NEXT: Prohibition on work health and safety insurance

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This article was written by Andrew Gray and Angela Weber.

Insuring against fines for breaches of work health and safety law is now unlawful in New South Wales. Other jurisdictions are expected to follow suit, meaning companies should review any such policies they hold, and sharpen their focus on WHS risk management to avoid exposure to fines.

Insurance has always played an essential role in business. By insulating a company and its officers against loss, insurance helps businesses manage the risks necessary for economic success. Below, we explain how evolving workplace safety and community expectations have led New South Wales to ban work health and safety (WHS) insurance.

Just like other risk classes, many companies have sought to manage work health and safety compliance risks with insurance policies. Whilst there has always been some doubt about the enforceability of these contracts of insurance, they are now unlawful in NSW.  Other jurisdictions are anticipated to follow suit. Western Australia has introduced similar amendments, and the bill has been referred to the Standing Committee on Legislation.

Amendments to the Work Health and Safety Act 2011 (NSW) introduced into the NSW parliament last year make it an offence for a person to enter into, provide, or benefit from insurance or indemnity arrangements for liability for a monetary penalty (i.e. a fine) for a WHS offence.

An issue ripe for reform

The enforceability of WHS insurance policies have long been questioned.  Courts have long held that it is not possible to insure against criminal conduct. Under these principles, WHS policies (which insure against criminal liability arising from statutory duties) are arguably invalid and therefore unenforceable.


One of the primary purposes of statutory penalties is deterrence. The theory is that an individual or company personally penalised for their actions should be less likely to re-offend, and the penalty also serves to indicate to others the consequences that flow from such conduct, thereby dissuading them from committing similar breaches. By allowing insurers to step in and bear the burden of any monetary penalty imposed, it is arguable that deterrence is eroded.  Indemnification for WHS fines removes the incentive for the offender (and others) to change their ways.

For the intention behind WHS law to be realised, criminal penalties need to be levied on the person on whom they have been imposed. This reform seeks to foster a more robust work health and safety culture by holding those responsible for breaches of WHS duties – whether individuals or corporations – to personal account. While WHS law typically prohibits the contracting out of obligations, it is unclear whether obtaining indemnity for monetary penalties would be a contravention of that provision.

Consideration of WHS insurance by the Courts

Despite the principle set out above –
that insurance policies designed to avoid the payment of criminal penalties are void against public policy – insurers have continued to offer them. A 2018 review of the model WHS laws commissioned by Safe Work Australia (Boland Review) observed that Courts have been willing to uphold insurance contracts in relation to penalties for strict liability offences or offences that do not involve wilful or dishonest conduct.

To date, the issue has not been conclusively determined by the Courts and there are legal and commercial realities which explain this.  When sentencing for breaches of WHS duties, a Court does not generally have jurisdiction to intervene in the contractual relationship between the accused company or individual and their insurer (a third party not involved in the litigation).  For the issue to be directly examined, a Court would need to be asked to determine the enforceability of the contract of insurance. But that would require an insurer to decline indemnity on the grounds of illegality. Insurers generally would not be motivated to do this, as they want to continue to sell this type of insurance.  Also, to decline indemnity on this basis may expose an insurer to claims for misleading and deceptive conduct.

Notwithstanding there have been no cases directly challenging the enforceability of WHS insurance, the issue has drawn judicial comment in the context of sentencing.  In a 2013 decision of the South Australian Industrial Relations Commission, the Court declined to discount its sentence on account of the company's early guilty plea and remorse. The Court considered the WHS insurance to be completely at odds with the company asserting it had genuinely accepted the legal consequences of its conduct.[1]

However, Courts in other jurisdictions have not necessarily adopted this approach.  In a recent NSW decision, the Court was told by the prosecution that both the company and its sole director (both charged with breaches of WHS duties) were indemnified against any fine imposed.  The prosecution argued that the existence of the insurance policy contradicted any submission that the defendants were remorseful and accepting of the consequences of the offending. In sentencing, the Court agreed that the insurance policy was relevant to the defendants' capacity to pay their fines.  But the Court did not accept the submission as it related to remorse, finding instead that the existence of the insurance policies was a neutral factor. Further, the Court considered that the insurance policy did not affect the public denouncement of the offending, and the recognition of harm to the victims, which was signified by the conviction.[2]

Boland Review recommends blanket prohibition

The prevalence of WHS insurance policies has left policymakers and industry stakeholders concerned about the deterrent power of WHS laws becoming diluted. The Safe Work Australia review of the model WHS laws (conducted by Marie Boland and published in February 2019) said that stakeholders who were consulted overwhelmingly supported a legislative response to this issue.

The Boland Review duly recommended that insurance for WHS fines be prohibited by making it an offence to enter into a contract of insurance or other arrangement under which a person is covered for liability for a monetary penalty under the model WHS laws.  It also recommended that insurers be prevented from offering insurance or granting indemnity for liability. According to the Boland Review, these amendments would facilitate compliance with the model laws by ensuring that the deterrent effect of monetary penalties is not blunted by insurance coverage.

The NSW parliament has been the first to act to give legislative effect to this recommendation. A Bill which has been passed by the NSW Legislative Council creates three new offences:

  1. without reasonable excuse, entering into an insurance contract or other arrangement which covers a person for liability for a monetary penalty under the WHS Act;
  2. providing insurance or granting indemnity for liability for a monetary penalty under the WHS Act; and
  3. benefiting from an insurance contract, other arrangement or grant of indemnity, for liability for a monetary penalty under the WHS Act.

The amendments also make officers of a body corporate liable for offences committed by the body corporate. The parameters of the phrase 'without reasonable excuse' are unclear – this is not defined in either the Bill or the explanatory note.

The laws will not apply to contracts of insurance entered into before their commencement. Further, it is important to note that the laws will not prevent a person being indemnified for the legal costs of defending a WHS prosecution or investigation.

What next?

NSW companies and their officers need to ensure that policies offering indemnity for WHS fines are not renewed and that no new policies are entered into. It is also necessary for a watchful eye to be kept on the status of this reform in other states and territories. 

As a risk class that can no longer be covered by insurance (at least in NSW), now more than ever it is critical for businesses to take a proactive risk management approach to WHS duties.  Given also that this reform is occurring at a time when penalties for WHS breaches are on the increase, companies and officers should take the opportunity to review their duties to ensure that WHS risk is prioritised and well-managed.

[1] Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22

[2] SafeWork NSW v Macquarie Milling Co Pty Limited; SafeWork NSW v Samuels [2019] NSWDC 111

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