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WHSHeader

Have you ever wanted to know more about Workplace Health & Safety laws and how they interact with statutory liability insurance? Join SUA in a conversation with one of Queensland’s preeminent WHS lawyers, Aaron Anderson.

Aaron is the Queensland WHS partner at Herbert Smith Freehills, and has over 20 years’ experience advising clients across a range of industries including mining and resources, rail, infrastructure and transport, energy, food safety and manufacturing. He advises many federal, state and local government departments and agencies as well as a range of private sector clients.

He is a regular advocate and has appeared before the State and Federal industrial relations commissions, the Anti-Discrimination Commission and the Industrial Magistrates Court. He has also appeared in many coronial inquests.

Aaron is recognised as a leading workplace health and safety lawyer by Chambers and Partners, the Asia-Pacific Legal 500 and Best Lawyers. He’s also an active trainer and presenter and is regularly invited to present at key industry conferences.

You can listen to the whole podcast here or find us on Spotify.

If you’re short on time, you can also listen to some clips here!

General Advice Warning

The information contained in this podcast is general in nature and does not take into account your personal situation. You should consider whether the information is  appropriate to your needs, and where appropriate, seek professional advice from an insurance broker or risk adviser.

The contents of this podcast are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your circumstances should always be sought separately before taking any action based on this content.

Any opinions expressed by the speakers are their own and are not representative of any company unless stated otherwise.

Banner_Guide to Operation of Claims
WHY DO WE USE CLAIMS MADE AND REPORTED POLICIES?

An insured accountant provided negligent advice to their client over a period of five years between 2010 and 2015. This becomes apparent to the Insured in 2016, and a claim is subsequently brought against them alleging losses suffered as a result.

During the relevant period, the Insured held Professional Indemnity (PI) policies with a number of different insurers. If cover were provided on an occurrence basis, it would be necessary to ascertain the losses arising from each breach that occurred during the currency of each of the relevant policies. In those circumstances, it is likely that apportionment of loss, and associated legal expenses, between the relevant insurers might be subject to disagreement.

To avoid the complications of apportionment between policies and insurers, PI policies are generally constructed on a ‘claims made and notified’ basis.1 The policy purchased each year indemnifies the insured in respect of claims made during that policy period, regardless of the date on which the service or advice (giving rise to the relevant cause of action) was provided.2

This approach does however present some challenges. Relevantly, each policy is likely to exclude cover for claims arising from circumstances known to the Insured, or which ought to have been known to the Insured, at the inception of the policy.

YOU CAN’T INSURE A BURNING HOUSE

PI policies generally provide a specific definition of a ‘Claim’. More often than not, that includes the commencement of legal proceedings or a written demand for compensation by a third party.3

In the above scenario of our accountant, it’s possible that circumstances which might give rise to a ‘Claim’ in the future may have first become apparent during the 2015 to 2016 policy period, but the definition of ‘Claim’ under the 2015 to 2016 policy might not be satisfied until the 2016 to 2017 period. At renewal in 2016, the insured would be obliged to disclose those circumstances to insurers and, as a result, any claim arising in the future would be excluded from cover under the 2016 to 2017 policy.

SECTION 54 AND ALL THAT 

From a practical perspective, an insured that becomes aware of circumstances that might give rise to a claim against them must have the right to effectively notify those circumstances under the policy current at that time. The result being that the policy in force when the circumstances are first notified, responds to any subsequent claim.

Traditionally, the mechanism insurers employed to achieve this was effectively an extension of the policy definition of a Claim to include ‘Circumstances’ that might give rise to a claim in the future. Often referred to as a ‘deeming provision’, this created a contractual right to notify Circumstances.4

Litigation in the early 2000s (chiefly FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd5) established that courts would interpret section 54 of the Insurance Contracts Act (ICA) to the effect that a contractual right available to an insured party during the currency of a policy could be exercised after the expiry of that policy.6

Litigation and other forms of dispute resolution take time to play out and so it may be several years before an insurer can ascertain exactly what losses will be sustained under a single policy. The potential that an expired policy might be triggered by a ‘Claim’ or ‘Circumstance’ reported after expiry compounded this problem for insurers.

It was not practical to remove the contractual right to notify a Claim as it would render the policy ineffective, that right being central to its operating provision. The statutory right – as opposed to contractual right - to notify facts, which might give rise to a claim, is however provided under section 40(3) of the Insurance Contract Act. Consequently, insurers removed deeming provisions (or provisions of similar effect) from policies, and thereby the contractual right to notify circumstances. Insurers took the view that the contractual right to notify was not necessary as the Insured could rely on its statutory right to notify under section 40(3) of the ICA.

It is however important to note that the statutory right can only be exercised during the currency of the relevant policy, not after expiry. It is also worth noting that section 40(3) of the ICA only applies to a third party loss and not first party such as legal costs incurred in relation to an inquiry for example.

While insurers generally took steps to remove ‘deeming provisions’ from their policies (to avoid the unfavourable outcome discussed above), courts have also confirmed that, where the policy does not contain a contractual right to notify circumstances as opposed to a Claim, the statutory right under section 40(3) cannot be relied upon in combination with section 54 to cure an insured’s failure to notify circumstances.

