Work Health and Safety Harmonisation laws (WH&S) were introduced in January 2012. Two years on, are you sure that your insurance policies are up to date and able to respond to new requirements?
Not all insurance policies are the same and some, held by corporate entities, may not meet new stringent investigation and prosecution provisions.
Directors and officers liability insurance
The ‘insured persons’ under a typical Directors & Officers Liability Insurance (D&O) policy is usually confined to the directors and officers of a company and those who hold managerial positions. Cover often does not extend to include individual employees who may be subject to WH&S investigations and prosecutions unless there is a specific expansion of the definition of ‘insured person’. No cover is afforded for the corporate entity which in the context of WH&S investigations and/or prosecutions is the party which incurs the legal costs and expenses.
While the D&O policy will typically provide cover for ‘investigations’ pursued by statutory authorities, including those pursued by the relevant WH&S authorities, cover will be limited to the preparation and attendance of ‘insured persons’ before any hearing, examination, investigation or inquiry.
Management liability insurance
Cover typically afforded under a D&O policy can also be included under Management Liability insurance policies. These policies beneficially expand the scope of cover to include the corporate entity and often include a specific extension to cover the legal costs incurred in connection with a violation or breach of WH&S laws.
The definition of ‘claim’ which must be satisfied to trigger cover, will however often only be satisfied once legal or regulatory proceedings are commenced. Where this extension of cover is provided, it may be subject to a lower limit of liability e.g. $250,000 or $500,000 rather than to the full policy limit. Given that legal costs incurred in a WH&S prosecution often exceed these amounts, this shortfall in cover could present a considerable uninsured exposure.
Statutory Liability Insurance
Statutory Liability (Stat Liability) policies typically include cover for the corporate entity and employees but do not typically include contractors or consultants within the standard policy definitions.
A standard Stat Liability policy provides cover for any ‘penalty’ and ‘defence costs’ arising from any ‘claim’ first received by an insured and notified to the insurer during the policy period. A ‘penalty’ is usually an amount prescribed by legislation as payable in the event of a breach of such legislation. Such a definition should include any penalty arising under the WH&S law which is not otherwise excluded from cover under the policy.
‘Claim’ is usually defined to mean the receipt by the insured of any verbal or written notice which alleges a ‘wrongful breach’ and claims the insured is liable to pay a ‘penalty’. This definition creates a number of hurdles to gaining cover under the policy. The most difficult of these to overcome is that any notice of an alleged breach by the insured must be coupled with notice that the insured may be liable to pay a ‘penalty’.
Consequently, it is only likely to be the actual prosecution of an alleged breach of any statutory obligation which triggers cover under the policy, with no cover provided for any of the preliminary investigations undertaken prior to commencement of any prosecution.
Alternative insurance solutions
The insurance market is introducing specialised WH&S liability policies to respond to deficiencies and limitations under the traditional insurance policies.
Now is the time to assess whether your insurance cover will respond to the new laws.
Cover should be assessed against the following questions:
- Is cover afforded to both the corporate entity and ‘insured persons’?
- Who are the ‘insured persons’ under the policy?
- Are consultants, contractors or subcontractors who conduct work for or on behalf of the corporate entity covered?
- Is cover triggered immediately following the occurrence of a ‘notifiable event’ or fatality?
- What, if any, cover is provided for investigation costs incurred prior to the commencement of any prosecution by a statutory authority?
- If cover is only provided following the receipt of a statutory notice or commencement of a prosecution, what are the elements of the coverage which must be satisfied to trigger cover under the policy?
Every corporate entity, large or small, should ensure that their insurance policies are able to respond to the practical reality and consequences of the harmonisation laws. It is most important that a review is undertaken by a reputable and independent broker with expertise in work health and safety legislation.