Just because medical schemes are governed by legislation separate to the Insurance Acts does not mean that, in principle, the indemnity provided by a medical scheme for medical expenses incurred by a member is not a form of insurance.
Accordingly, medical schemes are governed by the common law principles of insurance to the extent that those principles are not otherwise dealt with by the Medical Schemes Act and the contract between the medical scheme and its member. So the principles of subrogation exercised every day by insurers, are equally applicable to medical schemes and the indemnity payments which they make to their members.
It has long been held that any indemnity paid by the medical scheme of medical expenses incurred by a Plaintiff is an irrelevant collateral transaction in respect of a third party when dealing with a claim by the injured person against the wrongdoer third party. The wrongdoer third party cannot raise the medical scheme indemnification as a defence and benefit from the medical scheme payment. The Plaintiff can recover from the wrongdoer third party as if there had been no indemnification at all. The recovery made by the medical scheme member, is a matter between the Plaintiff as insured and the medical scheme as insurer.
Usually, the rules of the medical scheme provide that in the event of a successful recovery of the medical costs from the third party the member must reimburse the medical scheme.
Sometimes a specific undertaking is signed by the member that, in the event of a successful recovery from the third party, to reimburse the scheme for all the medical expenses paid.
Such an undertaking was signed by the scheme member in Xolisa Primrose Rayno v The Road Accident Fund.
- The Road Accident Fund was liable to the member for the medical expenses incurred. The fund was sued for those expenses by the member’s executor, the member having died.
- The fund disputed that it was liable to pay the past hospital and medical expenses paid by the medical scheme on the basis that the expenses had already been paid by the scheme. The court without any detailed analysis of the law held that the scheme could recover the payment made on behalf of its member and for which the fund was primarily responsible based on the principle of subrogation.
- The fund had tried to argue that, in the absence of a cession of right of action by the scheme in favour of the Plaintiff, the scheme was not entitled to claim for past medical expenses.
- That is patently not a correct expression of our law having regard to the principles of subrogation referred to above.
- On the facts, payment was made by the scheme in terms of an undertaking made to it by the member to it in terms of which the scheme agreed to settle the member’s past medical expenses on the basis of an undertaking that, upon a successful recovery from the third party, the member would reimburse the scheme for all the costs it incurred on the members’ behalf in connection with the claim against the third party.
- The obligation imposed did not arise until there was a successful recovery of past medical expenses by the member from the third party. The fund remained primarily liable to the member for payment of the past medical expenses. The liability of the scheme to its member for those expenses was secondary to that of the Road Accident Fund. In the circumstances the court found that the fund should pay the past medical expenses to the Plaintiff who upon receipt of the payment had to account to the scheme in terms of the undertaking.
- The undertaking, in effect, created a contingent liability enforceable on the happening of a future event. The scheme’s right of recourse against the Plaintiff for reimbursement did not arise until the Plaintiff had received payment from Road Accident Fund.
- Once the member had received the payment from the fund he was obliged to reimburse the scheme and the scheme could sue the Plaintiff for reimbursement should he fail to do so.
- That obligation is also in accordance with the general principles of insurance and subrogation because an insured may not be enriched at the expense of the insurer by receiving both the insurance indemnity and damages from the wrongdoer.
- As long ago as 1918 the court in the Free State High Court in Ackerman v Loubser said that:
“A Plaintiff, however, who has received full indemnity for his loss under a contract of insurance, and has afterwards recovered compensation in action for damages against the wrongdoer, is not entitled to a double satisfaction; but, as soon as he has received from the underwriter or insurer the amount for which he is insured he … and is bound to hand over to the insurer whatever money he receives from the wrongdoer over and above the actual loss he has sustained, after taking into account the amount he has received under the contract of insurance”.
- The court was applying English law but the quotation also reflects South African law.
- On the facts the medical scheme had the election:
(1) To proceed against the member in terms of the undertaking once he received compensation from the fund; or
(2) To proceed directly against the fund in the Plaintiff’s name (or perhaps in its own name subject to the application of the principles enunciated in Rand Mutual Assurance Co Limited v Road Accident Fund 2008 (6) (SA 511) (SCA)) on the basis of subrogation.
- In law there is therefore no danger of a Plaintiff being compensated twice for the same loss.
- In practice it may be that medical schemes who indemnify their members for medical expenses incurred as a result of injuries sustained do not bother to require its members to account for any recoveries of those expenses made against third parties or to exercise their rights of subrogation to do so. That is the medical scheme’s election but the right does exist.
- Recovery of medical expenses paid do, however, require a provision in the scheme’s rules preferably including:
(1) an obligation on the member to notify the scheme of any intention to institute recovery proceedings against third parties which proceedings must include recovery of the medical expenses paid;
(2) the obligation on the member to notify the scheme of any award or receipt of a payment which includes the medical expenses paid by the scheme; and
(3) on a similar basis to that done contractually by insurers in their policies, provide for a contractual right of subrogation to recovery of the medical expenses paid by the scheme from the third parties at the scheme’s election and in the name of the member.
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