An insured that becomes aware of circumstances that might give rise to a claim and fails to notify the insurer on risk prior to the expiry of the relevant period is in danger of having any subsequent claim denied. This is a heavy onus on the insured, particularly given the interplay between section 40(3) and the disclosure obligations under section 21 of the ICA.7 The latter being objective, subjective and retrospective while the former can only be subjective and not retrospective.

WHAT’S A CIRCUMSTANCE?

An accountant plans to retire and is selling his business. As previously referenced, the exposure continues, though the business may not. Prudent advice from his broker recommends that Run-off cover is obtained. Conventionally, such cover is held for a period of seven years. Premiums for run-off policies are often multiples of three to four of the premium paid for the last year of annual cover.

The accountant is reluctant to pay such a premium. He provides a list of every client engagement over thirty years of practice to his broker and instructs the broker to notify his current insurer of every engagement prior to the closure of the business.

The accountant takes the view that each client represents a circumstance that might give rise to a claim in the future. Having done so, he considers any claim subsequently arising is to fall for cover within that policy period and as a result, there is no requirement for Run-off cover.

In practice, the insurer will not accept such a notification for obvious reasons.8 However, the insurer’s acceptance or otherwise is not relevant, as the notification stands and falls on whether section 40(3) is satisfied when a claim eventuates. Case law indicates that the Insured is not required to anticipate the precise allegations that might be made against it, nor that the claim would have any merit.9 It would, however, require a causal link to be established between the facts notified and the claim subsequently arising, and such a broad notification as given in the above example is not reliable.10 

CONTINUITY PROVISIONS

Insurers have acknowledged the challenges posed to an insured in notifying circumstances by the provision of ‘Continuity Clauses’ in PI policies.

Continuity Clauses allows the notification of facts that might give rise to a claim after the relevant policy has expired if the insurer currently on risk was also on risk at the time the insured ought to, or could have, notified the circumstances. However, cover is restricted to the terms and conditions of the policy in force for the period during which the Insured ought to have notified.

During periods of soft market11 conditions, some insurers have gone further and provided continuity of cover over a period during which another insurer was on risk.

Important Information:

  • Prior to each renewal it’s important that the insured identify any claims or circumstances and ensure they are notified under the current policy;
  • Policies must extend to cover service or advice previously provided, even if that’s no longer the case;
  • Retroactive dates have the potential to significantly restrict cover;
  • Continuity provisions can operate to forgive the late notice;
  • Insured parties need to be mindful of their disclosure obligations when completing proposals; and
  • If in doubt, notify any circumstances which might give rise to a claim in the future.

This paper was originally published by the QLD committee of the Australian Professional Indemnity Group (APIG).  SUA would like to acknowledge the contribution of the QLD APIG Committee and Carter Newell Lawyers.

SUA APIG and CNL Logos

1 Carter Newell Lawyers, Professional Liability Guide (1st ed, 2017) 69, 71.
2 Ibid 69.
3 Ibid 69-70.
4 See Carter Newell Lawyers, Professional Liability Guide (1st ed, 2017) 71.
5 [2001] HCA 38.
6 Ibid; Carter Newell Lawyers, Professional Liability Guide (1st ed, 2017) 76, 78.
7 See Carter Newell Lawyers, Professional Liability Guide (1st ed, 2017) 91.
8 Julie Bowker, ‘Sections 28(2), 28(3) and 40(3) of the ICA considered’, Publications (Web Page, July 2021)
9 See FAI General Insurance Co Ltd v Australian Hospital Care Pty Ltd (1999) 153 FLR 448, 451 [10].
10 See Carter Newell Lawyers, Professional Liability Guide (1st ed, 2017) 72–3.
11 A ‘soft market’ is often characterised as having lower insurance premiums, broader coverage for insureds, and increased competition among insurers. 

Occupational Health
& Safety Reforms

On the 21st of September 2021, Victoria followed in New South Wales’ and Western Australia’s footsteps and passed critical amendments to the Occupation Health and Safety Act 2004 (the Act). Among other things, the amendment has the effect of preventing penalties under the Act from being indemnified by an insurance policy.

victorian cityscape

What are the changes?

We’ll keep the ‘boring’ legal bits short – but they are important.

Any terms in contracts of insurance which purport to indemnify a person (whether a corporation or individual) for a penalty under the Act are void. This means the term is unenforceable at law – it’s as if it does not exist even if it’s written in a policy. The change has already taken effect, as of 22 September 2021. There is no ‘grandfathering’ clause – no grace period. Even if an incident occurred or prosecution commenced before 22 September 2021, as long as the indemnifying clause was called on after that date, as the clause is void, it is unenforceable at law. The penalty is simply uninsurable.

Further, from 22 September 2022, it will be a criminal offence to enter into, offer to enter into, or be a party to a contract of insurance which purports to provide an indemnity for a penalty under the Act, unless a person has a reasonable excuse. This applies to insurers and insured – that is, both parties will be committing the criminal offence.

