INTRODUCTION

It has previously been demonstrated that the fault rule can be justified as a relatively efficient mechanism in that the deterrence benefits that it generates are likely to exceed the tertiary costs that it incurs. As far as compensation is concerned, however, the fault-based malpractice liability alone is inefficient because it cannot guarantee swift and sufficient compensation whenever a patient suffers an iatrogenic injury. Many eligible victimised patients do not sue and many patients who did file a claim may still face tremendous difficulties in establishing fault and causation and may not obtain compensation until several years later.

There are also deficiencies in compensation mechanisms relying on the tort regime such as self-insurance and liability insurance, not only because of the deficiencies of the traditional malpractice liability but also because they have problems of their own. While self-insurance does not work well in the case of insolvency risks, liability insurance suffers from problems such as moral hazard, adverse selection, and severe underwriting cycles. Hence, one may wonder whether there is any alternative mechanism that can achieve the three goals of accident law simultaneously: (1) optimal deterrence (primary cost avoidance), (2) optimal compensation (secondary cost avoidance), and (3) being administratively cost-effective (tertiary cost avoidance).

For this reason, many scholars proposed and several legal systems have already developed the so-called “no-fault” compensation system (or scheme) (hereinafter NFCS) as an alternative to the traditional fault-based malpractice liability regime. Broadly speaking, NFCSs denote insurance programs that “provide compensation on proof of loss without any need to identify another party that caused the loss or prove their fault.” Two common features are characteristic of these no-fault schemes: first, victimised patients normally do not have to prove providers’ fault to obtain compensation; and second, costly malpractice lawsuits can usually be avoided. In a broad sense, no-fault schemes include first-party patient insurance, a special compensation fund covering iatrogenic injuries or social security that provides benefits for patients and the disabled in general. In practice, however, an NFCS specifically refers to a compensation fund that provides cover for personal injuries or iatrogenic injuries.

The NFCS should be distinguished from strict liability. Strict liability is usually described as “liability without fault,” meaning that the defendant will be held liable for any damage that he/she has caused irrespective of whether he/she was at fault or not.