The recent decision of the South Australian Industrial Relations Court in Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22 highlights the tension between the availability of statutory liability insurance cover and the public interest in having monetary penalties serve the purpose of deterring potential offenders.

The decision involved the prosecution of a steel works company and its Responsible Officer under the Occupational Health, Safety and Welfare Act 1986 (SA) (the Act) (now repealed) after a worker was killed, and another injured, during the construction of the Adelaide Desalination Water Plant. The court found that the company and Responsible Officer had committed serious breaches of their safety obligations under the Act by failing, amongst other things, to ensure a job safety analysis was performed and that a safe work procedure was developed and followed.

The issue of appropriate penalties was also considered. The defendants’ counsel submitted that a reduction in penalties should be granted on the basis that they showed contrition, cooperated with investigations, and entered early guilty pleas. Although the court acknowledged that the defendants had expressed regret over the incident, the Magistrate expressed significant concern that, by successfully calling on an insurer to pay the fine, the defendants had taken positive steps to avoid having to accept most of the legal consequences of their criminal conduct. In light of this and in declining to reduce the penalties, which were imposed at the maximum of $200,000 for each defendant, the court observed that:

“Ferro Con had in place a general insurance policy which apparently included indemnification of its Director for fines imposed for his criminal conduct. …

In my opinion Mr Maione's actions have also undermined the Court's sentencing powers by negating the principles of both specific and general deterrence. The message his actions send to employers and Responsible Officers is that with insurance cover for criminal penalties for OHS offences there is little need to fear the consequences of very serious offending, even if an offence has fatal consequences. …

In my opinion Mr Maione's actions are 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 it would be entirely inappropriate to grant any reduction of penalty to Mr Maione or Ferro Con in these circumstances.”

In is also interesting to note that, although the existence of the insurance cover obviated a reduction in penalties, the court considered that it had no ability to consider the validity of that cover. The court commented, more specifically, that:

“… the Court was faced with the reality that an insurance company has granted indemnity to Mr Maione and Ferro Con, and that the Court has no ability to challenge that fact. Whilst the terms of the policy were not produced to the Court, and there remains a possibility that indemnity was granted for commercial reasons given the ongoing nature of the Group's business, this Court has no legal ability to consider if the indemnity is invalid as being contrary to public policy.

[The Act] does not prohibit such insurance, but some other laws do. …. Whether such indemnities should be outlawed under the current Act and under the new Act are policy considerations for Parliament. …”

Commentators have speculated that if statutory liability insurance cover - like the cover in the Hillman decision - was tested before a court it may be held to be unlawful and unenforceable as being against the public interest that monetary penalties serve the purpose of deterring potential offenders. Hillman highlights the practical difficulty in any such test occurring. It would seem untenable for an insurer to assert that a contract into which it had entered for commercial gain was void and, indeed, it could be argued that it was misleading and deceptive to offer insurance only to then argue that it was invalid. It is hard to see any reason why an insured would challenge the validity of the insurance.  Nevertheless, circumstances might arise where a third party (e.g. a WHS authority) sought to challenge the validity of insurance as contrary to public policy. That might be possible by way of seeking declaratory relief against insurer and insured.

One might also speculate as to whether the availability of insurance for a monetary penalty may incline a court, in a serious case, to impose a custodial penalty. That would clearly be an outcome any insured would wish to avoid.

To our knowledge, 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. Further, it must be recognised that such policies provide clear commercial benefits to insurers and insureds in the context of a dynamic and increasingly regulated business and workplace environment. It is therefore apparent that, as the parties to such policies are unlikely to challenge their enforceability, legislative intervention seems the only realistic source of change in this area.