It will also be a criminal offence to provide or receive any benefit under a clause which provides an indemnity for a penalty under the Act. This criminal offence means an insurer will commit a criminal offence if it pays an insured any money or provides any benefit in respect of a penalty. An insured will also commit the criminal offence if it receives any such money or benefit.

The inclusion of a reasonable excuse exception is likely to give some flexibility in cases where there may be an acceptable reason for the conduct constituting the offence. At present there is no guidance about the scope of this defence. Depending on the circumstances, it may be arguable that a ‘reasonable excuse’ could include having entered into the contract or arrangement before the legislation commenced.

A person (including natural persons and corporations) committing these offences will be exposed to significant penalties and criminal conviction. The penalties are:

  • a maximum penalty of 300 Victorian penalty units for a natural person, which currently equates to $54,522 as of 1 July 2021, and;
  • a maximum penalty of 1500 Victorian penalty units for a body corporate, which currently equates to $272,610 as of 1 July 2021.

Officers of corporations which contravene the new laws are exposed to personal liability if the contravention is attributable
to a failure by the officer to take reasonable care.

Similar provisions to the above apply to contracts that insure or indemnify the payment of monetary penalties under the Dangerous Goods Act 1985 (Vic) and the Equipment (Public Safety) Act 1994 (Vic).

Importantly, other terms of insurance contracts are still permitted, including terms providing cover for defence costs (see below) or enforceable undertakings. If accepted by the regulator, enforceable undertakings avoid a conviction and any fine. Enforceable undertakings can also result in better outcomes for workers, businesses and the community at large.

Why the Changes?

The Victorian government implemented the amended law to ensure there is an appropriate punishment for offenders. It has voiced concerns about the reduced deterrent value of penalties if they are being covered by insurance. The reasoning behind the amendment is in keeping with what the New South Wales and Western Australian governments put forward for their respective legislative reviews.

Insurance
Implications

As noted above, there is no effect on any indemnity provisions that relate to legal costs or enforceable undertakings; which means that the utility of policies such as statutory liability or directors’ and officers’ liability still remains.

As SUA has reported when addressing the New South Wales and Western Australian law updates, the majority of claims paid in this space by SUA since 1998 have been for legal costs – with penalties only accounting for around 15% of all claims costs. See below for further details.

What this means for insureds is that if found guilty of an offence under Victorian safety legislation, they will need to pay the penalty themselves. This could be hundreds of thousands, or even millions of dollars. It is vitally important that all employers take proactive steps to ensure the safety of workers, and others that come into contact with their business operations.

When imposing a penalty, a court has regard to the seriousness of the offending, measured by the gravity of the safety risk to which workers were exposed. In doing so, courts take into account a number of considerations, including the standard of safety systems and procedures in place at the time of the incident and whether machinery and other equipment was safe. A thorough review of risks, and the creation and implementation of safe systems of work are crucial to ensure compliance with the Act, but most importantly to ensure as far as reasonably practical, that no harm comes to any person.

It is important to remember that statutory liability extends past workplace health and safety; businesses are exposed to a seemingly endless number of Acts and regulations that they must comply with.

whs in the spotlight

HOW MUCH OF A
CLAIM IS A PENALTY

SUA has conducted a review of its statutory liability portfolio, and since its inception in 1998, on average only 15% of all claims paid were for penalties; the remaining being either legal costs, enforceable undertaking costs, or prosecution costs – none of which are affected by the revised OHS Act in Victoria.

Furthermore, the trend in claims is seeing the legal costs component of claims increasing as regulators engage in more rigorous investigations before prosecuting, if at all. Appropriate risk management policies and procedures are crucial, not only to prevent an accident, but to mitigate any resulting regulatory action. Many claims either don’t proceed to prosecution following an investigation, are purely investigative in nature (e.g. a Royal Commission or Senate Inquiry), or result in an enforceable undertaking instead of a penalty. If this trend continues, it is reasonable to expect a further reduction in the percentage of claims that represent penalties.

Snapshot
of information

  • Review of over 1500 claims.
  • Of large claims (over $200k) analysed, roughly half were for OHS.
  • Of the large claims, fewer than 30% received a penalty.
  • On average, a penalty is only 15% of the total claim costs across all claims.

PENALTY
VS COSTS

*Costs include: legal costs for incident response, investigations/inquiries; production of documents; reputation protection; enforceable undertaking costs; legal costs for prosecution defence; and prosecution costs#

#Prosecution costs are costs awarded against an Insured by a court, following a successful prosecution by a regulatory authority.

OHS IN THE SPOTLIGHT

Focusing on OHS matters, it is important that a statutory liability policy is broad and allows for cover to be triggered by a notifiable incident (as defined in s37 of the Act – death or serious injury etc) as this is the time when proper legal representation should be appointed to ensure the insured’s interests are protected. The ability for an OHS specialist lawyer to be appointed immediately – often to attend the site of the notifiable incident within hours – is imperative to secure the best outcome for the insured.

