Tort Reform System: Medical Negligence in New Zealand

Ch27-A04438 9/18/06 1:48 PM Page 287 C H A P T E R 2 7 Tort Reform System: Medical Negligence in New Zealand James C. Johnston, M.D., J.D., F.C.L.M. It may yet come to pass that the most effective remedy for the ills of our tort reparation system will be disclosed by demonstration, in an attractive, usually tranquil, and very civilized little country half-a-world away. The developments down under thus merit our most careful and continuing observation. 1 The New Zealand accident compensation scheme is the most comprehensive tort reform system in the common law world. It has successfully operated for over 30 years. The fundamental nature of the scheme is simple: for personal injury, no-fault compensation replaces the common law action for damages. This chapter provides an overview of medical negligence down under, with particular attention to the relationship between statutory tort reform and the common law. BACKGROUND It is difficult for an outsider to understand how a nation can make the sweeping legislative reforms that will be discussed in this chapter. It may be helpful to review three unique features of the country s legal framework. First, New Zealand is a unitary state, allowing Parliament to enact national legislation without a fragmented amalgam of state, province, or territory law. Second, New Zealand, a Westminster-style constitutional monarchy, does not have a written constitution; thus, there are no entrenched provisions or superior law to restrain the government s ability to legislate. Third, Parliament, a unicameral General Assembly, has sovereign power to legislate and courts are absolutely bound to apply the law. These factors, among others, allow a flexible, dynamic approach to legislative reform. INTRODUCTION New Zealand provides a comprehensive public health system that is funded by the Ministry of Health and administered by 21 District Health Boards. Each Board is responsible for providing services in a particular geographic region. This public health service coexists with a parallel system of private insurance and private hospitals. Both systems are underpinned by a no-fault accident compensation scheme, which provides coverage for personal 287

Ch27-A04438 9/18/06 1:48 PM Page 288 288 Malpractice Lawsuit Resolution injury regardless of fault or cause, and at the same time bars the right to sue for compensatory damages covered by the scheme. THE CURRENT REGIME The scheme is administered by the Accident Compensation Corporation (ACC), a Crown-owned entity, which operates under the current regime entitled the Injury Prevention, Rehabilitation, and Compensation Act 2001 (IPRCA). ACC is responsible for preventing injury, determining whether claims for injury are covered, providing entitlements including compensation, buying health services to treat and rehabilitate the injured, and advising the government. The funding for ACC is through Parliament and a series of levies on employers, earners, motor vehicle owners, health professionals, and medical organizations. 2 The IPRCA covers New Zealand residents and citizens, with limited benefits for temporary visitors. An eligible person is covered for a personal injury provided it falls within one of eleven statutory categories, which include accident, medical misadventure, or a gradual process, disease, or infection that is employment-related, secondary to personal injury or its treatment, or due to medical misadventure. The scope of this cover is to be interpreted in a generous, unniggardly fashion. 3 Personal injury is statutorily defined as death, physical injury, mental injury consequent on physical injury, or damage to dentures or prostheses. The term physical injury is neither obvious nor precisely defined, but courts consider it to mean any condition involving harm to the human body including sickness or disease. 4 There is no coverage for a willfully self-inflicted injury or suicide. The benefits of coverage under the scheme include medical treatment, social and vocational rehabilitation, weekly compensation during incapacity, lump-sum compensation for permanent impairment, weekly compensation for the spouse and dependants of a deceased claimant, childcare payments, survivors grants, and funeral grants. The IPRCA prohibits independent proceedings, whether under any rule of law or enactment, in any court in New Zealand, for damages arising directly or indirectly out of any covered injury. Thus, a person may not sue for compensatory damages for any personal injury that is covered by the scheme. The purpose of the bar is to prevent compensation twice over, not to prevent recovery of any compensation. 5 This represents a kind of social charter, largely replacing the common law in a defined field. 6 HISTORY A review of the history is paramount to understanding why New Zealand decided to replace the common law with this radical, far-reaching scheme. Prior to inception of the scheme, injured persons could seek relief through either a common law action or, depending on the situation, statutory compensation under the Workers Compensation Act 1956, Social Security Act 1964, or Criminal Damages Act 1963. 7 In 1966 the Minister of Labour established a Royal Commission of Inquiry charged with investigating the

