Two top legal minds have warned of the major implications from two law changes affecting the insurance industry, and have likened the impact to a ‘perfect storm’.
and Crossley Gates
, both partners at DLA Piper New Zealand, were appearing at this year’s Risk Rendezvous themed Changing Market Dynamics in Auckland.
The two pieces of legislation they discussed were the Health and Safety Reform Act 2015 and the Sentencing Amendment Act 2014.
One of the key changes emanating from the Health and Safety Reform Act is the change in personal responsibility for officers in business, Beadle said.
‘Officer’ has been defined as ‘a person occupying a position that allows them to exercise significant influence over the management of a business’.
“So in big organisations it may not be the directors of a company but regional, branch, country, or site managers,” he said. “Those people may fall into this officer definition.”
New exposures emanating from the change in legislation include the new duty on designers, manufacturers, importers, suppliers, installers and instructors and not just employers.
“There are all sorts of rules now about making sure we don’t inhibit Health & Safety at work which has given rise to new criminal offences,” Beadle said.
“And a big thing is a six fold increase in penalties.”
While fines cannot be insured, defence costs and awards compensation for victims can be insured, he said.
Beadle said with directors and officers having personal responsibility and broader duties it could change the course of courtroom proceedings.
“You’ve got these new offences, and huge new fines, so I think there will be a bit of a focus on whether people defend or plead guilty because, let’s face it, if the fine’s going to be $600,000 per person some people would say I’d rather roll the dice and go to trial.
“So there’s a big impact on the approach by insureds in terms of having cover under their policy.
“But that means that the policy is worth more so you can go out and sell more and charge more for it because at the moment I think it just gets chucked in.”
Gates went into detail about the Sentencing Amendment Act
, saying it marked an interesting intersection between criminal law and insurance.
When a person has been prosecuted, convicted and punished in a criminal court, the court is also charged with considering civil reparation to the victim.
Three types of compensation can be paid, including property damage, emotional harm and the loss consequential on those plus physical harm.
“The consequences of physical injury are covered by ACC, and this is the one that causes difficulty about whether reparation sentences ought to be able to top up ACC,” Gates said.
There were ‘a whole lot of discretions’ that the judge has, he said, with one being that the court must take into account the offender’s ability to pay, and if it’s an insurance company it may make a judge even more inclined.
“That’s being a bit cynical but that’s the kind of thinking that might start happening if this thing progresses over time and awareness by lawyers acting for victims becomes greater and greater.
“So we have what we call a perfect storm brewing in this situation.
“We have increased exposure through the Health & Safety Reform Act, a whole basket of people that probably weren’t exposed to that previously who now will be and then the exposure of reparation sentences to top up ACC where if people are very badly injured the possibility of very large lump sums being ordered to be paid.”
Gates was quick to add that this was not necessarily disastrous for the industry however.
“Perhaps the opposite,” he said.
Insurers could impose higher deductibles or just adjust the premiums, while brokers could seize on the opportunity by pointing out clients’ increased exposures or the need for reviewing their sum insured to higher amounts.