This revised Act in Victoria, like in NSW and WA, now puts the financial burden of a penalty squarely on the shoulders of the insured. Consequently, it is even more important that things are done correctly from the beginning. The right policy and the appointment of the right lawyer could mean a lower penalty, or even no prosecution in the first place. Statutory liability is still a valuable policy. SUA’s statutory liability policy responds from the earliest possible time; following a notifiable incident or mandatory reporting obligation (under any Act of Parliament, not just OHS), or from the time of any investigation, examination or inquiry by a regulatory authority. Furthermore, SUA has an established panel of specialist solicitors that can be appointed to assist an insured during that initial investigation, and beyond.

MAKE SURE YOU HAVE
PROPER PROTECTION

The only effect the new prohibitions in the Victorian, WA and NSW Acts have on insurance is for the indemnification of a monetary penalty. Otherwise, for statutory liability, it’s business as usual – provided you have the right policy in place.

Things to look for in a statutory liability policy are:

ohs in spotlight crop long

pink alert clipboard
Incident
Response

If a policy doesn’t provide cover for legal costs for an investigation, especially one commenced after verbal notice from a regulator attending the site of a notifiable incident; or provide cover for legal costs where there is no allegation of wrongdoing, then such a limited cover is further hampered by the prohibition in the revised OHS Acts.

pink shield
Broadform Cover

Businesses are exposed to numerous regulations from a great number of Acts depending on the industry; for some, OHS is a very small exposure. Having a broadform policy that responds to any Act of parliament is important. Other general exposures that can be faced include:

  • Environmental Protection Acts;
  • Spam Act;
  • Privacy Act;
  • Planning and Building Acts;
  • Heavy Vehicle National Law (Chain of Responsibility);
  • Corporations Act;
  • Fair Work Act.

Other specific legislation can also apply to various occupations. A proper risk analysis of the regulatory environment that a business operates in should be conducted to ensure effective compliance, which then makes the purchase of a statutory liability policy easier.

pink safety 2
Enforcement Options

Where there is an option for an enforceable undertaking (EU) rather than a penalty, it is usually preferable to take an EU. If a policy doesn’t include a provision for enforceable undertakings, it may not be pursued as an option; meaning the only outcome is an uninsurable penalty for OHS in Victoria, WA and NSW.

current regime

Key cover needed for:

  • Incident response — cover triggered by a notifiable incident/mandatory
    reporting obligation;
  • Investigations commenced verbally, not only by written notice;
  • Enforceable undertakings;
  • Prosecution costs;
  • Reputation expenses;
  • Production of documents;
  • Not limited to OHS only.

SUA was the first in Australia to write statutory liability in 1998, and EPL in 1997; and have always led the market in these products. SUA is able to provide modular or combined options, ensuring that every client from sole traders through to listed entities and not-for-profits can secure coverage; with a solution for just about every industry.

General Advice Warning

The information contained in this publication is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an insurance broker or risk adviser.

This report contains information that has been sourced from third party organisations, as well as data supplied by Specialist Underwriting Agencies. Some data may be confidential and subject to copyright and intellectual property laws.

The information contained within this report should not be used other than for its intended purpose. Although Specialist Underwriting Agencies makes every effort to verify supplied data, it accepts no responsibility for data that was incorrect when supplied. The data in this report may not be fully representative of the industry or any component of it.

Specialist Underwriting Agencies holds no liability for any consequential loss suffered by using the information provided in this report other than for its intended purpose.

This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.

© Gilchrist Connell 2022
© Specialist Underwriting Agencies 2022

GilchristConnell SUA Logo

Work Health
& Safety Reforms

The steady adoption of the ‘model ’Work Health and Safety (WHS) laws by States and Territories since their creation in 2011 has inched closer to completion, with Western Australia passing the Work Health and Safety Act 2020 (WA) (WHS Act) on 10 November 2020.

WA now joins ACT, NT, NSW, Queensland, SA, Tasmania and the Commonwealth in implementing the model laws.

cityscape

Implementation

Although the WHS Act has been assented to, its operative provisions will not apply to employers and workers until the WA Government proclaims a commencement date.

At the time of writing, the WA Government has only indicated that work on transitional provisions and guidance will continue through 2021. No concrete date has been set for commencement.

It will be important to monitor Government announcements for any updates on implementation of the WHS Act.

Key Changes

The WHS Act is a root and branch overhaul of WA’s existing workplace health and safety regime, and brings the regime into closer alignment with other States and Territories.

Specifically, the current Occupational Safety and Health Act 1984 (OSH Act), as well as key WHS provisions of the mining and petroleum safety acts (including the Mines Safety and Inspection Act 1994 and Petroleum and Geothermal Energy Resources Act 1967) will be replaced.

The WHS Act will also adopt a number of the recommendations made in the independent review of the model WHS laws conducted by Marie Boland, which was published by Safe Work Australia in 2019.

For instance, the prohibition on insurance in respect of WHS offence fines was one of the recommendations of the review.

Some of the key changes which will come with the commencement of the WHS Act are set out on the right.

Additionally, the duty to notify the regulator of “notifiable incidents” will expand to include “dangerous incidents” in addition to serious injuries and illnesses and fatalities.
A “dangerous incident” is defined in the WHS Act as an incident that exposes a worker or other person to a serious risk to their health or safety due to immediate or imminent exposure to a prescribed event (such as a leak, explosion or fall from height of an object).

