December 2009 Issue

9 December 2009

Welcome to the bumper December 2009 edition of the Proclaimer!

It’s been a very busy year here for us at Proclaim, we are still celebrating our 10th birthday and the company continues to grow in Melbourne, Sydney and Brisbane.

This year we will handle over 25,000 claims. Many of these are in new growth areas of property, motor and personal accident. Many of our liability clients do not realise we are equally adept at managing a large portfolio of high volume low value claims as we are doing tricky liability or professional indemnity claims.

To reinforce our commitment to property claims management we recently welcomed Stuart Greaves to our team. Stuart is working in our Brisbane office and is leading our property team.  Stuart comes to us with around 20 years insurance experience in the London market, most recently being Property Claim Manager at the Catlin syndicate. Stuart’s exposure to Lloyds and to claims practices around the world will strengthen our services to coverholders, syndicates and local insurers.  

In this edition we have several articles.  We review the continuing developments in pub claims with the latest High Court decision.  We look at tort reform and the ugly nature of workers compensation recovery claims. Marianne Lim takes us through our mid-year Liability Discussion Group which focused on claims involving cleaning (or the lack of it). Eugenia Anang takes us through the thorny issue of discoverability of the date of claims and how that impacts on Limitation periods. Jessica May looks at contracts for service and tries to work out whether you might have an employment relationship. Finally, Jonathan Lee looks at the trends in financial lines claims – the crystal ball looks a little foggy!

Tort Reform and the Tasmanian pub case by Richard Thomas and Jon Broome

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

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.  

Liability Costs on the Rise - Workers recovery claims

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. 

Workers Recovery Claims

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. 

How do they arise?

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.

What do they cost?

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.  

Can you protect against them?

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.

Conclusion

Public liability claims costs are increasing and some of the most significant claims are in workers compensation recovery actions.     Clearly the insured population out there needs a better understanding of how these claims arise and how to protect against them. Without that, we expect premiums and deductibles for this exposure to rise and for this area to be a focus of insurers in future.   

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Proclaim Lunchtime Discussion Group which was held on 14/5/09

"Curious Case of the Cleaning Rotation Wand Button”
 An article by Marianne Lim

Introduction

In May we held a discussion group in Sydney and Melbourne regarding cleaning spillage claims. It was well attended by owners, managers and cleaners in the retail sector.

The beginning of 2009 has been punctuated with an increasing number of court proceedings being served against our clients; as well as a number of questionable judgements coming from the courts in favour of plaintiffs.

You may ask “Why this sudden change?”

We believe it is two-fold.

Firstly, seven years have now passed since the introduction of the radical 2002 tort reforms. Plaintiffs are now more confidently challenging the laws; and unfortunately many promising defences have been watered down by the judiciary e.g. the concept of taking “personal responsibility” and the defence of “obvious risk” or “dangerous recreational activity”.

Secondly, the financial downturn has had an impact. Sadly, as the economic conditions deteriorate, and people lose their jobs or have to tighten their belts - we can expect to see a rise in public liability claims.

So what can you do to improve your risk in these times?

The key is proactive incident and claim management. It is clear that early reporting, investigation and intervention and taking a commercial approach to settling claims one to one with injured customers – can prevent plaintiff lawyers getting their hands on them. It is better to give a customer $300 for physiotherapy, because if they see a lawyer and liability is in play they will often get a minimum of $3000.

The responsibilities of Cleaner, Owner and Manager 

Owners generally have:

• A financial interest in the property.
• A Managing Agent who is engaged to be eyes & ears of the centre
• Have more responsibility for claims relating to structural issues.

Managing Agents (and Owner / Managers):

• Have a Duty of Care to:
 1. Select an expert cleaning contractor;
 2. Arrange terms of engagement i.e. specifications of contract; and
 3. Take appropriate steps to ensure the cleaning contractor is carrying out contract.
• Ensure Compliance of service standards imposed on suppliers
• Liaise with owners to take care of structural issues and maintenance above Manager’s budget
• Have the administrative task of entering contracts and maintaining documents and records
• Arranging sub-contractors – cleaners, security, facilities managers

Cleaners:

Are engaged for cleaning and maintenance as per Cleaning Specifications i.e. inspection and cleaning rotations.