Ch27-A04438 9/18/06 1:48 PM Page 289 Tort Reform System: Medical Negligence in New Zealand 289 adequacy of workers compensation benefits. The commission produced a landmark report far exceeding the terms of reference (Woodhouse Report): The negligence action is a form of lottery. In the case of industrial accidents it provides inconsistent solutions for less than one victim in every hundred. The Workers Compensation Act provides meagre compensation for workers, but only if their injury occurred at their work. The Social Security Act will assist with the pressing needs of those who remain, provided they can meet the means test. All others are left to fend for themselves. It is a situation which needs to be changed. It is worth reviewing the commission s arguments to abolish the common law, which were adopted by the major political parties in New Zealand but largely ignored in the rest of the world: 8 The failure of the common law to compensate large numbers of accident victims; The waste involved in the system in that much of the money was chewed up in legal and administrative expenses; The long delays in delivering benefits to those who secured them; That personal blameworthiness was not the real rationale for the law because negligence law required individuals to meet the community average standard; Reprehensible conduct can be followed by feather blows while a moment s inadvertence could call down the heavens, as the Woodhouse Report put it; That liability insurance had blunted or removed the deterrent effect of tort law; That an assessment of damages in one lump sum involved guesswork and speculation and tended to overcompensate less serious injuries; That the process of adjudication was a lottery and impeded the rehabilitation of injured people, and there were strong incentives to maximize misery; and Accident prevention was impeded by the system. The Woodhouse Report proposed a comprehensive scheme of accident prevention, rehabilitation, and compensation based on five guiding principles: community responsibility, comprehensive entitlement, complete rehabilitation, real compensation, and administrative efficiency. There was no question about the goal: Injury arising from accident demands attack on three fronts. The most important is obviously prevention. Next in importance is the obligation to rehabilitate the injured. Thirdly, there is the duty to compensate them for their losses. The Royal Commission concluded: If the scheme can be said to have a single purpose it is 24-hour insurance for every member of the workforce, and for the housewives who support them. Parliament, following the Woodhouse Report, a White Paper, and a Select Committee Report, enacted the Accident Compensation Act 1972, bringing the accident compensation scheme into effect on April 1, 1974. The fundamental nature of the reform was to replace the common law with a nofault scheme to compensate personal injury by accident. The remainder of

Ch27-A04438 9/18/06 1:48 PM Page 290 290 Malpractice Lawsuit Resolution this chapter will be limited to a discussion of medical misadventure under the scheme. Lack of space necessitates omitting many laws, ignoring important cases, and oversimplifying the entire picture. Therefore, this overview should not be considered a complete or definitive statement of the law. MEDICAL MISADVENTURE The Accident Compensation Act 1972 defined personal injury by accident to include medical, surgical, dental, or first aid misadventure. A 1982 re-enactment made no changes regarding medical misadventure. The High Court never established a clear definition of medical misadventure, resulting in cost increases as the boundaries of the scheme expanded. This prompted the National Party government to retreat from the original scheme by enacting the Accident Rehabilitation and Compensation Insurance Act 1992, which provided restrictive definitions excluding certain claims and limiting benefits. The new, narrowed definitions for medical misadventure cover were carried over in the Accident Insurance Act 1998 and the subsequent IPRCA, although the latter did restore some of the previously limited benefits such as lump-sum compensation. These restrictive definitions precluded a true no-fault scheme and resulted in a revival of the common law with novel claims circumventing the statutory bar. Parliament responded with the Injury Prevention, Rehabilitation, and Compensation Amendment Act (No. 2) 2005 (Amendment Act), replacing the term medical misadventure with the broad concept of treatment injury, expanding coverage in a move back toward the Woodhouse recommendations. The pre-amendment regime will be reviewed before discussing the latest changes because the evolution of this particular statute provides a unique view of the challenges involved in developing a true no-fault compensation scheme and, from a practical standpoint, the pre-amendment legislation still applies to claims of medical misadventure occurring prior to Royal Assent of the Amendment Act. Fault Within the Scheme Medical misadventure is defined as personal injury suffered by a person seeking or receiving treatment given by or at the direction of a registered health professional (hereinafter health professional or physician), and which is caused by medical error or medical mishap. Personal injury may include injury by disease or infection, or by a heart attack or stroke, as well as an existing condition that does not improve or gets worse. It also includes a secondary infection passed by medical misadventure to a spouse, child, or third party. Medical mishap means an adverse consequence of properly administered treatment that is rare and severe. The definition of severe is death, hospitalization for more than 14 days, or significant disability lasting more that 28 days; rare means that the adverse event occurs in 1% or less of the cases where treatment is given. There is no mishap where an adverse consequence is rare in the ordinary course but is not rare for a particular person, and the person knew the greater risk before treatment.

