The most significant recent development in statutory liability insurance has been the rising costs of reparation payments made to victims following health and safety prosecutions, says Adrian Tulloch, managing director of Vero Liability Insurance.
Paying reparations to victims has been a routine part of sentencing in health and safety cases for many years. The payments help to compensate the victim for the emotional harm resulting from a work accident as well as any further losses arising as a consequence of emotional or physical harm.
Reparations awarded for emotional harm have been steadily rising. It is now common to see payments of $110,000 or more ordered if a person is killed at work. Ten years ago, this figure was likely to be around $60,000.
But it is the orders of reparations for consequential losses that have led to the most significant increases over recent years and the biggest impact for insurers.
“The increases can be traced back to the Sentencing Amendment Act 2014 which allowed the Courts to order reparations to top up the 20% of a person’s earnings not covered by ACC income compensation payments,” Tulloch said.
“This opened the door to much larger reparation payments.”
In 2017, in the first case of its kind, the court ordered that a 27-year old victim, who sustained tetraplegia from a work accident, be compensated for the 20% shortfall in his ACC compensation up until he was 65 years old.
The court discounted the total top up amount, which was based on an actuarial calculation, by 50% after observing that the victim had “benefitted” from ACC in other ways. Despite this, the reparations still amounted to $226,300 and, along with reparations for emotional harm of $110,000, the victim was awarded $336,300 in total.
A few months later, a 52-year-old victim who sustained severe and permanent spinal injuries in a fall at work, was awarded reparations of $76,940 to bridge the 20% ACC income gap until he retired. On this occasion, the court applied a significantly lesser discount of 15% for the benefit brought by ACC. In addition, $100,000 was ordered for emotional harm.
The highest payment to victims to date came in 2018 when Oceana Gold (New Zealand) paid over $1 million to a deceased worker’s family. This included $660,000 which was voluntarily paid by the company before sentencing, and a further $350,000 ordered by the court to bridge the gap between ACC income compensation and what the worker’s income would otherwise have been. On appeal, the High Court set aside the additional order for $350,000 and directed that reparations should be based on Schedule 1 of the ACC Act.
Where does this leave businesses?
“Thanks to the High Court decision, there is now more clarity around reparation payments. Nonetheless, businesses can still expect to face large payouts, especially when victims are young and suffer severe and permanent disability,” Tulloch said.
The good news is that health and safety reparations are fully insurable – although Tulloch adds a note of caution.
“Brokers need to consider whether their client’s policy has an adequate limit of indemnity to cover what may be large reparation orders as well as substantial fees for legal representation and orders for regulator costs.”
“Added to this, if several or many people could be injured in one event like an explosion or structure collapse, the limit will need to factor in the potential for multiple reparation orders.
“For our part, Vero Liability has recognised the growing cost and complexity of health and safety claims by employing a specialist consultant. Jane Birdsall joined us in July last year after ten years with WorkSafe to help brokers understand and keep up with developments in this area.”