Update on CAL No 14 t/as Tandara Motor Inn ats Sandra Scott & Motor Accidents Insurance Board. Thanks to Proclaim

As foreshadowed in our June 2009 edition this matter proceeded to the High Court of Australia which upheld the hoteliers appeal. We pointed out in that article that no evidence was led that the appellant knew or could have found out the telephone number of the deceased’s wife. This was exactly the view of the High Court. More importantly, the High Court found that there was no general duty of care owned by alcohol servers to customers to protect them from the consequences of alcohol they choose to consume. The Court was reluctant to encourage interference in patrons freedom to choose “how much to drink and at what pace”.

No doubt Plaintiff’s firms with attempt to reduce the impact of the decision by pointing to the very individual facts of the case. In the meantime, the hospitality industry should continue its current emphasis on the responsible service of alcohol.

We are not certain if it is media headlines or just misinformation, but some academics and media publications have blamed the result of this case on tort reform and the failure of the concept of negligence arising from reform. This seems an unrealistic response and it also seems to misread the real impact of tort reform.

Proclaim’s view of tort reform is based on thousands of claims we have managed since tort reform was enacted in 2002/3. Our response is based on data of all claims we have managed since that time, not just one case.

This clearly demonstrates that tort reform has not reduced the cost of claims – in fact, claims costs are steadily rising. The next article explores this in more detail.

In NSW in 2005, Queensland in 2006 and Victoria in 2007 we have seen a spike in costs for claims that has taken average costs well beyond the levels they were at pre tort reform. While claims numbers are down by around 15%, and litigated numbers are down, the average costs have increased significantly more that 15%, meaning overall costs are rising.

The problem we see is that when Professors who do not see the daily inflow of claims comment on one isolated claim they add to the perception that people are missing out under tort reform. This increases the political pressure on judges and commentators and this leads to some strange and occasionally bizarre results in cases at first instance.

So commentary on one isolated case is not helpful to those in the field who already feel the pendulum has swung back too far on the vast number of cases we see on a daily basis. There is no doubt that a lot of the impetus around tort reform has been lost but the general press, analysts and  judiciary still seem to think there is a negative impact they need to address.

Interestingly it is hard to see how this case really involved tort reform at all.  Negligence as a concept has not been altered by tort reform to the extent it had an impact on this case. At the end of the day, the High Court found a level of personal responsibility that sits better with the realities of life.  The alternative was to move to a Canadian style system where the onus shifts too far to a publican to ensure their patrons get home safely.

At Proclaim we have been warning our clients for some two years that claims costs for Liability were increasing around 15% per year since 2006.

There are a number of reasons for this.

1. Tort reform has been wound back as the judiciary has softened the impact of the reforms. In some cases this means some smaller claims have been eliminated, but medium level claims have been increased in cost as thresholds have been lifted.

2. Where there is discretion in a Judgment, awards for general damages appear to be increasing – in certain cases by as much as 50% on awards pre 2008.  Where General Damages are subject to a scale, we are finding that costs are still escalating rapidly as the judiciary adjusts the scales upwards.    Increasing specialisation in personal injuries law by plaintiff lawyers such as Slater and Gordon – once they have understood the system they utilise their decentralised model as against the centralised models of many insurers. Queensland in particular is a very difficult jurisdiction and superior knowledge is an advantage.

3. Tough economic times tend to lead to increased claim activity.

4. Increase in workers compensation recovery claims, which is the area of focus of this article.

An area that is of great concern to insurers and their clients is the increased incidence of claims that relate to worker accidents while they are in the course of their employment.  Many clients of ours still don’t quite understand why these claims don’t begin and end with the workers compensation insurer.  Why are they involved, how do they arise, what do they cost and how can you protect against them are all questions we deal with regularly.
The key thing to note with workers compensation recovery actions is that they are brought on the basis that a contractor was injured as a result of negligence of someone other than their employer. So the question of where fault lies for an injury is fundamental to the action.

The most common claims we see are when contractors are injured on someone else’s premises. For instance,  a contract cleaner who falls over and hurts themself while working at a Shopping Centre may claim workers compensation if their injuries result in them being unable to work. If the accident was alleged to have been caused by a hazard at the Shopping Centre, there is the prospect that an action may be taken on behalf of the Workers Compensation insurer to recover payments made. This becomes a public liability claim for the Shopping centre. In other cases, where the injuries are serious (and depending on various State regulations) an action may also be brought directly by the injured worker against the Shopping Centre.
In industries where there is a high component of contract labour these actions are becoming increasingly more common.  Insurers and clients need to overlay extra diligence and training in the industries at risk: three quarters of self employed people are in construction, property services, transport/storage, communications and manufacturing. One of our clients in construction had 80% of their larger claims arising as a result of contractor injuries. However, it can also happen to a small business where an electrician or plumber performs services on their premises, the same way it can happen to bigger companies with a high proportion of contract labour.

An average public liability claim costs around $15,000. You can see from the graph below that workers recovery claims cost significantly more – around 5 times as much.  These claims are more at the severity end of the scale and thus have the potential to hurt insurers and insured’s alike.

Victoria, NSW and Queensland all have this activity as a very significant issue which has the potential to force higher premiums or self-insured retentions for those most at risk.

These are a very difficult class of claim to protect against. However, we do know some of the problems of dealing with these claims when they arise are:

1. Lack of understanding of the potential exposure created by a contractor  -   so no effort to train people around the potential exposure or how to respond to an incident involving a contractor injury

2. Late notice – so time is against you in reconstructing the events that gave rise to the claim and showing you were not at fault. It is almost a reverse onus when a long period of time has elapsed ie you need to prove you were not negligent.

3. Lack of investigation around the accident at the time so a lack of information hampering the defence of a claim.

4. Lack of control of the injured employee in terms of understanding time lost and whether they could return to work. In some cases they can get lost in the workers comp system and you only find out about it well down the track.

In addition, in some cases Insurers are not charging premium to reflect the risk. Hence, as workers comp rates are often high for employees, it is cheaper to hire contractors despite the possibilities of public liability workers recovery actions.
While many contractors are brought on to premises because they are specialists, and outsourcing is a commercial decision, there remains some industries where  it is cheaper to outsource to contractors and  save workers’ compensation premiums (as public liability insurance is cheaper than workers) despite many workers’ claims coming back full circle to the Insured via their public liability policy.

So how can we deal with it?

Based on the problems, clients should be considering:

1. A training program regarding contractor injuries, how to respond, what information is required at the time of the accident and who to contact for assistance.

2. When a potential claim arises (a contractor is  injured), following  these steps:

• Investigate circumstances and obtain any witness statements regarding circumstances

• Stay in contact with the injured party’s employer to monitor progress and likelihood of recovery claim – after all, you are in a contractual relationship, so they should be able to share this kind of information with you.

• If the Injury leads to more than 2 weeks lost time, step up the investigation to include an external expert – as your prospects of getting a claim made against you increases significantly with an increase in lost time at work. So you need detailed information on circumstances and who was at fault so if a claim does arise you have better information than the workers comp insurer.

• Keep internal comments on fault and liability to the phone not email – this may impact incident report format. Note that what we are trying to establish is whether we can resist any potential claim and to do that we need to show we were not at fault.

• Keep OHS and liability strategy coordinated.

• Ensure all contractors are aware of and understand house rules and there is evidence that they have successfully undertaken an induction programme.

For insurers, we can expect that as claims continue to increase, they will be asking more questions around the level of contract labour you employ, and they will be trying to either increase self-insured retentions or charge premium more akin to workers compensation rates for contract labour.