Further, as outlined on the next page, the current categorisation of WHS offences will be replaced with the model law categorisation.

STATUTORY DUTY HOLDERS

  • Primary duty holder is a ‘person conducting a business or undertaking’ (PBCU), not an employer.
  • PCBUs will be responsible for ensuring, so far as is reasonably practicable, the health and safety of workers and others who might be affected by their undertakings.
  • Duties previously owed to ‘employees’ will be owed instead to ‘workers’– a more broadly defined group which includes: employees, contractors, labour hire, work experience students and volunteers.

CONSULTATION DUTIES

  • PCBUs will have prescriptive duties to consult workers in respect of WHS matters.
  • PCBUs will be required to consult, cooperate and coordinate activities with all persons who have a duty in relation to the same matter (e.g. suppliers, clients, contractors).

INDUSTRIAL MANSLAUGHTER

  • New industrial manslaughter offence where a PCBU engages in conduct in breach of a WHS duty, is negligent in their conduct and that conduct results in the death of an individual.
  • Maximum penalties of 20 years’ imprisonment or a fine of $5m for an individual, and $10m for a body corporate.
  • Australia’s first IM conviction was handed down in June 2020 in Queensland, with a fine of $3million to the PCBU and 10 month sentences for the directors (suspended for 20 months).

NO INSURANCE/INDEMNITY

  • New prohibition on insurance and indemnification in respect of fines for WHS offences.
  • Legal fees can still be insured/indemnified.

PSYCHOLOGICAL HEALTH

  • Health and safety duties expressly extend to physical and psychological health.
  • PCBU’s have a duty to protect workers from psychological risks to health, such as stress, fatigue and bullying, and investigate psychological matters.

WHS OFFENCES

The WHS Act will introduce the familiar three categories of offences in the model laws to WA, replacing the current four levels of penalties in the OSH Act.

Current Regime

The OSH Act increases the quantum of penalties based on both the consequences of the duty breach and the relevant state of mind of the duty holder:
Level 1 Offences for which no penalty is specified, which are generally low level offences against the OSH Act
Level 2 Office against the general health and safety duty
Level 3 Offence against a relevant duty provision where it has caused death or serious injury.
Level 4 Offence against a relevant duty provision where it is contravened in circumstances of gross negligence.

The OSH Act also increases penalties after the first offence. For example a body corporate may be fined a maximum of $1.5m for their first level 2 offence but will be fined $1.8m for any subsequent offences.

current regime

New Categories

Under the WHS Act, a duty holder may be convicted of the following offices:

  • Category 1 offences occur where a failure to comply with a health and safety duty causes death or serious harm;
  • Category 2 offences occur where the failure exposes an individual to a risk of death or injury or harm to health; and
  • Category 3 offences apply for a general failure to comply with the duty.

It is possible to be convicted under multiple categories.

The WHS Act approach closely follow the model laws approach but is different in one key aspect. Under the model laws none of the categories are tied to the consequences of the breach (e.g. causation of injury). Instead category 1 offences require proof of recklessness in exposing an individual to a risk of death or serious injury.

The WHS Act category 1 offence is noticeably broader and is intended to cover serious breaches which do not rise to the level of industrial manslaughter, for instance where proof of the mental state of the duty holder is not possible or for non-PCBU/officer individuals.

Increased penalties for subsequent offences have also been removed. The penalties are set out below.

PENALTIES FOR WHS OFFENCES

The new penalties under the WHS Act as follows:
1 5 years imprisonment or $680,000 fine 5 years imprisonment or $340,000 fine $3,500,000 fine
2 $350,000 fine $170,000 fine $1,800,000 fine
3 $120,000 fine $550,000 fine $570,000 fine

DUE DILIGENCE OBLIGATIONS

Management should acquaint themselves with the WHS Act as it contains a newstand-alone duty for officers to exercise due diligence in ensuring the PCBU complies with its duties and obligations under the Act.

PRACTICAL STEPS

As an officer, you should be satisfied that you are meeting the elements set out below.
Knowledge & Understanding
 		Element 1
Knowledge of safety and health 		Element 2
Understanding of company operations and associated hazards and risk
Resources & Processes
 		Element 3
Providing resources and processes to identity, eliminate or control hazards and risks 		Element 4
Implementing processes for receiving, considering and timely response to incidents, hazards and risks
Assurance & Verification
 		Elements 5 & 6
Having processes to ensure compliance with WHS Act and verifying the provisions and use of resources & processes to manage hazards, risks and incidents

Practically speaking then, exercising due diligence will require officers to proactively consider what steps they ought to take to discharge the duty. What a particular officer may need to do may be different to others depending on the nature of their role on the Board and/or in the executive management team.

TRANSITIONING TO THE NEW REGIME

Although a commencement date has not yet been set, it will be imperative for employers to begin preparation for their own transitional arrangements in response to the changes introduced in the WHS Act.

