Contractual Indemnities to Come Into Sharper Focus
An apparent anomaly created by the recent changes to Queensland’s Workers’ Compensation laws may lead to contractual indemnities taking on greater importance to non-employers and increased litigation regarding their terms.
On 1 July 2010 significant reforms changed the way in which Qld workers’ compensation claims are managed. The Workers’ Compensation and Rehabilitation and Other Legislation Amendment Act (WCRA Amendment Act) has provided employers with the benefit of the restrictions on the assessment of damages (including injury scale values or ISV's for general damages) currently enjoyed by non-employers under the Civil Liability Act 2003 (CLA).
Unfortunately for non-employer defendants, section 5 of the CLA (which provides for the circumstances when the CLA does not apply) was not also amended. Workers’ compensation claims are still excluded.
This leads to an unusual situation in injury claims where both the claimant’s employer and a non-employer defendant are pursued.
When it comes to assessing an injured claimant’s damages in these types of claims, the employer now has the benefit of the new restrictions on the assessment of damages. In addition to it’s previous (virtual) immunity from paying damages for care and costs, WorkCover can also limit it’s exposure to general damages by virtue of its new ISV scale.
But the non-employer respondent does not get this same advantage. It is still exposed to an award based on the higher damages assessed at common law, as well as damages for care and costs.
The legislation therefore widens the gap between the type and level of damages each party may ultimately pay. Commentators* have already started to suggest that this discrepancy will be a significant incentive for claimants to pursue only non-employer defendants in such cases, as they will get higher general damages, care and costs from those parties.
Given the Qld decision in Bonser v Melnacis restricting the joinder of an employer in negligence when it is not pursued by the worker, non-employer defendants and their insurers are potentially more exposed as a result of these amendments.
An insistence upon and enforcement of contractual indemnities given by employers may be one way in which non-employers and their insurers can reduce their exposure to these types of claims. Whilst Bonser does not restrict a non-employer from making a contribution claim against an injured worker's employer founded in contract, if the indemnity is not well drafted and is ambiguous in its terms, it may not afford the protection sought.
In the event that such an indemnity is pursued, it is likely WorkCover will maintain (as it now does) that the contractual losses that flow are not covered by it. Those losses are also usually excluded by most liability policies. An increase in uninsured claims being shouldered by employers is therefore on the cards.
Whilst the Bar Association of Queensland has recently written to the Attorney General drawing attention to this unusual situation, the legislation as it stands is now currently in force. Risk managers should look closely at their documentation to ensure these exposures are minimised and review their claims reserves accordingly.
[*Paper delivered by K F Holyoak, Barrister-at-law, July 2010]
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Reforms
On 1 July 2010 significant reforms changed the way in which Qld workers’ compensation claims are managed. The Workers’ Compensation and Rehabilitation and Other Legislation Amendment Act (WCRA Amendment Act) has provided employers with the benefit of the restrictions on the assessment of damages (including injury scale values or ISV's for general damages) currently enjoyed by non-employers under the Civil Liability Act 2003 (CLA).
Unfortunately for non-employer defendants, section 5 of the CLA (which provides for the circumstances when the CLA does not apply) was not also amended. Workers’ compensation claims are still excluded.
This leads to an unusual situation in injury claims where both the claimant’s employer and a non-employer defendant are pursued.
Consequences for Non-employers
When it comes to assessing an injured claimant’s damages in these types of claims, the employer now has the benefit of the new restrictions on the assessment of damages. In addition to it’s previous (virtual) immunity from paying damages for care and costs, WorkCover can also limit it’s exposure to general damages by virtue of its new ISV scale.
But the non-employer respondent does not get this same advantage. It is still exposed to an award based on the higher damages assessed at common law, as well as damages for care and costs.
The legislation therefore widens the gap between the type and level of damages each party may ultimately pay. Commentators* have already started to suggest that this discrepancy will be a significant incentive for claimants to pursue only non-employer defendants in such cases, as they will get higher general damages, care and costs from those parties.
Given the Qld decision in Bonser v Melnacis restricting the joinder of an employer in negligence when it is not pursued by the worker, non-employer defendants and their insurers are potentially more exposed as a result of these amendments.
Contractual Indemnities
An insistence upon and enforcement of contractual indemnities given by employers may be one way in which non-employers and their insurers can reduce their exposure to these types of claims. Whilst Bonser does not restrict a non-employer from making a contribution claim against an injured worker's employer founded in contract, if the indemnity is not well drafted and is ambiguous in its terms, it may not afford the protection sought.
In the event that such an indemnity is pursued, it is likely WorkCover will maintain (as it now does) that the contractual losses that flow are not covered by it. Those losses are also usually excluded by most liability policies. An increase in uninsured claims being shouldered by employers is therefore on the cards.
Whilst the Bar Association of Queensland has recently written to the Attorney General drawing attention to this unusual situation, the legislation as it stands is now currently in force. Risk managers should look closely at their documentation to ensure these exposures are minimised and review their claims reserves accordingly.
[*Paper delivered by K F Holyoak, Barrister-at-law, July 2010]
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