Ch27-A04438 9/18/06 1:48 PM Page 291 Tort Reform System: Medical Negligence in New Zealand 291 Medical error means the failure of a health professional to observe a standard of care and skill reasonably to be expected in the circumstances, and can include failure of an organization when error cannot be attributed to a particular professional. The error may arise in the diagnosis of a person s condition, deciding whether or not to give treatment, deciding what treatment to provide, obtaining consent, or actually giving treatment. It is not medical error because desired results are not achieved, subsequent events show that different decisions might have produced better results, or the failure in question consists of a delay or failure attributable to an organization s resource allocation decisions. Thus, medical error requires proof of fault even though the accident compensation scheme operates as a no-fault system. This anomaly of a negligence-based standard embedded within a nofault system required the scheme to resolve some of the same problems that occurred under the tort system. It set the stage for a reawakening of the common law and development of various statutory remedies. The necessity of finding fault perpetuated a blaming culture that precluded patient safety improvements, generated significant expense investigating medical errors, and caused delays in deciding claims. 9 Additionally, the mishap provisions of severe and rare were considered arbitrary and confusing. A public consultation process supported the need for reform of the medical misadventure provisions. 10 Revival of the Common Law The complex social, political, and legal climates surrounding the legislative history of the scheme are beyond the scope of this chapter. The crucial point, for this discussion, is that from 1992 the various Acts restricted coverage and limited benefits, resulting in a less generous scheme. As coverage under the scheme contracted, the scope of actionable negligence expanded, most notably involving claims for nervous shock and exemplary damages. Nervous Shock The original Act covered mental consequences of an injury including transient trauma (anger, embarrassment, distress) as well as more severe psychiatric aliments. Since 1992 the schemes have excluded transient emotional trauma by defining mental injury as clinically significant behavioral, cognitive or psychological dysfunction. Moreover, mental injury is now only covered where it amounts to personal injury, and it is due to physical injury or certain crimes. Coverage in these limited circumstances bars a common law action. Conversely, there is no cover for mental injury alone, and thus no bar against an action for damages. Moreover, secondary victims of medical negligence, such as relatives of a patient who died, may bring an action for nervous shock. Exemplary damages The IPRCA does not bar a claim for exemplary damages, because such damages are not considered compensation. 11 These damages are awarded

Ch27-A04438 9/18/06 1:48 PM Page 292 292 Malpractice Lawsuit Resolution to punish the defendant, not be compensate the plaintiff. Claims were generally confined to cases of intentional conduct, but McLaren Transport Ltd. v. Sommerville extended actions to gross negligence. 12 The escalating intrusion of exemplary damages into negligent conduct prompted the Court of Appeal to curtail these actions: Exemplary damages are awarded to punish a defendant for high-handed disregard of the rights of a plaintiff. Negligence simpliciter will never suffice. 13 The Court subsequently tightened this restriction in A. v. Bottrill, ruling that exemplary damages should only be available where the defendant is subjectively aware of the risk to which his or her conduct exposes the plaintiff. 14 The Privy Council overturned Bottrill, restoring McLaren, and reopening the door for exemplary damages in negligence. 15 Their Lordships did caution that a perceived need for compensation, or further compensation, is not a proper basis for making an award of exemplary damages. Other Claims Common law actions are available where the statutory definition of personal injury is not satisfied. For example, negligent surgery may fail to produce the desired results but does not cause physical or mental injury. Similarly, negligent failure to sterilize a patient may give rise to a suit for the financial loss of raising the child. The statute provides that certain proceedings can be maintained, including actions related to property damage, any express term in a contract, or any personal grievance arising out of a contract for service, as well as actions under the relevant provisions of the Health and Disability Commissioner Act 1994 or the Human Rights Act 1993. There may be claims for compensatory damages where statutory definitions are not met, and participation in certain clinical trials may open the door for a negligence action against the manufacturer or investigator. Development of Statutory Remedies The common law resurgence occurred contemporaneously with several high-profile Ministerial Inquiries recommending, inter alia, a statement of patient rights and appointment of a Health Commissioner to investigate complaints. These Inquiry outcomes, along with a confluence of other factors, including a paucity of common law decisions on professional standards and public desire for increased accountability, precipitated a series of Parliamentary Acts and regulations on patient rights, informed consent, privacy, and a host of related matters. The recently promulgated legislation focuses on consumer (legislative terminology) rights and creates a number of interrelated regulatory bodies and tribunals: evidence from one may be used by another; there are mechanisms for increased reporting among these organizations as well as with the ACC, authorities, and employers; and complaints may be simultaneously addressed in other fora including, for example, Coronial hearings, Inquiries, and Bill of Rights Act and Privacy Act proceedings. The result of this milieu is a quest for accountability and

