Ending Fault in Accident Compensation:

Issues and Lessons from Medical Misadventure
Paper to The Future of Accident Compensation: New Directions and Visions, Faculty of Law, Victoria University of Wellington, 5-6 December, 2003.

Keywords: Social Policy;

Introduction: The Woodhouse Vision

There seems to be common agreement that the treatment of medical misadventure should conform to the Woodhouse Principles and therefore there should be no notion of fault in its coverage. I shall not to labour this point, but it is worthwhile to remind ourselves of the Principles and how the 1966 Commission rejected fault as relevant. Their primary principles were

“Prevention, Rehabilitation, and Compensation – Injury arising from accident demands an attack on three fronts. The most important (sic) is obviously prevention. Next in importance is the obligation to rehabilitate the injured. Thirdly, there is a duty to compensate them for their losses. The second and third of these matters can be handled together, but the priorities between them need to be reversed. No compensation procedure can ever be allowed to take charge of the efforts being made to restore a man to health and gainful employment.” It added that “Safety – This needs no elaboration. Any modern compensation scheme must have a branch concerned solely with safety. …” And then set down Five General Principles for rehabilitation and compensation:

Community Responsibility
Comprehensive Entitlement
Complete Rehabilitation
Real Compensation
Administrative Efficiency.

Note that the Woodhouse Commission did not recommend the abandonment of the fault approach when it established its basic principles. Rather the abandonment derived from its application of those principles, for it found that

“(2) The fault principle cannot logically be used to justify the common law remedy and is erratic and capricious in operation. …
(5) The common law remedy falls far short of the five requirements outlined in the report .”

The Gains from No-Fault Medical Misadventure

I suggest there are three significant gains when medical error is no longer recognised in the scheme:

1. Speedier decisions and lower compliance costs, because the health professionals will be less defensive and the assessment less complicated.

2. The opportunity for more effective preventative programs, again arising out of the health professional being less defensive.

3. Fewer vexatious claims, because no longer would the Accident Compensation System be seen as a disciplinary body.

Depending on the criterion of medical misadventure used, the apparent cost of the scheme may rise, but those costs are transfers, The gains just nominated involve genuine reductions in compliance costs, and so gains to the economy as a whole.

Some Problems the New Scheme will Face

Here are some of the difficulties the new arrangements will face:

Compliance Costs

The medical fault system generates compliance costs. (Recall that the Woodhouse Commission was able to offer a better deal at less cost by eliminating the compliance costs as a result of litigation.) The system needs to continually, review, measure and where possible reduce compliance costs. including speeding up its decisions.

For instance, current procedures require the same investigative procedure irrespective of the cost of the remediation. In some cases the cost of the remediation is a fraction of the cost of assessment. In Submission on Review of Medical Misadventure I suggested a procedure involving a prima facie finding, which gives the authority the discretion to approve the undertaking of the rehabilitation without further investigation, where the costs of remediation are small. However, it would not cover compensation – that is the payments of monies – in order to reduce ‘gold-digging’.

Time is a compliance cost. Remediation takes time. In the case of medical misadventure – in its widest sense – the professionalism of the health system will mean that rehabilitation will be addressed immediately if possible. However, especially given the fracturing of funding and institutions, this will not always happen, and the injured may have to go through an ACC assessment. Can we reduce the effect of this fracturing and provide institutions with incentives to provide practical remediation as early as possible?

Wither Prevention?

There is potential for considerable gains in the prevention of misadventure. However because of institutional fragmentation – between ACC, the professional bodies, and the health providers – the potential of the ending of medical failure may not be realised.

One simple step for promoting prevention, would be to encourage the expert advisers to recommend measures to reduce the repeating the misadventure in the cases they review. But should they go as far as identifying potentially unsafe health professionals?

There is a finely balanced argument here. Taking the system right out of the identification of incompetent health professionals enables ACC to focus on its fundamental objectives, encourages cooperation by those involved in the case being investigated, and prevents a fault principle slipping back in. Moreover past experience suggests that all the unsafe professionals have already been known to the relevant authorities.

On the other hand dealing with unsafe professionals is an effective form of prevention. Even more fundamentally, it would hardly be ethical for an expert advisor to identify an unsafe professional and not to make some effective comment on her or him.

Practically, consider a subsequent public enquiry into some medical misadventure, which involved an adviser having to say that in the expert’s opinion a health professional was incompetent, but the expert had not mentioned that judgement in the report, or if it was, ACC had done nothing about it. Politics suggests this practical consideration may be decisive. How then to maintain all the benefits of the scheme. The issue becomes defining an appropriate threshold.