They need to also keep incident reports and ensure their staff write reports and statements as soon as they are aware of an injury.

Some cleaners are responsible for obtaining regular slip tests.

Cleaners are often first on the scene so training them to deal with injured customers and to investigate thoroughly can go a long way.

Co-operation between parties

It is important to all co-operate together to ensure services are provided well.

With co-operation, you must ensure that all are notified early of incidents. It is important to have transparency and sharing of information as an extension of the business relationship to ensure that if an incident occurs you have the appropriate and timely evidence available to ascertain liability.

Parties are better off working out apportionment regarding liability – and then having a united front against the claimant.
 
Contractual agreements and indemnities between parties and the
effectiveness of risk transfer

Contracts are drafted by lawyers, not parties involved in daily running of shopping centres. Whilst indemnities sound good in theory, they are often difficult and expensive to enforce in reality, thus don’t hang your hat on them.

The focus should be on liability – not indemnity, as it is an onerous expectation that risk should be on only one party’s shoulders. You are better to have a system in place to assess incidents on a case by case basis, taking into account specific factors. Owner, managers and cleaner should be working together to run a successful Centre, not against each other!

Claim management for multi-party claims

We discussed a claim scenario where an elderly lady slipped on a squashed piece of orange on the floor just outside the fruit shop area. It occurred at 5:50pm. The centre usually has 4 cleaners doing 15 minute rotations. However the owner manager had reduced it to 2 cleaners from 5:30 to 6pm.

The Cleaner’s case:

• Within rotations – no duty of care breached as complied with contractual obligations
• Manager reduced budget which resulted in a reduced number of cleaners.
• Fruit shop tenant has closer proximity

The Manager’s case:

• Had an effective system of cleaning in place – no duty of care breached
• Reduced cleaners for budget reasons.

The Owner’s case:

• Only have financial interest and engages managers to ensure there is an effective system of cleaning and to monitor cleaners
• Not a structural issue

The Fruit shop tenant’s case:

• No evidence showing that orange came from fruit shop.
• Orange was in common area therefore cleaner’s area

The consensus at the discussion group was that all parties should contribute a portion in order to get rid of the claim, preferably directly with the claimant to avoid costs.

Not many owners or managers thought they were solely responsible despite the decrease in the number of cleaners.

Interestingly, these very facts were subject to a NSW CA case in which the court surprisingly held that the owner manager was entirely at fault due to the reduction of cleaners at their request (Bevillesta Pty Ltd v Liberty International Insurance Co. 2009-05-20, NSW CA 19 Feb 2009). 

It is thus clear that no matter how good a liability position you may think you have – that going to court will always be a lottery. Ultimately, the earlier your claims manager can try and get to the injured customer – then the more options you have to explore resolutions that are far cheaper than court litigation.

If you have any queries, please contact Marianne Lim, Manager – Corporate, ph 02 9287 1311.

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The Limitation Period Issue: Discovering the Date of Discoverability
By Eugenia Anang

This article briefly discusses the effect of recent case law on the discoverability provisions contained in the Limitation Act 1969 (NSW).

Prior to the Tort Reform of 6 December 2002, a person had 3 years from the date of injury to bring an action for damages for personal injury and  trial judges had a discretion to extend the limitation period for personal  injuries in circumstances where they believed it was just and reasonable to do so.

As a result of the reform, this discretion is no longer afforded to the trial judge in matters where the personal injury occurred after 6 December 2002. Judges  must now leave it to the defendant and or the plaintiff to prove or disprove as the case may be the date the cause of action was discoverable in accordance with section 50C (a) and 50D of the Limitation Act 1969 (NSW).

Section 50C (a) generally provides that an action for personal injury ‘cannot be maintained if brought 3 years after the expiration of the discoverability limitation period.’ The discoverability limitation period is defined in the section as ‘the period of 3 years running from and including the date on which the cause of action is discoverable by the plaintiff.’