Ch27-A04438 9/18/06 1:48 PM Page 293 Tort Reform System: Medical Negligence in New Zealand 293 compensation under several relatively new statutory provisions. The following Acts are particularly relevant to the accident compensation scheme because they provide a means for consumers to seek redress for negligence, and are not barred by the scheme. Health and Disability Commissioner Act 1994 (HDCA) The HDCA contains the Code of Health and Disability Services Consumers Rights (Code), which confers ten rights for the protection of consumers (e.g., Right 4 is a right to services of an appropriate standard; Rights 6 and 7 pertain to informed consent; Right 10 is the right to complain to the Commissioner). Consumers may complain directly to the Commissioner, who has the authority, upon determining there is a breach of the Code, to make recommendations to the provider or Ministry of Health, file a complaint with the relevant professional body, or refer the matter to the Director of Proceedings. The Director of Proceedings, an independent statutory office, may call proceedings in the Human Rights Review Tribunal or Health Practitioners Disciplinary Tribunal, or both. Human Rights Act 1993 (HRA) This Act established the Human Rights Review Tribunal (HRRT), which can hear proceedings about matters infringing upon the Code, the HRA, the Privacy Act 1993, or the Health Information Privacy Code. Complaints to the Tribunal may arise by referral from the Commissioner to the Director of Proceedings or, in accordance with the Health Practitioners Competence Assurance Act 2003, directly from the consumer. The Tribunal can make a declaration, issue an order restraining the provider, order the provider to redress any loss or damage suffered by the consumer, provide damages up to $200,000 for pecuniary loss, expenses, loss of benefit, humiliation, or action that was in flagrant disregard of the consumer s rights, or provide any other relief as the Tribunal thinks fit. 16 This statutory provision provides a wider basis than the common law for a claim of exemplary damages, since flagrant disregard requires a lower threshold of proof that the common law outrageous conduct test. Health Practitioners Competence Assurance Act 2003 (HPCAA) This omnibus Act covers the regulation and discipline of all health professionals. A separate authority is established for each profession, responsible for matters related to education, registration, practicing certificates, scope of practice, and competence reviews. A single multidisciplinary Health Practitioners Disciplinary Tribunal chaired by the legal profession conducts all disciplinary hearings. 17 Consumers may complain directly to the disciplinary tribunal, or complaints may originate from the Commissioner or the HRRT. The HPCAA provides direct consumer access to the HRRT. The tribunal has wide disciplinary authority ranging from the imposition of fines to cancellation of practicing certificates.

Ch27-A04438 9/18/06 1:48 PM Page 294 294 Malpractice Lawsuit Resolution Parliament Enacts the Amendment Act The Woodhouse scheme was designed to supplant the vagaries of actions for damages for negligence at common law. 18 The successive statutory reenactments retreated from the original scheme by excluding certain claims and limiting benefits, resulting in a renewed resort to common law actions with all the attendant vagaries. This did not go unnoticed. The High Court sent a warning: The compensation entitlements of the victims of negligence have fallen far short of the much-trumpeted recommendations of the 1967 Woodhouse Commission Report. Such a perception may well lead to the courts providing remedies which are not currently available. 19 There is not yet any apparent trend to create other remedies, and the courts have not developed exemplary damages as a remedy for inadequate ACC compensation. Indeed, later judicial decisions suggest that the perceived limitations of the scheme will be considered a matter for Parliament. 20 Parliament responded with the Amendment Act, which adopts a more generous approach to the injured. It replaces the terms medical mishap and medical error with treatment injury effective July 1, 2005. Treatment injury means personal injury suffered by a person seeking or receiving treatment from a health professional that is caused by treatment and not a necessary part or ordinary consequence of the treatment, taking into account all circumstances including the person s underlying health condition and the clinical knowledge at the time of treatment. It does not include personal injury that is wholly or substantially caused by the person s underlying health condition, attributable to a resource allocation decision, or a result of a person unreasonably delaying or withholding consent to treatment. The fact that treatment did not achieve a desired result does not, of itself, constitute treatment injury. Treatment includes diagnosis of a condition, a decision on treatment to be provided, giving a treatment, delay or failure in providing treatment, obtaining or failing to obtain consent, the provision of prophylaxis, failure of any equipment used in treatment, and application of any support systems (including administrative systems) used by the organization responsible for treatment. Thus, claimants must establish causation, but it is unnecessary to prove any degree of fault, severity, or rarity. THE FUTURE There will undoubtedly be an increase in compensation claims under the new legislation, especially with the exclusion of any seriousness requirement. The changes will enable more patients to receive compensation and rehabilitation, and hopefully create a culture encouraging health professionals to report adverse events for the purpose of improving patient safety. The wider coverage may diminish pressure on the common law to provide for victims of personal injury. Additionally, the fact that consumers may seek remedies including exemplary damages through statutory provisions such as the HRRT may further dampen common law actions. Thus, expanding coverage under the scheme should result in a corresponding decrease of the already limited negligence claims.

