Queensland WorkCover amendments to render contractual indemnities void

Litigation Update


It is a serious matter to interfere with the rights of parties to agree between themselves to whatever contractual terms they chose. There is currently a Bill before the Queensland parliament [1] proposing a significant change to the way businesses are allowed to contract with each other and allocate risk for injury to workers.  If passed into law, the Bill will render void and unenforceable, certain contractual clauses where an employer, effectively indemnifies another entity against contribution claims the employer might otherwise have had for damages for injury to a worker.  It is doubtful the full ramifications of this proposal have been adequately considered.

The utility of the reform is questionable and has the potential to cause great uncertainty and dispute.  Parties who think they have agreed on certain carefully crafted or well understood terms may find the validity of those terms stripped or challenged.  Insurance arrangements placed on the basis of agreed risk allocations may prove inadequate or erroneous, causing overlap or gaps in cover, increased premiums and increased litigation. Is this aspect of the reform necessary, economically sound and wise?

The relevant sections of the bill stem from the recent judgement in Byrne v People Resourcing (Qld) Pty Ltd & Anor [2]. Byrne confirmed a long line of court authority that if WorkCover is liable directly to the claimant in negligence or contract, then it must pick up and indemnify all related liabilities of the employer.  Therefore contractual variations of the employer's negligence liability that alter contribution apportionments between defendants will still be indemnified by WorkCover.

Understandably WorkCover Queensland takes issue with insuring this additional contractual liability.  It's premiums are not based on a careful review of all contractual risk allocation arrangements and it is effectively funding its insured's contractual concessions out of its own coffers. 

Clause 5 of the Bill effectively rectifies this by amending section 10 of the Queensland Workers Compensation legislation[3]  such that the WorkCover indemnified liability of an employer does not include a liability to pay damages, for injury sustained by a worker, arising from an indemnity granted by the employer to another person for their legal liability to pay damages to the worker for the injury.  This amendment alone seems to redress the salient problem.

However at clause 31 of the Bill, the following more alarming reform is proposed:-

  • s. 236B Liability of contributors
    • (1) This section applies to an agreement between an employer and another person under which the employer indemnifies the other person for any legal liability of the person to pay damages for injury sustained by a worker.
    • (3) The agreement is void to the extent it provides for the employer, or has the effect of requiring the employer, to indemnify the other person for any contribution claim made by the insurer against the other person. (emphasis added)

The explanatory comments to the Bill say:-

  • The Bill amends the Act to restore the original policy intent and intended interpretation of various provisions that have been or could be called into question by various recent Queensland court decisions, to provide certainty for insurers, employers, workers and the courts.
  • The Bill reverses the effect of the judgement in Byrne v People Resourcing (Qld) Pty Ltd & Anor [2014] QSC 269 by prohibiting the contractual transfer of liability for injury costs from principal contractors or host employers to employers with a workers’ compensation insurance policy (such as subcontractors or labour hire employers) and providing that an insurer is not liable to indemnify an employer for a liability to pay damages incurred by a third party contractor under a contractual arrangement.

However in reality the Bill in its full form does far more than reverse the decision in Byrne and in doing so creates significant uncertainties of a different kind. Byrne in no way altered contractual arrangements agreed between parties, it simply confirmed where the insurance indemnity rights lay in respect of those arrangements.

The proposed clause 31 does not simply seek to limit the scope of the WorkCover indemnity to what the employer's liability would have been, untampered with by contract.  It seeks to render void any contractual terms that effectively pass the burden of liability for an injury claim between contracting parties.  Precisely what type of clause might be construed to have this effect is not further clarified, but has the potential to be far reaching.  Often the contractual terms for allocation of risk and responsibility themselves are an important factor in assessing the duty of care of each party.  The potential for wide scale extended dispute on the application of this proposed amendment is high.

If passed into law, clause 31 will limit free contractual negotiations between parties and in an insidious way, such that common and well worded clauses are suddenly ineffective, possibly unbeknownst to one or all of the parties.  This can dramatically alter the risk allocation agreed between the parties, that has been carefully underpinned by contract costing and pricing and appropriately scoped and funded insurance arrangements. 

It is far from clear why the Bill needs to go this far, and greatly complicate and confuse the ordinary course of contractual arrangements between parties.  WorkCover limiting the scope of its indemnity would seem enough. 

The section 10 amendments alone seem a sensible and adequate response, but nonetheless will have ramifications for employers to make sure they have gap cover in place for the contraction of WorkCover's indemnity.  Careful consideration of the Workers Compensation exclusion clauses in liability insurance policies with the possible need for endorsements or modifications to cover any gaps will be required.

It remains to be seen if all of the Bill will pass.  In the meantime interested parties might be well served to communicate submissions on the proposed Bill to the relevant parliamentary review committee through appropriate channels.

[1] The Workers' Compensation & Rehabilitation (National Injury Insurance Scheme) Amendment Bill 2016 (‘The Bill”) was introduced into Parliament on 14 June 2016
[2] [2014] QSC 269
[3] Workers’ Compensation and Rehabilitation Act 2003