Changes to WHS Legislation in New South Wales (NSW) from 10 June 2020
On 10 June 2020 the Work Health and Safety Amendment (Review) Act 2020 received assent. This Act amends the Work Health Safety Act 2011 (NSW) and insurance for WHS Fines in NSW is prohibited for penalties for incidents occurring after 10 June 2020.
A new offence has been added to the Work Health Safety Act 2011 (NSW) prohibiting insurance and indemnity arrangements for work health and safety penalties. It is now an offence for a person to enter into, provide, or benefit from insurance or indemnity arrangements for liability for a monetary penalty for a work health and safety offence. If a company commits an offence, its officers may also be liable.
The prohibition cuts both ways and applies to entities offering insurance and or indemnity arrangements and those entering into an agreement to benefit from the insurance or indemnity. It applies to insurers and businesses that take out insurance. It applies to management liability and statutory fines insurance currently in place as well as currently offered by insurers. It applies to employees and employers.
At the moment most policies of insurance that are in place that offer insurance cover for WHS fines contain a provision stipulating cover is available to the extent permitted by law. Current polices and renewals or new policies containing these provisos do not fall foul of the new prohibition however any promise to pay fines falls away as it is no longer legal to insure fines for incidents occurring after 10 June 2020. The promise to pay fines becomes illusory for fines in NSW in respect of offences occurring after 10 June 2020.
However, it is still permissible to insure legal and investigation costs that will be incurred in Safework investigations and the defence of WHS prosecutions. This remains an essential factor, as the “defence and investigation” costs of each matters typically outweighs the fines and penalty by a ratio of around 4:1. In many instances a successful defence can mean no penalty imposed at all.
The penalty is just one element of cover, and a robust statutory liability insurance cover will provide legal costs from the time of an incident/investigation through to either the closure of the investigation/inquiry, finalisation of a prosecution or an enforceable undertaking. All of which are unaffected by this legislative amendment.
The prohibition is not retrospective. It does not make insurance policies and indemnity agreements in place illegal. However existing insurance and indemnity agreements are impacted, and it is an offence if a party under these existing agreements provide cover for penalties arising from incidents that occur after 10 June 2020.
An insurance policy or indemnity agreement covering WHS fines in place before 10 June 2020 will still provide insurance or indemnity cover for monetary penalties arising from incidents before 10 June 2020.
The new legislation also addresses the Government’s concern that Category 1 prosecutions under the WHS Act have been hampered because the fault element of the offence—recklessness—is too difficult to prove. To establish recklessness a prosecutor must establish actual knowledge of a risk and deliberate disregard for that risk.
That has changed, with a new test for a Category 1 offence being whether there is “gross negligence or recklessness”. There is no definition of what amounts to “gross negligence”. SafeWork will be able to prosecute grossly negligent duty holders for a Category 1 offence where they expose persons to a risk of death or serious injury or illness. The maximum penalties for a Category 1 offence are imprisonment for up to five years and/or a fine of $346,500 for an individual and $3,463,000 for a corporation.
Businesses in NSW can no longer take out insurance to cover fines which can run to hundreds of thousands of dollars for breaches of the WH&S Act and directors and employees will no longer have the comfort of insurance or an indemnity from the business for any fines imposed on them. 10 June 2020 is a milestone date for the shift of responsibility for WHS fines to the person or entity that commits the offence.
There is nothing in the new legislation that restricts or prohibits defence costs or legal fees from being subject to an insurance or indemnity arrangement. Additionally, it is still lawful to insure or indemnify against the legal and implementation costs of an enforceable undertaking (EU). Other jurisdictions are also reviewing options to follow suit, meaning companies should review any such policies they hold and heighten their focus on WHS risk management to avoid exposure to fines.
Your EBM Account Manager is available to discuss insurance options in this area, including Management Liability and Statutory Liability Insurance.
Source: Gillis Delaney Lawyers