Insuring Against WHS Offences: 3 key considerations for individuals and organisations

With strict Workplace Health and Safety (WHS) legislation and severe penalties, including up to life imprisonment for industrial manslaughter offences, the potential implications for both individuals and organisations involved in serious workplace incidents are significant.

The rapidly evolving landscape of WHS legislation and prohibition of insurance coverage is raising significant concerns among organisational leaders who fear potential personal liability for the increased penalties.

Given the potentially severe consequences, it is crucial for both individuals and organisations to thoroughly comprehend the scope of their insurance coverage regarding WHS offences, along with their existing WHS risk management protocols.

In this article, we delve into three critical concerns for directors regarding insurance policies that respond to breaches of state-based WHS legislation and discuss strategies for mitigating personal exposure to severe penalties.

1. New Legislation Prohibiting Insurance for WHS Fines

Last week, Queensland joined New South Wales, Victoria and Western Australia in enacting laws that prohibit employers from securing insurance to cover fines and penalties associated with WHS breaches.

The prohibition of insurance coverage for WHS penalties carries profound implications for directors, who are no longer able to rely on insurance for covering fines related to WHS violations.

While insurance coverage for fines related to WHS offences remains possible in South Australia, Tasmania, Northern Territory and the ACT, it is anticipated that these jurisdictions will likely enact similar legislation in alignment with the other states.

This shift underscores the increasing emphasis on accountability and risk management in workplace safety practices across Australian jurisdictions.

2. Understanding Insurance Coverage: D&O vs. Statutory Liability

While insurance coverage for fines related to WHS offences is prohibited, the costs of defending the organisation or individual for a WHS offence remain insurable.

The two relevant insurance classes for covering costs associated with breaches of WHS legislation are Directors and Officers (D&O) insurance and statutory liability insurance.

D&O Insurance

D&O insurance is designed to cover insurable liabilities arising in respect of both civil and criminal proceedings brought against a director, officer, or, in some cases, an employee. This can also include alleged breaches of legislation.

Some D&O insurance covers can also provide defence costs cover in respect of an official investigation brought by a regulator where company personnel are legally compelled to attend.

In short, the policy is designed to protect an insured individual for insurable liabilities resulting from an official investigation and/or claim including criminal matters (until the insured person is proven guilty).

Statutory Liability Insurance

Statutory liability insurance is designed to cover both the entity and directors and officers for insurable liabilities arising from alleged breaches of legislation only, which may include violation of WHS laws and regulations.

Both D&O insurance and statutory liability insurance play crucial roles in providing defence cost coverage when an insured is prosecuted or involved in an official investigation.

However, insurers retain the right to seek reimbursement of costs if it is determined that the insured's conduct involved gross negligence or wilful misconduct.

While organisations with robust balance sheets might contemplate the necessity of statutory liability insurance, recognising their financial capacity to handle liabilities, others may acknowledge the importance of having insurance, separate to D&O insurance, for the corporation specifically tailored to address legislative breaches.

This underscores the nuanced risk management strategies that organisations must carefully navigate to ensure comprehensive coverage and effective protection against potential liabilities for WHS offences.

3. The Importance of Timely Notification of Claims and Circumstances

Timely notification of claims and circumstances is critical to ensure that the insured’s right to cover is preserved in the event of a claim.

Organisations are obligated to promptly inform their insurer of any incidents or events that could lead to future claims.

Both D&O and statutory liability insurances operate on a “claims made and notified" basis which requires notification of a claim during the policy period in which the claim was made against an insured.

Delays or failure to promptly report WHS incidents or potential claims may jeopardise an insured’s right to cover, exposing directors or the organisation to substantial financial liabilities.

This scenario can be particularly relevant if an organisation has changed insurers between the date of the incident and the date of notification.

To protect the right to insurance cover, directors should:

  • Proactively address claim matters as they arise and anticipate circumstances that could lead to future claims, ensuring timely notification within the policy period;

  • When responding to or investigating a workplace incident, consider whether notification to the D&O or statutory liability insurer is also necessary in case there has been a potential breach of WHS legislation; and

  • Fulfill pre-contractual obligations to disclose any relevant matters to the insurer, typically outlined in a proposal or application form.

The above considerations underscore the importance for organisations to collaborate closely with their insurance broker on WHS matters.

Guidance to Directors for Reducing the Risk for WHS Breaches

There is one clear way for directors and officers to prevent serious workplace incidents and reduce the risk of potential fines or imprisonment; exercising due diligence.

Formal due diligence obligations are in place across all Australian states and territories (excluding Victoria, although there are similar requirements in that state).

These obligations mandate that directors and officers diligently ensure their business adheres to its WHS obligations.

However, irrespective of your location, adherence to these obligations will support directors and officers to ensure workplaces under their control are safe and without risks to health.

Implementing due diligence involves several key actions:

  • To acquire and keep up to date knowledge of WHS matters

  • Directors gaining an understanding of the nature of the business’ operations and generally the hazards and risks associated with those operations

  • Ensuring the business has and uses appropriate resources and processes to manage risks

  • Ensuring the business has and uses appropriate processes for managing and responding to incidents, hazards and risks

  • Ensuring the business has and implements processes for complying with the requirements of the relevant WHS Act

  • Verifying (reviewing or auditing) the processes for management of WHS are in place and effective

By maintaining a proactive approach to WHS compliance and continuously improving safety measures, directors can significantly reduce the likelihood of serious workplace incidents and the associated legal and financial repercussions.

For more information

Lockton specialises in assisting organisations and individual directors in navigating WHS risks and insurance implications.

From implementing effective risk management processes to developing tailored insurance programs, Lockton can provide comprehensive support to mitigate WHS-related liabilities.

For inquiries concerning WHS Risk Management, please contact Kristy Nicholson, and for information regarding insurance coverage for WHS offences, reach out to John Muir.

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. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. 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.