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8 Sep 14
Businesses to review general insurance coverage with changes to Workers’ Compensation and Rehabilitation Act 2003 (Qld)

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On appearances, amendments introduced to the Workers’ Compensation and Rehabilitation Act 2003 (Qld) (the Act) in 2013 looked to benefit employers, with limits placed on claims brought by injured persons.  However, with these claims consequently brought against other entities, employers and contractors should be alerted to the new risks created by the amendments in relation to their public liability policies.

Background
From 15 October 2013 injured workers must have a degree of permanent impairment (DPI) of greater than 5% to be entitled to bring a claim for common law damages against their employer.  It is expected that approximately 50% of all common law damages claims against employers will be eliminated by this new threshold.

That will result in claims histories of employers dropping, consequentially so will workers’ compensation premiums.  While this sounds good, in the vast majority of cases, it simply shifts the problem elsewhere.

Injured persons who don’t qualify to bring a claim against their employer, will instead bring claims against other entities that may have an involvement in their incident (known as tortfeasors), under the Personal Injuries Proceedings Act 2002 (Qld) (PIPA). 

These tortfeasors may seek indemnity or damages from employers, where they have a right to sue in contract.  Employers should be aware that they may be uninsured for these claims.  

We consider the implications with 3 examples.

Example 1 – joint tortfeasors
Principal A enters into an agreement with Contractor C for the supply of John Smith’s labour.  John Smith is an employee of Contractor C.

John Smith is injured as the result of the negligence of Bob Brown, an employee of another contractor on site, Contractor D.

John Smith is assessed as having suffered a DPI of 4% by WorkCover Queensland.  John Smith knowing he can’t bring a common law damages claim against his employer, Contractor C, commences claims under the PIPA against Principal A and Contractor D.  

Whereas John’s damages would previously have been shared between Principal A, Contractor D and WorkCover Queensland for Contractor C – Principal A and Contractor D will now be exposed to 100% of John’s damages. 

Example 1

Example 2 – contractual indemnity – no change to common law position
Principal A enters into an agreement with Contractor C for the supply of John Smith’s labour. 

John is injured but is only assessed as having suffered a DPI of 4% by WorkCover Queensland.  John Smith brings a claim under the PIPA against Principal A. 

John’s damages would have been payable by Principal A, Contractor D and WorkCover Queensland for Contractor C, prior to the amendments to the Act.

The agreement between Principal A and Contractor C contains an indemnity clause.  The indemnity requires Contractor C to indemnify Principal A for all injury to Contractor C’s workers to the extent those injuries were caused by Contractor C.  Principal A cannot join Contractor C to the claim because Contractor C’s liability is limited to the extent that it would be liable, if sued, for the same damage.  With the threshold, John is unable to sue Contractor C and so, Principal A cannot recover against it, despite the indemnity in its favour. 

Principal A and Contractor D are exposed to up to 100% of the John’s damages. 

Example 3 – broad contractual indemnity
Principal A enters into an agreement with Contractor C for the supply of John Smith’s labour. 

John is injured but is only assessed as having suffered a DPI of 4% by WorkCover Queensland. 

John’s damages would previously been paid on say a 50/50 basis by Principal A and WorkCover Queensland for Contractor C.

The agreement between Principal A and Contractor C contains a broad indemnity clause.  The indemnity clause states that Contractor C will indemnify Principal A for all claims, losses and costs arising out of any claim against Principal A due to injury to an employee of Contractor C, whether caused by the negligence of Contractor C or, Principal A.

Principal A seeks to enforce the indemnity.  Contractor C has in place a public liability policy, which excludes the claim under an employment exclusion clause and will not extend to cover Principal A’s negligence.  Contractor C’s public liability insurance won’t respond to the claim and Contractor C has insufficient assets and income to meet its contractual liability to Principal A. 

Principal A has a public liability policy in place however, it contains a broadly worded employment exclusion. 

Principal A’s exposure to the claim is up to 100%, subject to the court’s view of the indemnity.  Even if a court upholds the indemnity, Contractor C could not meet a judgment in favour of Principal A against it.  

Issues for consideration
We are already seeing the first of claims where injured persons are starting claims under the PIPA against principals or other contractors and not their employer.  In most instances, the contractors do not have insurance arrangements in place which assist the principal and the principal’s own insurance policies do not always respond. 

These examples raise a number of issues for the consideration of businesses including:

  • how would the public liability insurance policies you and your suppliers have, respond to claims like these?
  • are there better insurance products available on the market to address these risks?
  • are you exposed for up to 100% of a damages claim?

Recommendation
In response to the new risks created by the legislative amendments we recommend businesses operating in Queensland review both theirs and their contractor’s public liability insurance policies to address these risks.
 

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication. 

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