Urgent call to review liability cover

by Maryvonne Gray 05 Dec 2014

Urgent call to review liability cover

Breaches in Health & Safety legislation pose the biggest risk of potential shortfall in cover following changes to the Sentencing Amendment Act which kick in tomorrow (6 December 2014.)

Liability insurance expert Melissa Cross, of Crombie Lockwood, said under the previous legislation even the most serious accidents would rarely result in reparation awards over $100,000.

But, she said: “With this new law, the figures are likely to be significantly higher.

“These payments could potentially cover 20 or 30 years of lost income and if the injured party was making $50,000 a year, this lump sum payment could run into the hundreds of thousands of dollars,” Cross said.

The law change came about following a Supreme Court ruling in 2009 in which a Christchurch cyclist was denied reparation for the 20% shortfall in ACC, after she was knocked off her bike by a mattress that flew off a trailer on the Port Hills.

The courts had ordered the driver to pay the cyclist over $11,000 to top up ACC payments, but the Supreme Court ruled that this reparation was not allowed for under the Sentencing Act.

As of tomorrow, the amendment will allow courts to award victims of accidents reparations for the 20% shortfall against the party that caused the injury.

Cross pointed out that companies would not be able to insure themselves against any penalties but could get insurance that would cover reparation and legal costs.

Law firm Minter Ellison Rudd Watts warned insurers should also be taking an active part and consider whether existing wording extends to reparations awards.

“Insurers should consider whether they should extend liability cover in these circumstances,” they said.

Gary Young, CEO of the Insurance Brokers Association of New Zealand (IBANZ), said while they could not predict all the scenarios likely to occur which would trigger the  new legislation, they had advised members to examine the implications in health and safety and also motor vehicle and public liability policies.

“Predicting the possible scenarios is not easy given that predicting the outcome of court cases is not exactly easy.

“Until some cases are heard in the courts it is very much unknown territory although health and safety seems to be where liability is most likely to arise.”

Law firm DLA Phillips Fox said on the subject: “The effect of the law change is that offenders, and in some situations their insurers, will be exposed to the cost of this top-up.

“Civil liability created by these sentences will not be limited to offenders who have intentionally committed crimes. For example, a motorist found guilty of careless driving will equally face this potential civil liability, leaving a large percentage of New Zealanders vulnerable to significant sentences for loss of income caused by their negligence.

“Not all comprehensive car insurance policies will cover this new layer of liability and insurers may wish to review the scope of the cover they are offering.”

Insurance Council of New Zealand CEO Tim Grafton raised the issue of a potential double standard.

"[The change] creates a double standard in treatment where those suffering an injury as a result of a motoring offence, for example, have the potential to gain greater compensation than those suffering the same injury when no offence was involved or no-one was prosecuted."

Other areas to be aware of include accidents resulting from unregistered vehicles such as cycles, adventure tourism accidents where an offence has been committed, or breaches of the Dog Control Act, or other instances where an offence results in bodily injury.

Grafton said it also opened up compensation to overseas visitors.

"You wouldn't want to cause a crash that badly injures a tour coach of well-heeled foreign tourists for example."