For many business, risk is addressed in two ways. First, to the extent possible, reducing the likelihood or seriousness of the consequences of a risk occurring, e.g. through changing the way that a business performs risky activities or implementing controls and measures designed to avoid inherent risk. Second, businesses take out insurance, either to cover the entire consequences of such risk, or the residual risk that they cannot avoid by adopting the approaches just mentioned.
The same is often true for legal or compliance risk. Where a business is exposed to a risk of liability or penalty arising from regulation, many businesses look to adapt their practices or take out insurance as a means of controlling or underwriting this risk.
What risks are we talking about?
In the context of Heavy Vehicle National Law (HVNL) compliance, we are talking about the following risks:
There are other ‘general’ businesses losses that might also arise as a result of a breach of the HVNL (such as liability for damage to third party property, personal injury, business continuity losses, etc.), but as these aren’t HVNL-specific, we won’t discuss them here.
The HVNL-mandated approach to such risks is to ensure that your business has systems and practices in place so that you don’t breach the HVNL. This is the heart of the ‘primary duty’ under the HVNL.
Nonetheless, you won’t always be able to implement systems or practices that absolutely eliminate the risk of breach. And, in any event, you might still want to take out protective insurance to cover those instances of system or human error, where breaches occur despite your best intentions.
So, can you insure against such risks?
If celebrities can insure their vocal cords and legs, you can insure against HVNL breach risks. In short, you can insure any risk that an insurer is prepared to provide cover.
The real question is – ‘Is there anything prohibiting you from insuring against HVNL breach risks?’ Unfortunately, the answer is ‘maybe’.
First, section 742(1)(c) of the HVNL says that a contract is void to the extent that it purports to require a person to pay a penalty that another person has been ordered to pay under the HVNL. Whilst this is intended to prevent parties in the chain from shifting the risk and liability burden onto another party in the chain, this provision could arguably also be applied to render any insurance contract void. So far, this interpretation is untested.
Second, there is a general rule of law that a court won’t enforce contracts which are against public policy, including any contractual arrangements which cover criminal conduct. So, if your insurer declined cover (e.g. under the common exclusion for criminal or intentional conduct), a court might not assist you and may refuse to enforce the insurance contract against the insurer.
Third, there is also the prospect that a court might impose a higher penalty if you are insured, to increase the pain. By way of example, we look at the below Work Health & Safety (WHS) case in which the judge actually imposed a higher penalty once it became known that the defendant had insurance.
In Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor  SAIRC 22 a rigger employed by Ferro Con was killed. Ferro Con was 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 director and responsible officer 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 Magistrate was scathing of the responsible officer’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:
As a result, the Court declined to give any discount on the penalty which would ordinarily apply 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, legislators in NSW are considering new provisions which would make it illegal for a person to take out insurance cover for any statutory penalty for breach of the WHS laws.
In conclusion, there is no absolute prohibition on taking out insurance for a HVNL breach. But, the limits of the enforceability of such policies are untested.
To conclude the position in relation to insurance under WHS laws in NSW, there is a proposal to introduce provisions which would make it illegal to take out insurance covering any WHS penalties. Insurance cover for defence costs would still be permitted, but the amendments aim at ensuring that the person penalised actually bears the cost.
Author: Nathan Cecil
* This is an edited version of an article originally published in CoR Adviser. The original article is © 2020 Portner Press Pty Ltd and has been reproduced with permission of Portner Press.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.
Published by Nathan Cecil