Back in December 2018, the Boland review – the first independent review of the model Work Health and Safety (WHS) laws – was completed by former Executive Director of Safework SA, Marie Boland.
In the report, Boland recommended that “persons or organisations that are required to pay penalties under the model WHS laws be unable to recover that cost through insurance or indemnification”.
The basis for this recommendation was that if fines are insurable, it potentially reduces the incentive for compliance, and, since then, several states have made amendments to their legislation in line with Boland’s recommendation.
Which states have made amendments to WHS legislation?
To date, New South Wales, Victoria and Western Australia have made amendments to WHS legislation, prohibiting penalties under the Acts from being indemnified by an insurer.
In June 2020, NSW’s Work, Health and Safety Amendment (Review) Bill 2020, which prohibits insurance or indemnity agreements for any penalty under the Act, achieved Royal Assent. Similar legislation passed in Victoria in September 2021 and was enacted in Western Australia in June 2022.
At the time of writing, the other states and territories do not prohibit insurance for WHS penalties.
It’s important to note that the amendments do not prohibit insurance and indemnities for the legal costs of defending prosecutions for breaches.
Will other states and territories follow suit?
Other states and territories will likely follow NSW, Victoria and WA in prohibiting penalties under the Acts from being indemnified by an insurer, because in June 2022, a number of amendments were announced to the Model WHS Laws.
Included in the amendments were the introduction of new offences (272A and 272B), which prohibit insurance and indemnity agreements for WHS penalties.
It is now an offence to:
enter into a contract of insurance or other arrangement under which the person or another person is covered for liability for a monetary penalty under the model WHS Act
provide insurance or a grant of indemnity for liability for a monetary penalty under the model WHS Act, and
take the benefit of such insurance or such an indemnity.
Although not automatically enforceable at a Commonwealth, State or Territory level, the model WHS Act and Regulations provide the foundation for the WHS Laws enacted by most parliaments in the Commonwealth, and it’s widely expected that other states and territories will follow NSW, Western Australia and Victoria by prohibiting penalties of WHS breaches being insured.
Is Statutory Liability still relevant to directors and companies?
While WHS fines are no longer insurable in NSW, Victoria and WA, Statutory Liability insurance is still important for directors and businesses in those states.
Statutory Liability can cover expenses incurred while investigating and defending alleged breaches. Therefore, it’s important to remember that fines and penalties only account for around 15 per cent of the total costs incurred in statutory liability claims. The bulk – 85 per cent – is costs, including legal costs, investigations and inquiries, and reputation protection.
“The amendments to the WHS regulations, which prohibit WHS penalties being insured, means it’s ever more important that businesses and directors work with experienced insurance brokers who can help identify risks and put strategies in place to minimise exposure,” says Brad Kelly, Division Manager.
“The potential consequences of getting this wrong are now astronomical, which was the intention of the recommendation in the Boland Report, and the onus is now firmly on businesses and directors to ensure that they’re doing everything in their power to ensure compliance.”
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