This class of insurance is specifically designed to respond in the event of an insured business, its employees, directors and officers inadvertently breaching an Act of any Australian Parliament by covering defence costs and fines or penalties issued against the business or individuals.
Governments are constantly legislating new laws or amending current legislation to place greater deterrents on businesses with subsequent fines increasing and in some instances being linked to current Consumer Price Index (inflation) levels.
Recent Changes – Game Changer?
In NSW, Work Health and Safety Amendment (Review) Act 2020 came into law in June of this year. The high point of this Act is that to ensure businesses are not transferring the fines to an insurer’s balance sheet; meaning that a Statutory Liability policy is no longer able to cover issued fines and penalties in relation to breaching WHS legislation in NSW.
Other jurisdictions are reviewing these new laws and are possibly looking to implement similar legislation.
As a result of this change, businesses could naturally interpret this amendment to mean there is little value in maintaining this class of insurance, however a crucial and quite often the most costly element of a breach, are the investigation and legal expenses.
In the event of a serious injury to an employee and the relevant WHS government agency notifying an investigation into the incident will commence, a Statutory Liability insurance policy is able to be called upon to appoint legal representation and cover the associated defence costs whilst the investigation is undertaken.
Recent insurer commentary has confirmed most incurred claim costs relate to defence and investigation costs versus the actual fine issued to the company. Engaging your insurer early and appointing a competent defence team can assist in expediting the initial investigation process and possibly avoiding a large penalty in the first place, or at the very least materially mitigating it.
Food for thought…
Though this article has focused on the recent law changes in NSW relating to the relevant WHS Act, a Statutory Liability policy is still commonly called upon to cover defence costs and fines issued in relation to breaching:
- Environmental Protection Acts;
- Spam Act;
- Privacy Act;
- Planning and Building Acts;
- Corporations Act;
- Fair Work Act
CRE would always recommend businesses have robust risk management, personnel engagement, and proactive incident response processes, however this class of insurance should remain part of any business risk transfer review to determine its viability in your overall risk response.
Should you wish to discuss how the recent NSW legislation will affect your insurance program or would like to know more about the Statutory Liability product in general, the CRE team are readily available to provide further advice with offices based in Sydney and Brisbane.