PREPARATION

As outlined on the previous pages, the WHS Act will significantly alter the workplace health and safety framework within which WA businesses currently operate.

The table below sets out some suggested actions that companies may wish to consider in order to prepare for the introduction of the WHS Act and the associated regulations.

These actions are not intended to be exhaustive, but may assist companies to prepare for the future changes in the law and assess the current level of compliance with occupational health and safety obligations.

It will be important for directors and other officers to understand their new safety obligations and prepare to meet their due diligence obligations prior to the commencement of the WHS Act, particularly given the implication of failure to comply with the due diligence provisions and the new industrial manslaughter offence.

GOVERNANCE

  • Review corporate governance arrangements and identify persons/roles in the organisation that may attract ‘officer’ liability.
  • Brief ‘officers’ on their new standalone duty to exercise due diligence.
  • Assist officers to prepare due diligence plans to facilitate compliance with the new duty.
  • Conduct gap-analysis of due diligence requirements in existing due diligence process.

 

Identification and Management of Change

  • Review policies, procedures and systems of work to determine whether any amendments are required to align with WHS Act.
  • Conduct briefings and training to employees on the introduction of the WHS Act and changes.
  • Review existing contracts to ensure they are ‘future proofed’ against changes.
  • Review draft WHS Regulations when released, conduct internal audit and gap analysis of requirements.

 

Incident Response, Insurance and Verification

  • Review existing arrangements to ensure there are appropriate incident notification arrangements as between duty-holders.
  • Review existing auditing arrangements to understand whether they are adequate to verify, on an ongoing basis, compliance with WHS laws and effectiveness of critical controls.
  • Review insurance policies to determine if there is any insurance or indemnification in respect of fines for WHS offences and if so, contact insurer to discuss.

Insurance
Implications

As with the June 2020 update to the New South Wales WHS Act, the update to the Western Australian WHS Act also prohibits insurance for a penalty under the Act.

There was some suggestion that these updates meant statutory liability policies were no longer valuable; however such suggestion takes a very narrow view of statutory liability. If one looks at a robust statutory liability policy, and understands how the regulatory enforcement environment operates, it will be obvious that there is a lot more to statutory liability than a monetary penalty.

As outlined by Herbert Smith Feehills above, WHS is a serious issue, and in particular, the changes to the WA Act mean broader duties for businesses and their directors & officers. Purchasing a statutory liability policy should be the final piece of a large risk management puzzle that includes proper management systems, documented policies and procedures, recorded training and enforcement to ensure the safety of workers and other people that come into contact with the business.

It is also important to remember that statutory liability extends past WHS; businesses are exposed to a seemingly endless number of Acts and regulations that they must comply with.

HOW MUCH OF A
CLAIM IS A PENALTY

SUA has conducted a review of its statutory liability portfolio, and since its inception in 1998, on average only 15% of all claims paid were for penalties; the remaining being either legal costs, enforceable undertaking costs, or prosecution costs – none of which are affected by the revised WHS Act in NSW and WA.

Furthermore, the trend in claims is seeing the legal costs component of claims increasing as regulators engage in more rigorous investigations before prosecuting, if at all. Appropriate risk management policies and procedures are crucial, not only to prevent an accident, but to mitigate any resulting regulatory action. Many claims either don’t proceed to prosecution following an investigation, are purely investigative in nature (e.g. a Royal Commission or Senate Inquiry), or result in an enforceable undertaking instead of a penalty. If this trend continues, it is reasonable to expect a further reduction in the percentage of claims that represent penalties.

Snapshot
of information

  • Review of over 1500 claims.
  • Of large claims (over $200k) analysed, roughly half were for WHS.
  • Of the large claims, fewer than 30% received a penalty.
  • On average, a penalty is only 15% of the total claim costs across all claims.

PENALTY
VS COSTS

*Costs include: legal costs for incident response, investigations/inquiries; production of documents; reputation protection; enforceable undertaking costs; legal costs for prosecution defence; and prosecution costs#

#Prosecution costs are costs awarded against an Insured by a court, following a successful prosecution by a regulatory authority.

WHS IN THE SPOTLIGHT

Focusing on WHS matters, it is important that a statutory liability policy is broad and allows for cover to be triggered by a notifiable incident (as defined in s35 of the Act - death, serious injury or a dangerous incident) as this is the time when proper legal representation should be appointed to ensure the insured’s interests are protected. The ability for a WHS specialist lawyer to be appointed immediately – often to attend the site of the notifiable incident within hours – is imperative to secure the best outcome for the insured.

As this revised WHS Act in WA, like in NSW, now puts the financial burden of a penalty squarely on the shoulders of the insured, it is even more important that things are done correctly from the beginning. The right policy and the appointment of the right lawyer could mean a lower penalty, or even no prosecution in the first place. Statutory liability is still a valuable policy. SUA’s statutory liability policy responds from the earliest possible time; following a notifiable incident or mandatory reporting obligation (under any Act of Parliament, not just WHS), or from the time of any investigation, examination or inquiry by a regulatory authority. Furthermore, SUA has an established panel of specialist solicitors that can be appointed to assist an insured during that initial investigation, and beyond.

whs in the spotlight

MAKE SURE YOU HAVE
PROPER PROTECTION

The only effect the new prohibitions in the WA and NSW Acts have on insurance is for the indemnification of a monetary penalty. Otherwise, for statutory liability, its business as usual – provided you have the right policy in place.

