This article was written by Travis Toemoe, Mandy Tsang and Georgie Parletta
Introduction
Recent amendments to the New South Wales Work Health and Safety Act 2011 (WHS Act) impose penalties on those who provide, take the benefit of or enter into a contract of insurance (or other indemnity arrangement) covering fines for work health and safety (WHS) breaches.
The previous KWM alert "NEXT: Prohibition on work health and safety insurance" discusses the case law and policy considerations that led to the WHS Act amendments.
This alert provides a summary of the WHS Act amendments, the penalties they impose and the implications for insurers, companies and individuals.
The provisions
The Work Health and Safety Amendment (Review) Bill 2020 (NSW) came into effect on 10 June 2020 and inserted various provisions into the existing WHS Act.[1]
As a result of the amendments, it is now a strict liability offence to provide, take the benefit of or (without reasonable excuse) enter into a contract of insurance or other indemnity arrangement covering liability for monetary penalties imposed under the WHS Act (WHS Prohibition).[2]
The penalties
The maximum penalties for:
- providing or taking the benefit of a contract of insurance or indemnity arrangement that breaches the WHS Prohibition is $250,000 (or 2,500 Penalty Units) for a body corporate and $50,000 (or 500 Penalty Units) for an individual; and
- entering into a contract of insurance or indemnity arrangement that breaches the WHS Prohibition is $125,000 (or 1,250 Penalty Units) for a body corporate and $25,000 (or 250 Penalty Units) for an individual.[3]
Officers' involvement
An officer of a body corporate who is involved in a breach of the WHS Prohibition (e.g. is knowingly concerned in, or party to, the commission of it) may also become personally liable for a fine of up to $125,000 (or 1,250 Penalty Units). This will be separate and additional to any direct liability that an officer might incur if he/she is the one entering into, providing or taking the benefit of such arrangements.[4]
Defence costs
The amendments do not expressly prohibit insuring or indemnifying legal costs incurred in defending a WHS prosecution or during an investigation. It is therefore arguable that companies and their officers can still be indemnified for such costs (either through insurance or a corporate indemnity).
Application of the WHS Prohibition
The WHS Prohibition applies to all contracts of insurance and indemnity arrangements regardless of when they were entered into. The only exception to this is that it will not be an offence if a payment is made:
- under a contract of insurance or other indemnity arrangement that was in force before 10 June 2020; and
- in relation to an incident that occurred before 10 June 2020.[5]
The amendments to the WHS Act are limited to New South Wales at this stage. However, similar changes may be rolled out in other Australian jurisdictions.
What does this mean?
Essentially, a breach of the WHS Prohibition will occur if:
- a company take out insurance or indemnifies its employees or officers for WHS penalties; or
- an insurer indemnifies a company or officer for WHS penalties.
The key implications of this are that:
- insurers, companies and individuals risk incurring significant penalties if they breach the WHS Prohibition; and
- individuals and companies will be required to personally cover any WHS penalties they incur.
It is therefore important for:
- insurers and companies to review their policies and / or deeds of indemnity to ensure that they do not breach the WHS Prohibition; and
- individuals and companies to ensure that they are adequately managing their exposure to WHS penalties.
From an insurance perspective, we have seen different approaches proposed by insurers to address these changes. As for indemnity arrangements for directors and officers, where the indemnity is expressed to be "to the maximum extent permitted by law", it is unlikely that changes are required.
[1] Accessible at https://www.legislation.nsw.gov.au/view/html/inforce/current/act-2011-010
[2] See sections 12A and 272A of the WHS Act.
[3] See section 272A of the WHS Act.
[4] See section 272B of the WHS Act.
[5] See clause 27 of Schedule 1 of the WHS Act.
