By Simon Booth

Are you really saving money when you decide you don’t need certain policies?

Workers’ Compensation is a compulsory insurance. Businesses that employ must have this in place and can face hefty fines and penalties and even the wear the full cost of claims if they fail to incept a policy.

However, there are many lines of insurance relating to the risk around Workers’ Compensation that are important in protecting a business that businesses elect not to take out.

I have dealt with a number of clients that have had fatalities and/or serious injuries in their workplaces, and did not have the appropriate policy in place to respond to the resulting fines and legal costs.

My experience with companies in this situation is they did not take out the appropriate cover for one or two reasons:

1. They didn’t want to spend the money. No matter how expensive you think your policy is, it will generally be significantly cheaper than the lawyer you engage.
2. They didn’t think it would ever happen to them.
   

Two areas of insurance that are closely linked with Workers’ Compensation and often neglected by businesses are Statutory Liability and Public Liability. These are areas of insurance that I strongly suggest all business discuss with their insurance brokers to ensure they understand how they respond to address potentially crippling costs.

Statutory liability

Statutory liability generally can be an extension of your Management Liability policy or as an additional extension under some business policies or could be purchased as a standalone Statutory Liability policy. It will respond to cover your legal costs and some fines in the event of prosecution by a Regulatory Authority.

A foundry was recently convicted and fined $650,000 following the 2014 death of one of its workers. If they had the appropriate policy in place, it would respond to the cost of the fine and what I can only imagine would have been a quite substantial legal bill.

There are also numerous occasions where businesses have successfully defended Regulatory prosecutions, however to achieve this they have spent hundreds of thousands of dollars on legal fees.

Public liability

In relation to Workers’ Compensation, a Public Liability policy will generally respond in two ways:

1. Depending on the state in which you operate, either the Regulator or insurers have the right to recover costs of claims from third parties they feel were responsible for or contributed to the injury. An appropriate Public Liability policy will respond to any recovery awarded against you and legal fees associated with defending the recovery.
2. If a contractor or labour hire employee (for example) is injured on your site, they may tie your business into their common law proceedings. As they are not your worker, your Workers’ Compensation policy will not respond to these proceedings. An appropriate Public Liability policy will respond to any damages awarded against you and legal fees associated with defending the claim.

Despite the significant exposure in this area, I have seen a number of businesses that use labour hire who have elected to not take out a Public Liability policy. Due to multiple recovery actions by WorkSafe, these businesses had to find hundreds of thousands and sometimes millions of dollars to cover the costs of these recoveries.

Some things to be aware of when you’re looking at your public liability cover:

• You must declare to the insurer that you’re using labour hire. Make sure your insurance broker is aware of the fact that you engage with labour hire organisations and the amount paid to such companies. 

• Labour hire may be excluded. Labour hire might exist as a general exclusion in your policy. This means that you may have a policy in place but it’s actually not going to respond if someone from a labour hire organisation is injured.

• It will have a higher excess ($25K and above). Be aware that if you do have labour hire covered, you’ll find that it’s generally a higher excess. The excess could be $25K or it could be up to a $100K. So you might have some cover but if WorkSafe is recovering $150K, two thirds of that might be coming out of your pocket and not out of your policy.

Both Management Liability and Public Liability will respond in a significant number of areas not related to Workers’ Compensation. As always, I encourage all businesses to work with, and take the advice of, a suitably experienced Insurance Broker to ensure that their businesses are adequately insured. Before you elect not to take out certain insurance policies, you need to think about the risks facing your business, where the gaps in your insurance cover might be, and how your business will cover and fund any uninsured liabilities. 

Disclaimer: This article provides general advice and should not be considered legal advice or an insurance consultation. You should seek appropriate counsel for your own situation. In addition, this post is directed at people in Australia. If you are outside Australia, please be aware that the circumstances in your own country may be different.

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