Statutory liability insurance covers claims arising from a potential unintentional breach of a statute.
While the Health and Safety at Work Act is probably the most familiar example, claims arising from a range of statutes can be covered, including the Resource Management Act, the Fair Trading Act, Commerce Act, Animal Welfare Act and Medicines Act. Some policies will also respond to Health and Disability Commissioner complaints and investigations, commissions of inquiry, and inquests.
Breaches of the Crimes Act are not covered, nor is any activity that doesn’t form part of the insured’s normal business activities.
Policies indemnify against defence costs and reparation, but not necessarily fines arising from a prosecution. In fact, it’s illegal in New Zealand to insure fines under the Health and Safety at Work Act, but fines for breaches of the Resource Management Act can still be covered.
Wynn Williams partner Ellie Harrison recently told an Insurance Brokers Association of New Zealand (IBANZ) seminar that indemnifying fines is increasingly considered to send the wrong message, and she expects this area of cover to be further restricted over time as statutes come up for review. Interestingly, she noted that statutory liability cover is generally only found in Australasia and is not widely available elsewhere.
Covers usually indemnify the company or organisation and its directors, officers, and employees. Ellie says that in some cases contractors will also be covered. She highlights this as an important area to address at renewal time, suggesting organisations should either ensure their key contractors are named in the policy or insist that they provide their own liability cover.
Ellie suggests the old rule of thumb that $1 million of cover should be sufficient for most businesses is outdated and that most businesses should be considering coverage levels of $2 million or more.
Typically, statutory liability claims begin with an accidental breach of an Act or an accusation of a breach. Ellie emphasised the importance of early notification even if the client doesn’t believe they’ve done anything wrong. She suggested brokers should be reminding clients of the importance of early notification at policy renewal time.
Insurers generally consider the policy to be triggered when the insured party is called to an interview with an investigating authority or the authority makes a request for documents to be handed over. If an insurer is notified late, they could consider their position to have been prejudiced and potentially refuse cover.
Similarly, if the conduct being investigated is deliberate or reckless, the claim may be refused as cover is always for accidental loss. Recklessness is generally considered to be when the insured knew about a risk but went ahead anyway. A corporation can be considered to have knowledge or be reckless through the actions of its directors, managers or employees. Sometimes, this can also be through the actions of its contractors.
When it comes to mounting a defence, Ellie advised that regulatory prosecutions are often not defended as the regulator generally doesn’t have to prove intention, just that the breach happened. This means a guilty plea to a negotiated set of facts is often the most pragmatic option.
However, if the claim relates to the Health and Safety at Work Act, there is a possible alternative to prosecution known as enforceable undertakings. This is typically only available to organisations with a strong safety track record and where culpability is considered to be low.
Enforceable undertakings can encompass reparation and/or investment in health and safety education and improvements. The value needs to be at least equivalent to what the fine would have been if the company was prosecuted, and the agreement needs to be approved by Worksafe or via an application to the District Court.
