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Fund accused of avoiding compensation payouts -

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Fund accused of avoiding compensation payouts

Broadcast: 28/05/2007

Reporter: Peter McCutcheon

A legal loophole is allowing a major international medical fund to pull out of negligence cases in
Australia. This means that two children who allegedly suffered serious injuries as the result of an
obstetric mistake could miss out on compensation.


KERRY O'BRIEN: A legal loophole is allowing a major international medical fund to pull out of
negligence cases in Australia. It means that two children who allegedly suffered serious injuries
as the result of an obstetrician's mistake could miss out on compensation. The fund at the centre
of the controversy is the MDU which left the Australian market in the 90s but is still a major
player in the United Kingdom. The MDU is the world's Medical Defence Organisation set up by doctors
in the late 19th century as a not for profit organisation. But the MDU's reputation is now being
called into question by its decision to use its status as a discretionary fund, rather than an
insurer to avoid the potential of a big compensation payout.

Peter McCutcheon reports.

PETER MCCUTCHEON: Nathan Chessell has mild brain damage. He has repeated a year at school and still
struggles to keep up with his studies. His disability is allegedly the result of an obstetrician's
mistake 12 years ago.

And the Chessell family have been trying to sue the doctor they believe is responsible.

RUTH CHESSELL, MOTHER: We can pay for the extra things that he needs, a special needs teacher, the
extra speech therapy, the extra occupational therapy that he needs.

PETER MCCUTCHEON: But due to a legal loophole, the fund that provided medical indemnity to the
doctor has pulled out of the case, leaving the Chessell family with potentially nothing.

RUTH CHESSELL: It's disgusting. There's no reason for the insurance company not to honour their

PETER MCCUTCHEON: It's a controversial legal manoeuvre that has the medical profession worried.

DR ANDREW PESCHE, AUSTRALIAN MEDICAL ASSOCATION: Most doctors would not wish a justified claim not
to be met on the basis of a legal technicality.

DAVID HIRSCH, AUSTRALIAN LAWYERS ALLIANCE: They have a very clever legal argument. The question is
whether they're right.

PETER MCCUTCHEON: Nathan Chessell was not a happy baby. He frequently vomited and lost the ability
to even hold his head up. After four and half months, doctors discovered the problem: vitamin B 12

RUTH CHESSELL: It affects all his nerve endings which is why he has very poor fine motor control.
He has very few...if you go to do Nathan's reflexes you won't find them, because they're so dull.

PETER MCCUTCHEON: The vitamin deficiency was due to his mother's undiagnosed illness, pernicious
anaemia. Tragically this condition could have been picked up earlier if Ruth Chessell's B 12 levels
were checked as was recommended, after a blood test a month before her son was born.

Although the Chessells thought highly of their obstetrician Dr Ian Borody, they believed he had
made a mistake and decided to sue him for negligence.

RUTH CHESSELL: He was very sympathic. He was a wonderful, wonderful man. He realised that this
could happen to anybody, so he changed his practices. He started testing every one of his patients
for B 12 deficiency. He found several. He'd ring me and tell me what he found. He tried to get it
as part of the pregnancy screening.

PETER MCCUTCHEON: It's not unusual for an obstetrician to be sued a number of times over a long
career and indeed Dr Borody was involved in another negligence case.

Rod and Deanne Burrows began a suite against the doctor for a bungled forceps delivery which
permanently damaged the shoulder of their now nine-year-old son, Matthew.

DEANNE BURROWS, MOTHER: He was in a bad state, black and blue all over. His right arm was just
limp. He couldn't move it at all. We couldn't touch him for a week because he was that sore.

PETER MCCUTCHEON: The legal problems for the Chessell and the Burrows families began six years ago
when Dr Barody passed away and his estate was declared bankrupt. With standard insurance that's not
a problem. The company is still liable to pay compensation for injured patients.

But Dr Barody was covered by a so-called discretionary fund, the MDU, which is technically not a
insurance company. And in these cases, the MDU simply used its discretion to walk away.

ROD BURROWS, FATHER: We'd been cheated, the justice system let us down.

DAVID HIRSCH: It is a legitimate manoeuvre legally. The question is whether they would be allowed
to get away with it if it ever went to court.

PETER MCCUTCHEON: David Hirsch is a specialist in medical negligence law and works with the
Australian Lawyers' Alliance. He says discretionary funds stopped providing medical indemnity in
Australia after the insurance reforms of 2002. But he argues the right of the MDU to exercise
absolute discretion is an historic anomaly, dating back to the 19th century when the union was a
benevolent organisation. And that discretion was never intended to be used to disadvantage

DAVID HIRSCH: From the Defence Organisation's perspective this is a legitimate tactical advantage,
from the perspective of the families involved, this is an abuse.

DR ANDREW PESCHE: I believe that the public and the medical profession would both be very horrified
to learn that discretion was being used in that way.

PETER MCCUTCHEON: The MDU no longer operates in Australia. But remains a major player on the UK
market. MDU has refused to comment on these cases, and its legal correspondence reveals it believes
its stance is legally watertight. But the Australian Medical Association says that doesn't make it

DR ANDREW PESCHE: Something tells me if this doctor hadn't died and his estate hadn't been declared
bankrupt, something tells me the Medical Defence Organisation involved wouldn't dare to use its
discretion in this way because it would really set a cat amongst the pigeon in the membership. It
would say, well, "What? That might be me. "

PETER MCCUTCHEON: The Burrows family have been advised by lawyers that they're now at a legal dead
end as have indeed the Chessells. What are their options?

DAVID HIRSCH: Either take an appeal all the way to the High Court, or a threat to basically stare
down the MDO, the Defence Organisation, to see, do you really want to go to court and persuade a
judge that it's OK for you to pull the plug on indemnity in situations where you have said for
years, in fact, forever that you would never do such a thing?

PETER MCCUTCHEON: Since moving from Sydney to the Gold Coast last year, Nathan Chessell tries to
surf every morning, come rain or shine. The 12-year-old has undergone intensive treatment since he
was six months old and compensation would help the family pay for his special schooling needs.
Compensation Ruth Chessell now believes she has little chance of getting.

RUTH CHESSELL: We never wanted to touch his estate, that's got nothing to do with it. But we just
want what's right for Nathan. Nathan shouldn't have to suffer all his life.

KERRY O'BRIEN: Peter McCutcheon with that report.