Section 50D (1) provides that ‘the cause of action is discoverable by a person on the first date that the person knows or ought to know of any of the following:

(a) The fact that the injury or death concerned has occurred;

(b) The fact that the injury or death was caused by the fault of the defendant; and

(c) In the case of injury, the fact that the injury was sufficiently serious to justify the bringing of an action on the cause of the action.

In the case of Daniela Bet v UTS Haberfield Club Ltd [2008] NSWDC 158, the plaintiff broke her arm when she slipped and fell at the defendant’s premises while attending a 21st birthday on 21 February 2004.  The plaintiff sought to commence an action almost 4 years after the date of injury when she filed a statement of claim on 18 February 2008.

The parties agreed that the relevant date was 18 February 2005. Therefore the plaintiff had to prove  that she  knew or ought to have known of any of the matters in section 50D (1) (a-c) after 18 February 2005.  The plaintiff sought to rely on section 50D (1)(b) and alleged the date of discoverability for her cause of action did not occur prior to 20 May 2005 and it was the date of her first consultation with her lawyer that  she  became aware   that  her injury had been caused by the fault of the defendant.

The defendant was represented by Thompson Cooper lawyers and they had to prove that the plaintiff knew or ought to have known that that her injury was caused by the defendant on or before 18 February 2005.

There was evidence put forward by the plaintiff  that while she was in hospital following her incident,  a friend had visited her in hospital and informed her that she had slipped on alcohol that had been spilt on the dance floor and not cleaned up despite repeated requests to the defendant’s staff to do so.
 
The defendants’ successfully argued that this clearly indicated that the plaintiff had been aware within seven days of her incident that her injury had been caused by the fault of the defendants’ therefore the plaintiff’s date of discoverability had occurred prior to 18 February 2005.

His Honour Judge Elkaim accepted that ‘the concept of fault did not require the plaintiff to have a legal opinion but that it was enough that the plaintiff was aware that persons had been spilling drinks on the dance floor of the club where she fell and that people had complained to the bar staff to clean it up .’

The facts and result of this case to some extent encouraged defendants to believe that the Courts would apply a literal approach to the interpretation of section 50D.

In their recent publication titled ‘Personal Responsibility: Recent Developments in the New South Wales Court, Thompson Cooper Lawyers  suggest the NSW Court of Appeal decision in the recent case of Baker-Morrison v New South Wales [2009] NSWCA 35 indicates that the NSW Courts will be very ‘cautious when construing  section 50D.’

This case involved a 2 year old girl (the plaintiff) who had injured the fingers of her right hand when it was caught in the automatic sliding doors at a police station on the 26 May 2004.

Note: Prior to the Tort reform, a minor had 3 years from the age of 18 to commence proceedings for damages for personal injury. As a result of the reform, a minor has 3 years from the date in which the cause of action became discoverable  to bring an action.

A statement of claim was filed on behalf of the plaintiff in this matter 26 days after the expiration of the 3 year limitation period and the defendants in this matter sought to have the matter struck out on the basis that it was statue barred.

Section 50F (3) of the Limitation Act 1969 (NSW) provides that if a minor has a capable parent or guardian, the fact required for discoverability are taken to be those known or ought to be known by the capable parent or guardian.

The issues before the court on appeal was whether the plaintiff’s mother knew or ought to have known in the 26 days after her daughter’s injury the following facts:

a. her daughter’s injury was caused by the fault of the defendant in accordance with section 50D (1) (b); and

b. the injury was sufficiently serious enough to justify the bringing of an action on a cause of action in accordance with section 50D (1) (c).

The Court found in the plaintiff’s favour on the following basis:

1.  That the word ‘fact’ referred to in section 50D (1) (b -c) must be determined by reference to section 50D as a whole. The court found that the word fact when taken in such a context described a  combination of inferences or the result of an evaluation and referred to the key factors necessary to  establish liability;

2.  Secondly, that the phrase ‘ought to know’ referred to in the section means that the person should have inquired as to a fact, which must, in appropriate circumstances, include obtaining medical and legal advice and information; and

3.  Lastly and most significantly the court found that the word ‘fact’ when considered in it’s context in section 50D(1)(b) referred to a relationship between the injury or death and the fault of the defendant therefore the relevant connection is one of causation.

