After a year of operation under the New Zealand Health and Safety at Work (HSW) Act 2015, which became effective on 4 April 2016, insurers are discovering it is in their interests to take a more proactive approach to events.
In New Zealand, there is no private personal liability insurance because all personal liability is handled through a public body, the Accident Compensation Commission. But insurers are able to provide statutory liability insurance in NZ to directors, employees and sometimes volunteers covering reparations and defence costs – although not fines.
While policies do not require the insurer to become involved unless there are charges laid, insurers are taking action earlier to avoid escalating legal problems down the track, says Brent Sutton, principal at Safety Associates.
“It’s in the interests of the insurer to get involved early because they either spend money up front to manage the problem or they spend a lot more into the back end when the client has been charged,” says Brent.
Under the new system, companies dealing with a health and safety incident below a certain threshold of offence can request to enter into an Enforceable Undertaking (EU), a legally binding agreement between WorkSafe and a duty holder. EUs can be used as an alternative to prosecution and most cases under the new Act have taken that path in the first instance.
The first case taken by WorkSafe under the new Act provides a dramatic example. The breach occurred when two boys at a private school who were acting in a production of Sweeney Todd, where the action was meant to simulate throats being cut, suffered severe lacerations to the throat.
WorkSafe agreed to an undertaking involving a minimum of NZ$77,500 in reparations, the development of health and safety guidelines as part of the school’s performing arts curriculum and providing workshops for other schools.
But Brent warns an EU is not a get-out-of-jail-free card. “The market is viewing them as a cheap way out, but it shouldn’t. Breaking the agreement is an offence under the Act, and it’s a serious one.”
Brent says insurers are still coming to grips with their role in relation to EUs. “The policies don’t provide for the insurer to be involved, but if the organisation doesn’t successfully negotiate it then the insurer is on the hook. I believe it’s in the interest of insurers to be involved [in statutory liability events and claims] because otherwise they could well be expending considerable costs.”
Brent says employers often do not understand the value of getting insurers involved early. “When an event occurs they often don’t understand that this is a criminal process and they don’t understand how the process will work. When we talk about risk management, people think about acting to prevent loss from occurring – and in health and safety to prevent harm, injury or illness – but risk management is also about how to minimise the expenses when an event occurs.”
Once cases get to court, WorkSafe has a 92 per cent success rate so it is in the interests of statutory liability insurers to step in before charges are laid.
No prosecution has yet been completed under the new Act, but Brent knows of at least 14 cases of companies being charged under the new Act. WorkSafe has 12 months from the date of an incident to lay charges and appears to be using its full capacity.
“The legislation came into effect on 4 April 2016. The first event I was involved in occurred on 7 April 2016, and charges were laid on 6 April 2017,” says Brent.
Another issue for insurers is that if a fatality is involved, WorkSafe has 12 months from the end of the coroner’s inquest to lay charges. That means statutory liability insurers now have an interest in the outcomes of inquests.
New Zealand’s new law is based on Australia’s Model Workplace Health and Safety Laws. The key difference is in the personal liability context, which means New Zealand employers cannot face civil proceedings, only criminal action. That means the onus of proof in New Zealand is the criminal standard of ‘beyond reasonable doubt’ rather than the civil standard of ‘the balance of probabilities’.
There are a couple of other significant variations. In Australia, the focus for governance is on critical risk while in New Zealand boards have responsibility for general risk. “That means boards have their fingers on the pulse of all risks not just the critical risks,” says Brent.
Australia also places more onus on upstream duties, meaning an employer has responsibilities in regard to designers, suppliers and installers. In New Zealand, this risk is limited to new products.
The new laws have changed the environment considerably for employers and those who insure them [with statutory liability insurance]. Fines have increased threefold or fourfold, although it may be some time before this effect flows through, as courts take account of precedent as well as legislated sanctions.
Brent says while there has been much anxiety about the increased fines, many employers do not realise that the cost of insurable reparations and defence is often triple that of the fine. Typical fines are NZ$40–50,000, reparations NZ$50–60,000 and defence costs frequently NZ$100–120,000.
The new legislation is based on a fundamentally different framework – mitigating risk not avoiding hazard. It acknowledges that hazards will always exist, but that there is a responsibility to do what is reasonable to reduce the risk.
Will the legislation have a dramatic effect on the number of claims? Brent doubts it. “I look to Australia for inspiration, but it’s not happening. Four or five years down the track it’s business as usual.”
The New Zealand Act is closely based on Australia’s, but there are a couple of significant differences.The key difference between Australia and New Zealand is in regard to personal liability. New Zealand has no fault personal liability system so New Zealand employers may face criminal proceedings over a health and safety breach, but they will not face civil proceedings.Australian employers can face civil proceedings as well and the benchmarks for civil proceedings are much lower than those for criminal.
Cases like the above provide a timely reminder to small business owners in New Zealand of the need for the right type of business insurance cover in NZ. It underlines the importance of statutory liability insurance to protect small businesses, their owners and directors. For more information on statutory liability insurance, go to our business insurance product page, where you can read more and get a quote.
Republished with the kind permission of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF).
Article written by Deborah Stone, Jul 2017.