Insurers prohibited from indemnifying for work health and safety penalties in Victoria

On 16 September 2021, the Victorian Parliament enacted the Occupational Health and Safety and Other Legislation Amendment Act 2021 (OHS Amendment Act). Relevantly, the OHS Amendment Act amended the existing Victorian safety legislation, the Occupational Health and Safety Act 2004 (VIC) (OHS Act), to prohibit the insuring or indemnifying of a person for a fine (pecuniary penalty) for a Victorian safety offence, and provide stronger protections for labour hire workers. These changes are consistent with the national movement towards strengthening work, health and safety (WHS) protections in the workplace and deterring non-compliance with WHS obligations.

Prohibition on insuring against fines for safety offences

Importantly, insurers are prohibited from insuring a person for their personal liability to pay a pecuniary penalty under the OHS Act (or the associated regulations) and other legislation.

In particular:

1 a term of a contract or arrangement that purports to insure or indemnify a person (in whole or in part) for the person’s liability to pay a pecuniary penalty under the OHS Act or regulations is now void in Victoria as of 22 September 2021 (under the new section 148A of the OHS Act); and

2 an offence was created for parties to enter into, or offer, a contract indemnifying liability for a pecuniary penalty under the OHS Act or regulations (under the new section 148B of the OHS Act) (Prohibition). The Prohibition prevents a person from entering into the contract indemnifying their own liability, or the liability of another person (which would capture, for example, a director insured under the company’s insurance policy). There is an exception to the Prohibition if the person has a “reasonable excuse” for entering into, offering, or being a party to the contract.

The Prohibition came into effect on 21 September 2022. The OHS Amendment Act provides insurers and their insureds 12 months to amend contract terms which insure or indemnify payment of a pecuniary penalty under the OHS Act.

Failing to comply with the Prohibition attracts penalty units of 300 for a person (currently $54,522) and 1500 penalty units for a body corporate (currently $272,610).

Similar amendments have operated in New South Wales since 10 June 2020, when the Work Health and Safety Act 2011 (NSW) was amended to prohibit insurers from contracting or entering into an arrangement which covered liability for a monetary penalty. The maximum penalties for failing to comply in New South Wales are:

1 250 penalty units for an individual (currently $27,500) or 1,250 penalty units for a body corporate (currently $137,500) for entering into such a contract; and

2 500 penalty units for an individual (currently $$55,000) or 2,500 penalty units (currently $275,000) for providing or taking the benefit from such insurance or indemnity.

Implications for employers and insurers

The OHS Amendment Act places the onus on Victoria’s employers to be wholly responsible for WHS penalties, with a view to increasing accountability and compliance with WHS measures.

Barely a week after these provisions came into effect, WorkSafe Victoria charged the Victorian Department of Health with 58 offences under the OHS Act in relation to Victoria's initial hotel quarantine program (each charge carrying a maximum penalty of $1.64 million).[1] This demonstrates the significant risk that employers face in relation to WHS contraventions, and the deterrent effect if employers and individual duty holders are forced to pay for these penalties out of their own pocket. 

Insurers and employers will need to update their contractual terms to avoid substantial penalties for breaching the Prohibition. Further, we expect these amendments will reduce the scope of cover available under existing policies given the immediate operation of section 148A of the OHS Act to render terms void. Employers and insurers are encouraged to seek advice about implications for coverage, should concerns arise in light of these amendments.

Implications of the new labour hire obligations for employers

The OHS Amendment Act has incorporated labour hire workers into the definitions of ‘employer’ and ‘employee’, meaning host employers are now deemed to be employers of labour hire workers for the purpose of WHS. The OHS Amendment Act also mandates that WHS responsibilities must be shared between employers and labour hire service providers, obliging them to co-operate, co-ordinate and to consult with other employers over duties relating to the same labour hire workers.

From 22 March 2022, non-compliance with these new labour hire obligations will attract maximum penalties of 180 penalty units for a person ($32,713) or 900 penalty units for a body corporate ($163,566).

Action needed by employers

With increasing scrutiny on employers over safety protections, which has only intensified in response to the COVID-19 pandemic, this legislative reform is further evidence that employers and host employers will be unable to sit back and allow labour hire workers to ‘fall through the cracks’. Employers and host employers must work together, consult and review their respective safety measures to ensure that labour hire workers are protected.




Read other items in the Australian Insurance Brief - December 2021