The Line Between Entitlement and No-entitlement

The line between medical misadventure which gives an entitlement to rehabilitation and compensation has still to be agreed. I want to make two points here.

The first is about informed consent. If an event is so rare that it was not mentioned when informed consent to the medical intervention was given, then it is surely medical misadventure. Of course there are many rare events which are mentioned when informed consent is being given, but which are medical misadventure. And sometimes the putative patient may not be advised of outcomes when informed consent is being given, which are common enough not to amount to medical misadventure. So how does informed consent relate to the definition of medical misadventure? In particular, if the patent was not advised of a possible outcome, no matter how common, are they more likely to be entitled to remediation?

The second issue is the historic one, identified at the very beginning by the Woodhouse Commission, of the inequity that sickness is treated differently from by accident, even where the outcome to the patient is be same. The same problem will apply to sickness and medical misadventure. In The Historic Context of the Woodhouse Commission I pointed out that the inequity arose because the Woodhouse proposals were funded from the reductions in compliance costs of the discarded common law (fault premised) system, but there was no such gains if the system were extended to sickness. Thus, removal of the inequity would raise a substantial fiscal cost, one which thus far the nation has been unwilling to pay. Where the medical misadventure definition is drawn will contribute to increasing or reducing this inequity, but it will not eliminate it (and it will generate compliance costs).

The problem is that the entitlement is input driven rather than outcome driven. It depends upon the path to the injury not the destination. That generates the inequity, so let’s go back and consider why has the different paths for the same outcome arisen?

Why Should There Be Compensation?

The origins of the path which leads to compensation are deeply associated with the notion of fault. Compensation was justified by
– it would seem inequitable that the person who caused the accident and the resulting damage should be no worse off while the victim is;
– it provided a market incentive to discourage individuals causing accidents.

Thus monetary compensation is a living fossil in the New Zealand no-fault system, left over from the fault based path, even though there is no practical implication for a person who is at fault (except the criminal law).

Focussing on Rehabilitation

The Woodhouse report defined rehabilitation as

The restoration of the handicapped to the fullest physical, mental, social, vocational, and economic usefulness of which they are capable. It is a total process which begins with the earliest treatment of the injury or disease. It does not end until everything has been done to achieve maximum social and economic independence. The aim is that this should be achieved in a minimum of time.

One of the reasons for the focus on compensation was that in the past there was few possibilities for rehabilitation other than that compensation. Had there been the possibility of effective rehabilitation is the nineteenth century, the remediation provisions of tort law would have been rather different. More recently, as effective rehabilitation becoming a practical possibility, the Woodhouse Commission prioritised it over compensation.

To go a step further, if there is quality rehabilitation is any compensation necessary at all? Of course the rehabilitation may include cash payments, but it involves a more comprehensive notion.

Suppose individual’s remediation was primarily rehabilitation with monetary compensation only where rehabilitation by itself is inadequate. Would the reoriented scheme cost more or less? Any answer is not just the relative cost of the two approaches, but also dependent upon the relative effectiveness of rehabilitation strategies, which may be getting more successful with time.

A Vision for a Future Direction?

Crucially for the inequity between the two paths, rehabilitation is likely to be increasingly applied in the case of sickness without ACC cover. They will not get compensation, but as I have argued compensation becomes increasingly irrelevant when there is effective rehabilitation.

A way forward out of the inequity then, is

– to accelerate the shift of remediation from compensation to rehabilitation for ACC cover,*
– to accelerate the convergence on non-ACC rehabilitation towards the ACC level.

(Note it is important that the first shift is not a driven by the hope of reducing costs, even if it were to do so in the long run. The big gains would be to better remediation and less inequity.)

A careful reading of the report of the Woodhouse Commission suggests that were it to reconvene they would be sympathetic to such a strategy, which has become more feasible in the intervening years. In essence this is not a proposal for radical overnight change but a direction for evolution. But if evolutionary the proposal represents a new direction – extending, I would submit, the original Woodhouse vision.

This paper, then could be summarised by suggesting the direction of evolution should be

– emphasise prevention;

– emphasise rehabilitation and phase out compensation; and

– phase out accident as cause as a the basis of entitlement and phase in the injury income, by providing better rehabilitation to all the injured.

The end point might be the replacement of the


by the


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* It was mentioned in the conference that this process is well underway. Whereas once over 60 percent of ACC expenditure was on compensation, it is now about 30 percent.