On 29 October 2014, former Chief Justice Carmody of the Queensland Supreme Court handed down the much anticipated decision in Byrne v People Resourcing (Qld) Pty Ltd [2014] 2 QdR 397.
In that case, a labour hire employer contractually indemnified a principal contractor in relation to claims for damages for personal injuries by workers injured during the course of a construction project. The parties to the claim did not contest the validity of the contractual indemnity – it was conceded that the indemnity was effective. Rather, the litigation concerned whether WorkCover Queensland, as the workers’ compensation insurer of the labour hire employer, was obliged to cover the purely contractual claim by the principal contractor against its insured.
In that regard, section 8 of the Workers’ Compensation & Rehabilitation Act 2003 (WCRA) obliged WorkCover Queensland to indemnify the labour hire employer against all amounts for which the employer may become legally liable, for injury sustained by a worker employed by the employer for damages.
Carmody CJ held that WorkCover Queensland was liable to indemnify the labour hire employer in respect of its in solidum (joint and several) legal liability to pay damages to the worker, including any indemnity due to the principal. In solidum liability extended to damages for which the labour hire employer was liable to pay the worker under the WCRA. The effect of the decision in Byrne was that WorkCover Queensland was thereafter obliged to indemnify employers for contractual liability to third parties to the extent of the employer’s in solidum liability to the worker under the WCRA. The indemnity did not extend to damages and costs for which the employer was not liable under the WCRA (such as gratuitous care and claimant’s costs). Therefore, whilst the contractual indemnity may still have been effective in requiring the employer to indemnify the principal for “non WCRA” damages and costs, WorkCover was not obliged to indemnify the employer for these amounts.
The decision in Byrne has, in the writer’s experience, led to an increase in claims proceeding to litigation rather than resolving in the pre proceedings phase. The contest usually concerns whether the contractual indemnity extended by an employer is valid and effective in obliging the employer to indemnify other parties for their own negligence.
Yesterday, the Workers’ Compensation & Rehabilitation (National Injury Insurance Scheme) Amendment Bill 2016 was introduced into Parliament. The Bill is intended to amend the WCRA and largely concerns the introduction of the National Injury Insurance Scheme to workplace injuries suffered from 1 July 2016.
The Bill otherwise proposes to reverse the impact of the decision in Byrne for insurers, including WorkCover Queensland. Firstly, the Bill amends the section 10 definition of damages to include subsection 4 as follows:
Further, a reference in subsection (1) to the 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 the other person’s legal liability to pay damages to the worker for the injury.
Therefore, the insurer is not obliged pursuant to section 8 of the WCRA to indemnify employers for contractual indemnities extended to other parties.
The Bill also contains at section 236B a provision which relates to contribution claims by WorkCover Queensland. The section provides as follows:
Liability of contributors
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.
The agreement does not prevent the insurer from adding the other person as a contributor under section 278A in relation to the employer’s liability or the insurer’s liability for the worker’s injury.
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.
In this section—
damages includes damages under a legal liability existing independently of this Act, whether or not within the meaning of section 10.
This proposed section preserves the right of WorkCover Queensland to bring a contribution claim against a party that an employer has contractually indemnified. It prevents the other party from relying on the contractual indemnity to claim indemnity from the employer in relation to WorkCover’s Queensland’s contribution claim against it. The contractual indemnity may not be voided in the event a claim is made by the worker against the other party and the other party claims indemnity directly from the employer (although pursuant to sections 8 and 10, WorkCover will no longer be obliged to indemnify the employer for that purely contractual claim).
The Bill has been referred to a Parliamentary Committee for review and a report back to Parliament and may yet undergo some changes. Watch this space for any further developments.
For further information or discussion about this or similar cases, please contact our Insurance & Risk team.