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Liability Reforms, the past, present and future

Liability Reforms, the past, present and future

By Peter Docherty

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Timeline
  • 1994 -  Insurance crisis
  • 1995 - NSW Professional Standards Act
  • 1997 - WA Professional Standards Act
  • 2000-01– Insurance 
  • 2001 – HIH collapses
  • 2001-02 –professional bodies lobby for liability reforms
  • 2002 Govt reviews PII and public liability
  • 2003 - Vic Professional Standards Act
  • 2004 Cwlth amend Trades Practices, Corps and ASIC Acts to support limited liability
  • 2008 – Vic introduces Professional Standards Mutual recognition and amendments Lega Professional Act
  • 2010 - 1st LIV  Scheme
  • 2016 -  2nd Scheme  ILPs
  • 2019 – LIV commences review of scheme
  • 2020 – 3rd Scheme application to be lodged
Liability reforms in the past have been driven by the legal profession acknowledging and responding to evolving community expectations, changes in economic outlook and reform agendas of government, both state and commonwealth. Some reforms were imposed on the professional while others such as mandatory professional indemnity were member driven and are explored in the Law Institute in Victoria 1835-2019: Pathway to a Respected Profession released on 31 October 2019.

During economic downturns we have observed an increase in claims and focus on professional conduct. The share market crash of 1987 put many companies at risk of closure, including the insurers that underwrote risks in professional conduct. Lobbying by professional bodies resulted in NSW government recognising the need to protect consumers by raising professional standards and limiting professionals' civil liability resulting in the introduction of professional standards (limited liability) legislation in early 1990s, followed by WA.

It took another decade and another crisis to get all states and territories to engage and agree to more extensive liability reforms. In the early 2000s, areas of legal practice were changing, and it was during this period Australia became the most litigious country in the world for public and liability claims.  HIH Insurance, Australia’s second biggest insurer collapsed resulting in one of Australia’s largest corporate collapses, natural disasters and 9/11 hit home and insurance underwriters left the market.  This resulted in PII premiums becoming unaffordable then unobtainable.

The LIV joined other professional bodies to form the Liability Reform Steering Group (LRSG) and supported a grass roots campaign for reform based on the detrimental consequences for professionals and consumers. The campaign success was based on individual professionals telling their story about the impact on their practices and their community. In 2002 the Senate economics reference committee undertook a review of public liability and professional indemnity insurance and recommended changes resulting in a reform package which included the introduction of proportionate liability and capped liability via a national professional standards scheme legislation framework. 

To support these changes the commonwealth government subsequently passed legislation allowing occupational liability to be limited under the following Acts:
  • Trade Practices Act 1974 (now the Competition & Consumer Act 2010)
  • Corporations Act 2001
  • Australian Securities and Investment Commission Act 2001.

In more recent times LIV and regulators have focused on the long-term sustainability of the profession as a result of competition, non-traditional service providers, multi-discipline practice models in other professions and consumer access. The Legal Professions Act 2004, and further instituted by Legal Profession Uniform Law allowed the formation of Incorporated Legal Practices limiting the practitioners or their shareholders liability and protecting personal assets. These reforms also support succession planning, recruitment and retention of staff and improved practice management.

Looking forward to the 2020s the LIV is seeking member feedback on current and future liability issues including:

  • the Professional Standards Act 2003 (Vic)
  • the legislative framework and the operations of the LIV Professional Standards (Limited Liability) Scheme (current and future)
  • development of uniform proportionate liability
  • state / territory harmonisation of other legislation
  • pressure to contract out of liability provisions
  • accessibility to top-up PII cover

LIV is hosting a Liability Reform Roundtable on Monday, 9 December at 12:30 pm. Please RSVP by contacting Peter Docherty


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