Things to look for in a statutory liability policy are:

Incident Response

If a policy doesn’t provide cover for legal costs for an investigation, especially one commenced after verbal notice from a regulator attending the site of a notifiable incident; or provide cover for legal costs where there is no allegation of wrongdoing, then such a limited cover is further hampered by the prohibition in the revised WHS Acts.

Broadform Cover

Businesses are exposed to numerous regulations from a great number of Acts depending on the industry; for some, WHS is a very small exposure. Having a broadform policy that responds to any Act of parliament is important. Other general exposures that can be faced include:

  • Environmental Protection Acts;
  • Spam Act;
  • Privacy Act;
  • Planning and Building Acts;
  • Heavy Vehicle National Law (Chain of Responsibility);
  • Corporations Act;
  • Fair Work Act.

Other specific legislation can also apply to various occupations. A proper risk analysis of the regulatory environment that a business operates in should be conducted to ensure effective compliance, which then makes the purchase of a statutory liability policy easier.

Enforcement Options

Where there is an option for an enforceable undertaking (EU) rather than a penalty, it is usually preferable to take an EU. If a policy doesn’t include a provision for enforceable undertakings, it may not be pursued as an option; meaning the only outcome is an uninsurable penalty for WHS in WA and NSW.

Key cover needed for:

  • Incident response — cover triggered by a notifiable incident/mandatory
    reporting obligation;
  • Investigations commenced verbally, not only by written notice;
  • Enforceable undertakings;
  • Prosecution costs;
  • Reputation expenses;
  • Production of documents;
  • Not limited to WHS only.

SUA was the first in Australia to write statutory liability in 1998, and EPL in 1997; and have always led the market in these products. SUA is able to provide modular or combined options, ensuring that every client from sole traders through to listed entities and not-for-profits can secure coverage; with a solution for just about every industry.

General Advice Warning

The information contained in this publication is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an insurance broker or risk adviser.

This report contains information that has been sourced from third party organisations, as well as data supplied by Specialist Underwriting Agencies. Some data may be confidential and subject to copyright and intellectual property laws.

The information contained within this report should not be used other than for its intended purpose. Although Specialist Underwriting Agencies makes every effort to verify supplied data, it accepts no responsibility for data that was incorrect when supplied. The data in this report may not be fully representative of the industry or any component of it.

Specialist Underwriting Agencies holds no liability for any consequential loss suffered by using the information provided in this report other than for its intended purpose.

The contents of this publication, current at the date of publication set out in this document, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication. Herbert Smith Freehills LLP and its affiliated and subsidiary businesses and firms and Herbert Smith Freehills, an Australian Partnership, are separate member firms of the international legal practice known as Herbert Smith Freehills.

© Herbert Smith Freehills 2021
© Specialist Underwriting Agencies 2021

Herbert Smith Freehills | SUA

CHANGES TO
NSW WHS ACT

On the 10th of June 2020 the New South Wales Parliament succeeded in having its Work Health and Safety Amendment (Review) Bill 2020 (the Bill) achieve royal assent; turning the provisions of the Bill into law.

The most noteworthy changes, and ones that have sparked a lot of conversations and queries, are the new sections 272A and 272B (of the Work Health and Safety Act 2011 NSW) (the Act) that respectively prohibit insurance or indemnity agreements for any penalty under the Act, and create an offence for anyone that breaches that prohibition.

Whilst this is the first time in Australia that such a prohibition has been made for work health and safety (WHS) laws, specific prohibition against insurance in other acts of parliament is not new. It is for this reason all statutory liability policies will have some sort of exclusion that mentions uninsurable liabilities, penalties uninsurable at law or contain qualifying phrases like “where insurable at law” or similar. At the time of writing, the Western Australian Parliament has similar provisions in its own Bill that is currently with the Standing Committee on Legislation for consideration.

shutterstock_1606120330

IMPACTS OF
THE UPDATED ACT

There is some suggestion that this update means statutory liability policies are no longer valuable; however such a suggestion takes a very narrow view of statutory liability. If one looks at a robust statutory liability policy, and understands how the regulatory enforcement environment operates, it will become obvious that there is a lot more to statutory liability than a monetary penalty.

It is a timely reminder to a person conducting a business or undertaking (PCBU) that WHS is a serious issue, and the law places a primary duty of care on the business, as well as its directors and officers. The time to worry about WHS isn’t when there is an accident or the resulting regulatory action, it is right now. Purchasing a statutory liability policy should be the final piece of a large risk management puzzle that includes proper management systems, documented policies and procedures, recorded training and enforcement to ensure the safety of workers and other people that come into contact with the business.

It is also important to remember that statutory liability extends past WHS; businesses are exposed to a seemingly endless number of Acts and regulations that they must comply with.