The plaintiff’s primary particular of negligence in the statement of claim was a failure by the NSW Police force to provide “a protective guard or covering along the area of operation of the ... sliding glass doors.’’

The Court held that until the plaintiff’s mother was aware or ought to have been aware of the availability and reasonable practicability of installation of a device to make the sliding door safer, she could not be said to be aware that her daughter’s injury was caused by a failure on the part of the State of NSW to take reasonable care for her safety.

Therefore, the date of discoverability was thought to have occurred after the 26 days immediately after the plaintiff’s incident.

Commentators suggest that this decision highlights the flexibility of section 50D (1) along with the fact that the courts subsequent interpretation of the section does not provide an established guideline as to when it can safely be assumed that a limitation period has expired in personal injury claims rather the decision appears to invite the suggestion that the limitation period is stalled until the plaintiff has received legal or medical advice.

This decision has revealed to some extent the Courts deficiency in encouraging plaintiff’s to adopt a practical, sensible & realistic approach towards initiating an action for damages for personal injury. 

If anything, this decision appears to encourage potential plaintiff’s to adopt a languorous attitude to pursuing an action.

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Contracts for Service: Contractor or Employee?

By Jessica May

Contractor or Employee?

When is an individual serving himself or his employer? In other words what makes an employee an employee and a contractor a contractor?

The following case law can assist in finding answers to such question:

Reilly v Tobiassen [2008] WASC 6

Facts: Glenpoint Nominees Pty limited was the developer of a construction site in Perth. It engaged Devcon Australia Pty Ltd (Devcon) to project manage the site. Devcon was responsible for the supply of labour and materials. Devcon in its role as project manager engaged Svein Tobiassen to be the registered builder on the site. During works on the site Desmond Kelsh was killed.

The prosecutor Reilly brought charges against Tobiassen under the OH&S Act 1984 (WA). As required under the act the prosecutor identified Tobiassen as self employed, as apposed to being an employee. The court disagreed with the prosecution and concluded that Tobiassen was an employee and as a result dismissed all charges.  The prosecution succesfully appealed the decision, with the court determining that Tobiassen was self employed.

In making their determination that Tobiassen served himself as opposed to his employer the court considered the following factors:

1. The level of control that one individual has over another;

2. How the relationship is defined by the parties (where the relationship does not
have features inconsistent with the nominated definition and the relationship is not a sham. Importantly in this matter the agreement between the parties excluded any fiduciary or agency relationship);

3. Payment arrangements, weather or not superannuation is paid to an individual or tax is withheld. In this case Tobiassen as well as making his own tax and superannuation arrangements (he charged himself out by the hour), invoiced Devcon bi-monthly and charged GST;

4. The term of the contract, i.e. whether or not it is fixed term or indefinite.

Aufgang v Kozminsky Nominees Pty Ltd [2008] VSC 27

In contrast to Tobiassen, Dr Aufgang was found to be an employee despite the fact that he arguably had greater control over his work than Tobiassen and the existence of a contract for service.
 
Dr. Aufgang entered into an agreement with Dr Kosminsky to perform work in a medical practice. Dr. Aufgang claimed that the agreement was an employment agreement entitling him to:

• 65% of the billings which he generated for the practice;
• superannuation at the statutory rate which, at the time, was 6%;
• four weeks paid annual leave entitlements which would accumulate;
• In addition he would be paid for public holidays.

The defendant disputes the above terms and alleged that Dr Aufgang was a contractor and was entitled to the following:

• the original agreement was that plaintiff’s percentage share of the billings was to be 60%, not 65%,
• the superannuation would be paid out of that 60%, and
• there was no entitlement to paid annual leave or public holidays.

The court concluded that Dr. Aufgang was an employee of the practice.

