Aged care insurance outlook for 2024: navigating the implications of upcoming negligence laws

Aged Care Today - Autumn Edition

As published in the Autumn 2024 issue of Aged Care Today (opens a new window) – the quarterly magazine of Aged & Community Care Providers Association (ACCPA).

In December 2023, the Commonwealth Department of Health unveiled a draft of new legislation that marks a significant revamp of the Aged Care Act 1997 (Cth) (referred to as the 'Aged Care Act'). This legislative proposal is integral to the enhanced Aged Care Quality Standards.

Under proposed new aged care legislation, board members and individuals deemed to be ‘responsible persons’ of registered providers may soon face significantly increased penalties, including substantial fines and up to five years in prison, if found guilty of the most serious offences.

Despite many already taking diligent measures to improve the governance of their respective organisations, executives and board members appear to be set to face increasingly significant liability for failure to properly govern.

To minimise the risk of significantly heightened penalties, executives and board members of aged care providers should consider a number of measures to ensure they are properly protected, including consideration of insurance risk mitigation strategies.

Management Liability/Directors & Officers’ Liability (D&O) insurance, and Statutory Liability insurance are the two policies most likely to play a part in responding to such fines and penalties.

In this article, we outline the key considerations that executives and board members should take into account for these types of insurance.

Management Liability/D&O insurance

From an insurance perspective, a director’s governance risk is mainly addressed by D&O insurance, designed to help protect the personal assets of directors and officers of a private or public provider for claims arising from alleged wrongful acts committed by directors and officers in their capacity as governors of the organisation.

Some Management Liability and D&O insurance policies can help provide cover for legal costs and fines due to breaches of laws.

It is worth checking to see how much cover is in place and if there are special exclusions related to pollution or environmental damage that a specialist Statutory Liability policy would be designed to cover.

Statutory Liability insurance

Statutory Liability insurance can be purchased by the organisation either as part of its Management Liability policy, or on a standalone basis alongside its D&O insurance.

Statutory Liability cover is a specialist type of insurance designed to help protect organisations from legal expenses if they were to breach an act of legislation. In addition to helping to provide cover for the insured in respect of a possible fine, these policies can help cover any reasonable legal and investigative fees that will also be likely to apply.

Cover will apply to both individual directors and officers, as well as the organisation itself.

However, Statutory Liability policies generally will not provide cover for taxes or workers’ compensation premium imposed by way of penalty, superannuation liability or penalties that are uninsurable at law.

Other typical examples of exclusions found in Statutory Liability policies include gross negligence or recklessness and deliberate or intentional acts.

To ensure appropriate cover, it is important to clearly define the individuals that require access to the cover, particularly if board members are volunteers, or where the organisation is constituted under legislation other than the Corporations Act 2001 (Cth).

Work Health & Safety breaches

In New South Wales, Western Australia and Victoria, insurers are prohibited by law from offering coverage under an insurance policy for breaches of Work Health & Safety (WHS) legislation.

Other states and territories are also expected to pass similar amendments to their WHS laws.

However, it is worth noting that the prohibition of this type of insurance cover is only for the fines and/or penalties themselves. Cover is still available for costs of defending an investigation or prosecution.

Reducing the risk

To prepare for the possibility of heightened penalties being incorporated into the new aged care legislation, Lockton recommends that individuals holding positions as board members or executives conduct an immediate self-assessment of their existing risk exposure.

The extent of an individual’s risk will hinge on specific factors such as the type of organisation, the state of operation and the specific aspect of care delivery they provide.

Organisations are also advised to consult with a professional insurance advisor regarding Statutory Liability insurance to ensure that individual board members and executives within an aged care provider have appropriate cover in place.

The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.