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Get Your Insurer On Your Side With Statutory Liability Cover

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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 order to avoid unintentional breaches of the law.

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 to directors, employees and sometimes volunteers covering reparations, legal fees 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.