The South Australian Magistrates Court has criticised the use of general insurance policies that indemnify company directors against penalties for breaches of workplace health and safety laws in the recent decision of Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22.

During construction of the Adelaide desalination water plant in 2010, a rigger employed by Ferro Con (SA) Pty Ltd (Ferro Con) was killed after being struck by a 1.8 tonne steel monorail beam that was being lifted by a large crane. The rigger employee had been standing underneath the suspended beam in an attempt to bring it to the level position required for installation when it fell. Ferro Con had not conducted a risk assessment or job safety analysis for the type of lift that was being conducted.  Further, no safe working procedure had been devised to take account of the particular hazards of the task.

Following an investigation by SafeWork SA, Ferro Con was charged with breach of s 19(1) of the now repealed Occupational Health, Safety Act 1986 (SA)(OHS Act), for failing to ensure, so far as reasonably practicable, that the employee was safe at work. Ferro Con’s sole Director, Mr Paolo Maione was also prosecuted in his personal capacity under s 61 of the OHS Act for having failed to take reasonable steps to ensure Ferro Con's compliance with its obligations under the OHS Act.  It was found that Mr Maione's failings contributed to the commission of the offence by Ferro Con. Fines of $200,000 were issued to both parties as a result.

Ferro Con and Mr Maione sought a reduction of the penalty on the basis that they had made early guilty pleas, showed contrition and had co-operated with SafeWork SA during its investigation. Despite this, the Court refused to grant a reduction because Ferro Con had in place a general insurance policy which indemnified its directors for fines imposed for criminal conduct. The insurance cover carried a $10,000 excess or deductible payment which Mr Maione had paid personally (as Ferro Con was in liquidation).  Otherwise, Mr Maione was able to rely on the insurer to pay the majority of his fine.

Industrial Magistrate Lieschke found this arrangement to have undermined the Court's sentencing powers.  It had the effect of reducing the deterrent impact of the penalty and undermined the purpose of the OHS Act. The Magistrate stated: "the message [Mr Maione's] actions sends 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".  

However, the Court recognised in this instance that the old OHS Act did not prohibit such insurance. The Court also stated that whether or not the new Work Health and Safety Act 2012 (SA)(WHS Act) should adopt a prohibition was a policy consideration for Parliament. In the meantime, the Court begrudgingly recognised that insurers were still able to sell such policies and grant indemnity for commercial benefit.

Despite the above, employers should take care in relation to such policies. There is still an open issue as to whether or not a Court may refuse to enforce such a policy where there is a dispute, on the basis that it is against public policy (as it subverts the operation of criminal legislation).  Employers should also be aware that sections 199A, 199B and 199C of the Corporations Act 2001 (Cth) prohibit companies from providing its directors and officers with an indemnity or insurance to protect against a range of specific liabilities.  Finally, in serious cases of wilful or reckless behaviour, imprisonment may be ordered, in which case such insurance would provide no benefit.

Topic Tags:The Modern Workplace, Workplace