Ch27-A04438 9/18/06 1:48 PM Page 295 Tort Reform System: Medical Negligence in New Zealand 295 There will, with the new law, be a focus of litigation to prove an unexpected event separating treatment injury from ordinary treatment of disease or illness. The reason is simple the scheme continues to cover injury but not sickness, which is relegated to the lesser entitlements of the social security program. Unless New Zealand takes the Woodhouse next step and integrates the accident scheme with social security to provide equitable benefits, which appears unlikely at this time, there will be a litigation penumbra surrounding the scheme. The litigation will simply shift from fault issues, no longer relevant under the Amendment Act, to proving causation. CONCLUSION A person suffering injury due to medical misadventure or treatment injury is entitled to cover under the scheme, and may not sue for compensatory damages. An injury that falls outside the scheme such as nervous shock may give rise to a common law action for compensatory damages. The bar does not prohibit claims for exemplary or punitive damages. Even if a negligence claim is barred, the negligence may breach a statutory right (e.g., Right 4 of the Code mandating a reasonable standard of care), and result in an award of exemplary damages. The New Zealand accident compensation scheme is unquestionably an enduring success. It avoids the economic and social injustices that the common law inflicts upon injured persons. It is not a panacea. There remain policy and administrative challenges concerning an acceptable balance between statutory coverage and the common law, as well as integration of social security. Nevertheless, the scheme is part of the social fabric and it is unlikely that there will ever be a widespread return to the common law. Jurisdictions considering tort reform may benefit from a full understanding of this unprecedented scheme. FURTHER READING Bismark M, No-Fault Medical Malpractice System in New Zealand In Legal Medicine/American College of Legal Medicine, 7th ed, ed. S. Sandy Sanbar et al. Philadelphia, Mosby, 2007. REFERENCES 1. Bernstein A, No-Fault Compensation for Personal Injury in New Zealand, in U.S. Dept. of Health, Education and Welfare Report of the Secretary s Commission on Medical Malpractice (1973). Supp. Vol. 848. 2. 168, 183, 193, 202, 214, 219, 227, and 228 IPRCA. 3. ACC v. Mitchell (1992) 2 NZLR 436, 438 9 (CA). 4. Childs v. Hillock (1993) NZAR 249, 2 NZLR 65 (CA).

Ch27-A04438 9/18/06 1:48 PM Page 296 296 Malpractice Lawsuit Resolution 5. Queenstown Lakes District Council v. Palmer (1999) 1 NZLR 549 (CA). 6. 6 Brightwell v. ACC (1985) 1 NZLR 132, 139 40 (CA). 7. McKenzie P, The Compensation Scheme No One Asked For: The Origins of ACC in New Zealand, VUWLR 34(2), at 195 June 2003. 8. Palmer G, The Nineteen-Seventies: Summary for Presentation to the Accident Compensation Symposium, VUWLR 34(2) at 241 (June 2003). 9. ACC, Review of ACC Medical Misadventure: Consultation Document (2003). 10. Accident Compensation Corporation and the Department of Labour, Summary of ACC Medical Mi1sadventure Consultation (2003). 11. 319(1) IPRCA. See Taylor v. Beere (1982) 1 NZLR 81 (CA) and its progeny. 12. McLaren Transport Ltd. v. Sommerville (1996) 3 NZLR 424 (HC). 13. Ellison v. L. (1998) 1 NZLR 416, 419. 14. A. v. Bottrill (2001) 3 NZLR 622 (CA). 15. A. v. Bottrill (2003) 2 NZLR 721 (PC). 16. Director of Proceedings v. O Neil (2001) NZAR 59 (HC). See also 57(1)(d) Health and Disability Commissioner Act 1994. 17. 84 HPCAA 2003. 18. Green v. Matheson (1989) 3 NZLR 564 (CA). 19. Residual Health Management Unit v. Downie (2001) CA 147/01, 3. 20. Wardle v. ACC, HC Wellington AP 134/02.