The court commented that the question of whether a person is an employee or independent contractor of another is a question of degree in which a number of factors have to be considered, none of which are determinative.  The ultimate question will always be whether a person is acting as the servant of another or on his own behalf.  

Factors which are indicative of the nature of the relationship include:

• control and direction, the right to suspend or dismiss the person engaged,  
• the right to the exclusive services of the person engaged, the right to dictate the place of work, hours of work and the like, 
• whether the work involves a profession trade or distinct calling on the part of the person engaged,
• who provides the place of work and equipment, whose goodwill is created as a result of the work, ownership of any saleable assets created by the work,
• the person paying business expenses of any significant proportion,
• the payment to the person in question of remuneration without deduction for income tax. 

In this matter the court concluded primarily that the :

1. the clinic had provided everything else including computers and furniture and administrative staff and other medical equipment.

2. With some exceptions Dr. Aufgang primarily worked exclusively for the practice;

3. the court concluded that Dr. Aufgang’s entitlement to a percentage of his billings did not make their relation a partnership or joint venture. The court also found that the arrangement was not one of profit share, but likened the arrangement to one of a commission based arrangement.

4. the practices expenses were borne by the business and were taken from the remaining billing percentage.

5. It was found that Dr, Aufgang was treated as an employee and was given leave early in the arrangement

6. Dr. Aufgang had no rights to the good will of the company.
These two cases are good examples of how courts determine whether an individual is an employee or a contractor. They show that courts, though still ultimately swayed by the issue of control, look at the entirety of the relationship not only its form. An agreement or contract between the parties is considered an important indicator of the relationship. However for a company or claims manager relying on the contractor relationship how the relationship works in practice is what a court will be seeking to determine.

Now that you have established that you have an employee, can you be held liable for their actions:
An employer can be held liable for the actions of the employee when it is established that an employee is acting in the course of their employment. It is well understood that not everything that an employee does at work is necessarily in the course of their employment, further; an employers liability is not restricted to the worksite or work hours. 
The question then is how well understood is “what is in the course of employment’? Surely what is in the course of employment is obvious? At the very least surely we know what is not in the course of employment, Or do we? Nationwide news Pty ltd v Naidu; ISS security Pty Ltd v Naidu [2007] NSWCA (Naidu) and Sprod Bnf v Public Relations Oriented Security Pty Limited [2007] NSWCA 319 the court uses the same ‘close connection test’ as laid down in The State of NSW v Lepore 212 CLR 511. The results indicate that what courts consider as being in the course of employment is broadening. The ‘close connection’ test has opened the door to extending vicarious liability of employers to the criminal acts of its employees.

In Lepore (at 617, [316]), Kirby J quoted a statement by the Supreme Court of Canada in Bazley v Curry [1999] 2 SCR 534 (at 548 to 549, [22]) as follows:
[W]here the employee’s conduct is closely tied to a risk that the employer’s enterprise has placed in the community, the employer may justly be held vicariously liable for the employee’s wrong.

Is it reasonable for an employer to deny liability for the verbal abuse of an individual by an employee?  Would your answer be different if you knew that that the employee’s abuse was inconsistent with the employers well established anti – abuse policy?
In Naidu, Nationwide news Pty Ltd (Nationwide) contracted out its security needs to ISS security Pty Ltd (ISS). ISS supplied security guards, including Mr. Naidu, to Nationwide.

An employee of Nationwide subsequently verbally abused Mr. Naidu over several months. The verbal abuse, which resulted in permanent psychological injury, included sexually and racial vilification. Mr. Naidu brought legal action for psychological injury against both his employer ISS and Nationwide. The NSWSC found the ISS was not liable, but did find that Nationwide was vicariously liable for the actions of its employee. It was established by the court that, not withstanding the company’s anti-discrimination policy, that as Nationwide’s employee’s behaviour was so closely related to his employment as Mr. Naidu’s day to day supervisor as to be considered in the course of his employment. Please note that there was also some discussion of the employer being directly rather than vicariously liable and that Nationwide was made aware of the behaviour and did not act to stop the behaviour.

