The MDU said that following months of talks the government had 'proposed no scheme that would be acceptable for the MDU's GP members' existing liabilities' - leaving it with no alternative but to take legal action.
BMA leaders called the legal dispute 'disappointing' and said GPs would be 'understandably concerned'.
Under the Clinical Negligence Scheme for GPs (CNSGP) in England, which took effect from April, only NHS clinical negligence claims relating to incidents that happened on or after 1 April 2019 are covered for the vast majority of GPs.
The government has agreed commercial terms with one of the three main providers of GP indemnity - Medical Protection (MPS) - but has yet to agree a deal with either the MDU or MDDUS. As a result, although state-backed indemnity covers 'future liabilities' - incidents from 1 April 2019 onwards - for all GPs in England, it only covers 'existing liabilities' - events before 1 April - for the roughly one in three GPs who are MPS members.
MDU chief executive Dr Christine Tomkins said: 'Following pressure from the MDU and others, state indemnity for general practice (CNSGP) was launched on 1 April for future claims arising from incidents on or after that date. Regrettably it does not address liabilities arising from incidents before that date for the great majority of English GPs.
'Despite lengthy discussions ahead of the introduction of the CNSGP, the DHSC proposed no scheme that would be acceptable for the MDU's GP members' existing liabilities.
'It is a concern that so many GPs do not have state indemnity in place for their existing liabilities and we decided to take legal action against DHSC on behalf of our GP and other members. The fact of legal action should not preclude sensible discussions. Our preferred option remains an agreed solution that makes good on the government's promise to protect GPs from the rising cost of claims.
'We cannot discuss any of the detail but wish to reassure members that we remain active on their behalf.'
At this stage, the other defence organisation yet to agree terms on existing liabilities is continuing talks with the DHSC. MDDUS chief executive Chris Kenny said: 'Although we are aware of the MDU action, it would be inappropriate to comment until we know more precise details of the claim. MDDUS will continue to fight for the best possible deal for all our members in our separate discussions with government.'
For GPs who hold MDU policies, the failure to agree a deal to cover existing liabilties could mean they need to buy 'run-off cover' following a switch to a cheaper 'transitional benefits' indemnity model introduced last year in anticipation of the state-backed deal - if they leave the MDU before the normal retirement age for their NHS pension scheme.
Neither the MDU nor the MDDUS have disclosed the precise reasons why they have been unable to agree a deal for existing liabilities with the government. But both have expressed concern over a sharp rise in the cost of indemnity claims triggered by the government's decision in March 2017 to lower the 'discount rate' used to calculate clinical negligence payouts - and for legal reform to limit the cost of payouts.
A BMA spokesperson said state-backed indemnity had reduced annual indemnity costs for GPs by thousands of pounds. The spokesperson added: 'GPs will be understandably concerned about the legal dispute between their MDO and the DHSC. It is disappointing to see this happening.
'The BMA continues to engage with all parties on indemnity issues and we would urge those in dispute to resolve these differences relating to existing liabilities through discussion and mutual agreement. All GPs can be confident that they remain fully covered both historically and going forwards.'
MPS chief executive Simon Kayll said the agreement it reached with the government over existing liabilities 'mirrors the approach that was taken for hospital doctors when state indemnity arrangements were introduced in 1990, and was something we argued for since October 2017 when the proposal for GP indemnity was first announced'.
A DHSC spokesperson said: 'The launch of a new state indemnity scheme as part of a landmark new GP contract demonstrates our clear commitment to supporting a sustainable future for general practice in the NHS long-term plan.
'To deliver on our objective to put in place a scheme in relation to historical NHS clinical negligence liabilities, we have been engaged in discussions with medical defence organisations and have agreed terms with one of the MDOs.
'The department is not in a position to comment on any ongoing litigation.'
- Note: This article was updated on 14 June to clarify that the state-backed indemnity deal covers 'future liabilities' - relating to incidents occurring after 1 April 2019 - for all GPs.