In an industry where company officers and agribusinesses face harsher penalties for Work Health & Safety breaches, it is little wonder that there has been an increase in insurers offering policies that purport to indemnify against penalties under the safety laws. Unless the legislature takes steps to prohibit such arrangements, there is no reason to think that insurers will stop offering to provide indemnity for such penalties.

This situation was most recently brought into the public eye in a decision handed down by the Magistrates Court of South Australia in Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013].  In 2010, a rigger employed by  Ferro Con (a specialist steel erection business),was killed by a falling beam after a fabric sling supporting the beam snapped while he was attempting to lower the beam into position. Ferro Con was subsequently charged with a breach of s19(1) of the Occupational Health, Safety and Welfare Act 1986, having failed to ensure so far as was reasonably practicable that the rigger was safe while at work. Ferro Con’s sole director and responsible officer, Mr Maione, were charged with a breach of s61 of the Act, for having failed to take reasonable steps to ensure Ferro Con’s compliance with its statutory safety obligations.

In sentencing the offenders, Industrial Magistrate Lieschke was scathing of Mr Maione’s decision to call on a general insurance policy that Ferro Con had in place, which included indemnification of its director for fines imposed for criminal conduct. He found that the policy:

  • undermined the court’s sentencing powers by negating the principles of both specific and general deterrence;
  • sent a message to employers and officers that with insurance cover for criminal penalties for WHS offences there is little need to fear the consequences of offending; and
  • was so contrary to a genuine acceptance of the legal consequences of criminal offending that they dramatically outweighed the benefits to the justice system of an early guilty plea or statement of remorse.

As a result, the Court declined to give any discount on the penalty which a person would ordinarily receive for entering an early plea of guilty. It noted it could not increase the penalty because under the current safety laws there is no prohibition on obtaining insurance. In the wake of this decision though, legislative change is being considered by Safe Work Australia to expressly outlaw such insurance.

While it is common to obtain insurance coverage for legal costs involved in the investigation of a Work Health and Safety incident or the defence of any prosecution, as a result of the Work Health and Safety Act (applicable in all jurisdictions other than Victoria and Western Australia), companies can now face penalties of up to $3 million, while individuals can face penalties of up to $600,000 (and up to five years jail), prompting insurance against such fines. One primary question for an agribusiness considering obtaining this type of insurance is whether it will promote or detract from the safety culture within the business, particularly for its senior officers.

Issues to consider:

  • Insurance may mean a higher penalty:  An early guilty plea may not result in any sentencing discount where the penalty imposed on the defendant/s is the subject of an indemnity. While in most cases insurance coverage will be unknown, it is possible following from this decision that a safety regulator can now legitimately seek that information as a matter relevant to sentencing.
  • Different enforcement options: In circumstances where indemnification acts to undermine a court’s sentencing ability by limiting the deterrent effect, prosecutors may seek, and courts may impose, different enforcement options that are not the subject of insurance coverage, such as adverse publicity orders. Insurance coverage may now also play a part in the prosecutorial discretion to initiate proceedings against individuals and/or seek more mainstream sentencing options such as good behaviour bonds or community service.
  • Insurer may decline coverage: Notwithstanding that an insurance company has provided an insurance policy to a business and its officers in respect of criminal penalties, the insurer may take the position to not pay out on the policy on the basis that it is void against public policy. This is consistent with most policies having an exemption that the claim will be paid “where lawful” or a similar exclusion.

If you require assistance in relation to a workplace health and safety issue or would like advice in this area please contact one of our workplace health and safety specialists.

Author:  Michael Selinger

Contact Details

Sydney

Michael Selinger
Partner
T: +61 2 8083 0430
E: michael.selinger@holdingredlich.com

Brisbane

Paul Venus, Partner
T: +61 7 3135 0613
E: paul.venus@holdingredlich.com

Ron Eames, Partner
T: +61 7 3135 0629
E: ron.eames@holdingredlich.com

 

Disclaimer
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed above. 

 

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