In Zorom Enterprises Pty Ltd v Zabow [2007] NSWCA 106, Basten JA said (at [21]):
The underlying principle is not in doubt: an employer will be liable for the act of its employee ‘only if the act is shown to come within the scope of the servant’s authority either as being an act which he was employed actually to perform or as being an act which was incidental to his employment’: Deatons Pty Limited v Flew (1949) 79 CLR 370 at 378 (Latham CJ). However, the precise application of that principle, so stated, can give rise to difficulties.

In Sprod bnf Sprod v Public Relations Orientated Security Pty Ltd (2007) Aust Torts Reports demonstrates the difficulties of applying the underlying principle that is not in doubt, and again the courts broadening concept of what is in the course of employment.

At some time after midnight, the appellant came into Dave’s Midnight Pizza with one or two others. The appellant was very drunk, generally abusive, and made extremely rude remarks to female patrons. In addition, he slapped one of the patrons. The others with him were also causing trouble. As was the arrangement the owner of the pizza shop (the shop) called the hotel across the road and the security guards came across to deal with the behavior. When the security guards arrived the owner of the shop told then that the police had been called and that they should just hold onto the appellant.
The security guards then, according to witnesses, attempted to detain the appellant and he took a swing at one of the security guards but missed. The second security guard then hit the appellant in the face. The security guards then walked the appellant out of the shop and into the adjacent lane. The guards that assaulted the appellant were Gerald Hoskins, a supervisor employed by the respondent, and one Freddy Loau. While the assault was being committed two other security guards employed by the respondent stood watch.

The appellant was found a short time latter in the lane, lying unconscious with his head in a pool of blood. The appellant was hospitalised for almost four months and was left with permanent brain damage.
The trial judge (see Sprod v Public Relations Oriented Security Pty Ltd [2005] NSWSC 1074) found that the security guards were not acting in the course of their employment when they assaulted the appellant. He found that the act of assault was “independent” of the employment and the respondent was not vicariously liable for what had occurred.
However, this decision was overturned on appeal. The appeals court acknowledged that
‘The appellant’s case based on vicarious liability for assault involves holding the respondent liable for unlawful and criminal acts by its employees who disobeyed the instructions the respondent had given them. This is not an area of the law characterised by clarity of principle. … One thing seems to be clear according to the weight of authority. There are circumstances under which an employer may become vicariously liable for unauthorised acts of an employee, even when those acts are criminal and even when the employer has expressly instructed the employee not to perform acts of that kind … The explanation that liability is incurred when acts are done in the intended pursuit of the employer’s interests or in the ostensible pursuit of the employer’s business means that the employer may be entirely at the mercy of the employee. On this basis, no matter what instructions the employer may give the employee, the employer may be liable if the employee disobeys those instructions and commits a criminal act in the subjective belief that by doing so the employer’s interests will be advanced.

The trial judge found that in this case the assault “was not for the purpose of subduing” the appellant but was “motivated by the blood lust of the security officers involved” (at [145]). It was for this reason that his Honour held that the assault was an independent act of the security guards and not an act done in the course of their employment.

The fact that the four guards acted in concert as they did (two guards taking the appellant into the dark laneway while two remained in the Great Western Hwy keeping guard) is indicative of a planned and deliberate course of conduct and not a spontaneous act triggered by personal animosity and pure personal vindictiveness.

Ultimately the court held that the actions of security guards were aimed at preventing the appellant from returning to the shop. The security guards actions were not inconsistent with their employment. The guard’s employers were found vicariously liable for their employees actions.

Importantly special leave to appeal this decision before the high court was refused.
The cases discussed above indicate the courts willingness to impose liability in cases which are arguably intentional tortuous actions at the hands of employees. These cases highlight our need to rethink our current understanding of what is considered to be a ‘frolic of one’s own’; because what one might consider a deliberate act inconsistent with employment, may in fact pass the close connection test.

