GEO and others, alleging against GEO that it knew, or ought to have known, he was suffering from chronic schizophrenia, failed to provide him with access to psychological services, and failed to properly assess him upon his arrival at the prison. GEO settled the inmate’s claim, and then sought cover under its insurance.
The insurer denied cover, on the basis that GEO had never provided counselling and psychological services to the inmate. GEO sued the insurer, arguing that as it was contractually obliged to provide those services, the failure to identify the inmate as being at risk of self-harm was an omission in the conduct of those services. The insurer, however, said that as GEO had not even contemplated providing the services, there could be no omission in their provision.
At first instance, the Supreme Court of NSW found that the insurance did respond. The insurer appealed, but the Court of Appeal upheld the original decision. It considered that the language of the policy, as a whole, pointed to the omission to provide services as falling within the definition of ‘Healthcare Services’. In that regard, it referred to the use of the word ‘omission’ in the policy’s aggregation clause. It did not matter that no psychologist or counsellor had physically provided a service to the inmate; it was enough that the claim against GEO arose directly from the faulty operation of its system to address the risks to the mental health of inmates. The court considered that the conduct of ‘Healthcare Services’ extended to acts or omissions in identifying and assessing inmates for the purpose of determining which further health services and treatments were required.
This decision suggests that the requirement in a professional indemnity policy that a claim result from a defined set of services will be construed as only requiring the insured to have been subject to a duty to provide those services. That duty could be a contractual one, or the circumstances could be such that the insured owed a non-contractual duty of care to the claimant.
Authored by Scott Krischock, Special Counsel, Melbourne.
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