In an update published on 16 June 2014, we considered the decision of the South Australian Industrial Relations Court in Hillman v Ferro Con (SA) Pty Ltd (in liquidation) & Anor [2013] SAIRC 22 in which the court commented that the conduct of a defendant who sought indemnity with respect to penalties imposed for breach of workplace safety legislation was “so contrary to a genuine acceptance of the legal consequences of his criminal offending that they dramatically outweigh the benefits to the justice system of the early guilty plea and statement of remorse.”

Accordingly, the Court allowed no discount on the penalty that it thought was appropriate. 

We also concluded that Australian courts have not made a decision one way or the other as to whether policies of statutory liability insurance may be unenforceable at law for being contrary to public policy. Justice Burrough famously warned in Richardson v Mellish [1824] 2 BING 251 that “public policy… is a very unruly horse” and the invoking of that doctrine has been warned against regularly ever since.

Nevertheless, there are other more conventional objections that may be made to the legality of statutory liability insurance in certain circumstances. Model WHS legislation, which is now in operation in all Australian jurisdictions other than Victoria and Western Australia, provides that any term of a contract which seeks to modify the operation of the law is void (section 272 of the Work Health and Safety Act 2011 (Qld) and equivalents in other states). There has also been some suggestion that such insurance may breach the Corporations Act.

Neither piece of legislation (nor any other legislation of which we are aware) expressly prohibits insurance contracts providing indemnity with respect to such penalties. The difficult legal question then arises as to whether, by implication, such insurance may be made illegal. As with public policy, however, courts are usually reluctant to find such implications in circumstances where the clear expression of a legislative intention to that effect could have been made if that is what the legislature intended. The present state of the law in Australia in this regard appears to be that illegality is not determinative and the question of enforceability will depend on the underlying purpose and intent of the relevant statute in question (Sinanian v Eks Carpentry Pty Ltd [1997] NSWCA 288).

If such insurance is to be made illegal, it is submitted that it would best be done by the expression of clear legislative intention.

However, the absolute prohibition of such insurance is arguably not necessary to achieve the public policy behind such a prohibition. For instance, in Hillman, as well as a monetary penalty, the Responsible Officer of Ferro Con (SA) Pty Ltd (in liquidation) was also ordered to publish notices detailing his convictions in major newspapers and the journal of the Master Builders Association. Whilst it is no doubt possible to obtain insurance with respect to reputational damage and public relations and marketing expenses, there is no indication that the Responsible Officer was insured for such things in Hillman and, in any event, it is difficult to imagine that such insurance could overcome all the possible effects of such publication.

On the other hand, if insurance with respect to financial penalties was prohibited, this would not necessarily mean the end of the involvement of insurers in this field. As mentioned above, it may be possible for insurers to offer cover with respect to reputational and public relations costs to insureds. Additionally, defence costs cover with respect to such matters is widely available. Indeed, in our experience, cover with respect to fines and penalties is frequently excluded. There is a well recognised public policy in having all those involved in court proceedings adequately represented and we are unaware of any suggestion that defence costs cover alone is contrary to public policy.

Richard Leahy