HOW MUCH OF A CLAIM
IS A PENALTY

SUA has conducted a review of its statutory liability portfolio, and since its inception in 1998, on average only 15% of all claims paid were for penalties; the remaining being either legal costs, enforceable undertaking costs, or prosecution costs – none of which are affected by the revised WHS Act in NSW.

Furthermore, the trend in claims is seeing the legal costs component of claims increasing as regulators engage in more rigorous investigations before prosecuting, if at all. Appropriate risk management policies and procedures are crucial, not only to prevent an accident, but to mitigate any resulting regulatory action. Many claims either don’t proceed to prosecution following an investigation, are purely investigative in nature (e.g. a Royal Commission or Senate Inquiry), or result in an enforceable undertaking instead of a penalty. If this trend continues, it is reasonable to expect a further reduction in the percentage of claims that represent penalties.

Snapshot
of information

  • Review of over 1500 claims.
  • Of large claims (over $200k) analysed, roughly half were for WHS.
  • Of the large claims, fewer than 30% received a penalty.
  • On average, a penalty is only 15% of the total claim costs across all claims.

PENALTY
VS COSTS

*Costs include: legal costs for incident response, investigations/inquiries; production of documents; reputation protection; enforceable undertaking costs; legal costs for prosecution defence; and prosecution costs#

#Prosecution costs are costs awarded against an Insured by a court, following a successful prosecution by a regulatory authority.

WHS IN THE SPOTLIGHT

Focusing on WHS matters, it is important that a statutory liability policy is broad and allows for cover to be triggered by a notifiable incident (as defined in s35 of the Act - death, serious injury or a dangerous incident) as this is the time when proper legal representation should be appointed to ensure the insured’s interests are protected. The ability for a WHS specialist lawyer to be appointed immediately – often to attend the site of the notifiable incident within hours – is imperative to secure the best outcome for the insured.

As this revised WHS Act in NSW now puts the financial burden of a penalty squarely on the shoulders of the insured, it is even more important that things are done correctly from the beginning. The right policy and the appointment of the right lawyer could mean a lower penalty, or even no prosecution in the first place. Statutory liability is as relevant as ever.

SUA’s statutory liability policy responds from the earliest possible time; following a notifiable incident or mandatory reporting obligation (under any Act of Parliament, not just WHS), or from the time of any investigation, examination or inquiry by a regulatory authority. Furthermore, SUA has an established panel of specialist solicitors that can be appointed to assist an insured during that initial investigation, and beyond.

shutterstock_1432155962

MAKE SURE YOU HAVE
PROPER PROTECTION

The only effect this revision has on insurance is the prohibition on insuring a WHS penalty in NSW (at the time of writing). Otherwise, for statutory liability, its business as usual – provided you have the right policy in place.

Things to look for in a statutory liability policy are:

Incident Response

If a policy doesn’t provide cover for legal costs for an investigation, especially one commenced after verbal notice from a regulator attending the site of a notifiable incident; or provide cover for legal costs where there is no allegation of wrongdoing, then such a limited cover is further hampered by the prohibition in the revised WHS Act.

Broadform Cover

Businesses are exposed to numerous regulations from a great number of Acts depending on the industry; for some, WHS is a very small exposure. Having a
broadform policy that responds to any Act of parliament is important. Other general exposures that can be faced include:

  • Environmental Protection Acts;
  • Spam Act;
  • Privacy Act;
  • Planning and Building Acts;
  • Heavy Vehicle National Law (Chain of Responsibility);
  • Corporations Act;
  • Fair Work Act.

Other specific legislation can also apply to various occupations. A proper risk analysis of the regulatory environment that a business operates in should be conducted to ensure effective compliance, which then makes the purchase of a statutory liability policy easier.

Enforcement Options

Where there is an option for an enforceable undertaking (EU) rather than a penalty, it is usually preferable to take an EU. If a policy doesn’t include a provision for enforceable undertakings, it may not be pursued as an option; meaning the only outcome is an uninsurable penalty.

Key cover needed for:

  • Incident response — cover triggered by a notifiable incident/mandatory reporting obligation;
  • Investigations commenced verbally, not only by written notice;
  • Enforceable undertakings;
  • Prosecution costs;
  • Reputation expenses;
  • Production of documents;
  • Not limited to WHS only.

SUA was the first in Australia to write statutory liability in 1998, and EPL in 1997; and have always led the market in these products. SUA is able to provide modular or combined options, ensuring that every client from sole traders through to listed entities and not-for-profits can secure coverage; with a solution for just about every industry.

General Advice Warning

The information contained in this publication is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an insurance broker or risk adviser.

This report contains information that has been sourced from third party organisations, as well as data supplied by Specialist Underwriting Agencies. Some data may be confidential and subject to copyright and intellectual property laws.

The information contained within this report should not be used other than for its intended purpose. Although Specialist Underwriting Agencies makes every effort to verify supplied data, it accepts no responsibility for data that was incorrect when supplied. The data in this report may not be fully representative of the industry or any component of it.

Specialist Underwriting Agencies holds no liability for any consequential loss suffered by using the information provided in this report other than for its intended purpose.