Australia: WorkCover Qld required to indemnify employer in third party contractual claim

A decision in Queensland about workers' compensation has raised questions about an employer's ability to obtain indemnity from WorkCover Queensland under the Workers' Compensation and Rehabilitation Act 2003 (WCRA) for contractual claims.

In Byrne v People Resourcing (Qld) Pty Ltd & Anor, the employer sought and won indemnity from WorkCover Queensland for a claim for contractual indemnity by a third party (in this case, a host employer) noting that in the previous case of Bonser v Melnacis [2000] QCA 013 the Queensland Court of Appeal restricted the joinder of an employer in negligence, where an injured worker is precluded from claiming common law damages from an employer.

The decision that WorkCover is required to extend indemnity to an employer for any liability in contract to a co-tortfeasor has the potential to shift the burden for such claims from public liability insurers to WorkCover—at least in the short-term. Some uncertainty remains about the impact of the decision in Bonser v Melnacis on claims where the worker's impairment is assessed as less than 6% and the injury is sustained on or after 15 October 2013.

The Byrne decision has not been appealed but the Queensland Government has announced a stakeholder reference group to investigate the reinstatement of common law rights for injured workers under the WCRA, which may include abolition of the 5% WPI threshold and may address this decision.

Byrne v People Resourcing (Qld) Pty Ltd & Anor

People Resourcing was liable to pay damages on two bases:

  • in negligence, as a tortfeasor under s 6(c) of the Law Reform Act 1995, and
  • under a contractual agreement that sought to adjust the common law apportionment of liability between People Resourcing and the host employer, Thiess John Holland.

The Court didn't need to consider the enforceability of the indemnity clause contained in the contract of services entered into between the parties.

WorkCover's argument

WorkCover argued the statutory policy of insurance under the WCRA didn't extend to indemnify the employer beyond its liability in negligence. This was on the basis that the employer's liability to the host employer represented an outstanding liability as a contract debtor, rather than a liability to the plaintiff worker.

Employer's argument

The employer argued WorkCover was required to indemnify it for any damages payable to the host employer under the contractual indemnity, as the employer's common law liability to the worker as a co-tortfeasor, is for the full measure of the damages.

The employer further argued that its legal liability to pay damages (under the consent judgment reached with the worker) was to the worker for injury and that therefore the WorkCover policy extended to the liability.

Judgment

In his reasoning, Carmody CJ considered a trilogy of cases in favour of the workers' compensation insurer not being liable to indemnify an employer's contractual indemnity: Nigel Watts Fashion Agencies Pty Ltd v GIO General Insurance Ltd, Multiplex Constructions Pty Ltd v Irving and Ors and Gordian Runoff Ltd v Heyday Group Ltd.

His Honour concluded, however, that the Court was bound by strong High Court opinion in State Government Insurance Office (Queensland) v Brisbane Stevedoring Pty Ltd.

In the Brisbane Stevedoring case, the High Court considered wording in the workers' compensation insurance policy, which applied the indemnity to damages "in respect of" the worker's injury.

The current wording in s 8 and s 10 of the WCRA applies the policy to damages for which an employer becomes liable to pay "to" a worker "for", rather than "in respect of", an injury. WorkCover argued that the wording considered in the Brisbane Stevedoring case had a "wider import" in the context of injury insurance.

His Honour held that the decision in Brisbane Stevedoring was binding and must be applied to the facts of the case. He confirmed that Brisbane Stevedoring is authority in that a negligent employer in People Resourcing's position incurs liability for the full amount of a judgment, either by direct payment to the worker or indirectly via reimbursement of an indemnified co-tortfeasor.

It was held that the host employer's right to recoup the contractual indemnity was a legal liability to pay damages and that WorkCover must consequently meet this.

Bonser v Melnacis and the WorkCover threshold

The Queensland Government amended the WCRA in October 2013 by introducing a common law threshold for injured workers' entitlements to seek common law damages against an employer.

Workers are now also assessed for "Degree of Permanent Impairment" (DPI) rather than "Work Related Impairment" (WRI).

Section 237 of the WCRA provides that unless an injured worker is issued with a Notice of Assessment of 6% or greater for an injury, they are not entitled to commence a claim for damages against an employer.

The injured worker is still entitled to both statutory benefits and lump sum compensation in the event that the DPI is 5% or less. If an injured worker is issued with a Notice of Assessment of 5% or less, then the worker will be precluded from seeking damages against their employer regarding the injury. The worker will not, however, be prevented from seeking damages against a co-tortfeasor, such as a principal contractor, host employer or occupier.

In Bonser v Melnacis, the Queensland Court of Appeal restricted the joinder of an employer in negligence, where an injured worker is precluded from claiming common law damages from an employer.

This reasoning can be applied to circumstances where an injured worker cannot claim common law damages from an employer due to the worker being awarded a DPI of less than 6%.

For claims in negligence, third parties will be precluded from joining an employer to an action unless the injured worker has obtained a DPI of greater than 5%.

If, however, a contractual indemnity provision can be enforced against the employer, the employer may still have exposure in relation to the claim if the third party seeks to enforce the contractual indemnity against them.

If the reasoning in Byrne v People Resourcing is applied, WorkCover may now be required to indemnify an employer for a contractual indemnity claim, absent of any liability to pay damages to the injured worker.

It is noted that Nigel Watts and Multiplex considered matters where judgment hadn't been entered against the employer in favour of the worker. It is possible that the same reasoning could be applied to cases (where the principle in Bonser applies) and that a different conclusion from that in Byrne v People Resourcing could be reached.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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