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Emerging Liability Trends – Financial Lines
By Jonathan Lee

Introduction

In this article we briefly consider the emerging trends in financial lines insurance products – meaning essentially professional indemnity, D & O and to a lesser degree Fidelity and Crime policies. I am writing more anecdotally about what I am seeing come across our desk in the financial lines area, what I am hearing in the market, what brokers are telling me and what we can expect to see over the medium term.
Financial lines claims and the economy
It will be of no surprise to many of you that the golden days of the so called ‘benign claims environment’ are in some peril. 

Traditionally, financial lines claims have moved counter-cyclically with the economy.  When times are good – as they were up until the collapse of Lehman Brothers – claims experience is generally down but when the economy falters, as it has in the most emphatic way, financial lines claims increase. 

The credit crunch which led to the stock market crash and GFC – which still to some degree is impacting us all despite the recent rally in the Australian stock market and the relatively positive economic data coming out of the ABS – has had and will continue to have a very real impact upon the claims experience for all manner of professionals, listed companies and non listed companies alike.  High profile matters we are tending to see in the media which in one way or another link in to the economic fallout from the GFC are matters such as:

1. Lehman Brothers litigation
2. Storm Financial
3. Centro class actions
4. MFS class actions
5. Opes Prime
6. Westpoint
7. Timbercorp
8. Great Southern
9. ABC learning centres
10.  Allco

These are but a few of the high profile matters  -  but make no mistake – there are large numbers of claims and litigation which are not making the papers but which equally have their genesis in faltering economic conditions – the failed transactions, the transactions which looked profitable during good times but which became doomed to failure in a downturn, the companies and people that are scrambling to make ends meet and to service obligations geared for a growth economy.

There is a double whammy as well – as not only do tightening conditions provide impetus to increased claims activity in the private sector, but the responses of regulators and the governments also clearly impacts on claims activity.  Governments seek to shore up their balance sheets by chasing down their income streams more vigilantly and also need to be seen to taking decisive action in the wake of the high profile disasters – regulatory action is increased.

Where are we seeing increased activity?

Class actions and shareholder class actions
I won’t say much about these.  We have seen in the business pages the various shareholder class actions.  There seems to be a new one every other week.  Unfortunately (or not depending on your view) we seem to be heading the way of the Americans when it comes to this type of litigation.  Often the actions relate to disclosure to the market by listed companies.

Actions by regulators such as ASIC
We have all heard of ASIC action against the directors of James Hardie and also the Jodie Rich and Stephen Vizard matters.  ASIC has a very high success rate and in the aftermath of the destruction of shareholder wealth during the GFC we can expect that regulator actions will remain a common feature of the legal environment.  There is also a sense now that the community have higher expectations of the people that run our companies and there is an expectation that our regulators will enforce those standards.

Debt recovery – counter claims
There is no doubt in my mind that these are on the increase.  These are claims which spring from a professional’s attempts to recover their fees from their client for services performed.  The client resists attempts to recover the fees and then makes allegations in relation to the professionals work.  These are a mixed bag in that some may genuinely arise from concerns with the professionals work but often in my view they can arise simply because the client doesn’t have the means to pay the fees.  I have recently seen a number of such cases which have arisen out of property developments that have fallen through.
These can be messy claims and I have seen a number of these result in counter claims very much larger than the fees in dispute.

 Lawyers
In speaking with panel lawyers for two of the eastern state lawyers’ PI schemes I have been told that claims activity is very strong and seems to be increasing.  There is no suggestion that an avalanche of claims is upon us, however, their view is that claims activity has clearly increased and that it is likely to remain strong while claims wash through for up to the next two years or so.
It seems clear that irrespective of the recent good economic indicia suggesting that we may avert a ‘technical recession’ that there is great degree of pain out there and where there is pain there are claims and we expect this to be a continuing factor for at least the medium term.

The ATO and accountants
As has been well publicised, and for good reason, the ATO is merrily on its own mission to make sure that tax that is due to the Commonwealth is gathered in.  I am seeing evidence of increasing vigilance across the board by the ATO and this is impacting on insured accountants.  I am seeing activity in relation to tax schemes, research and development and other more esoteric areas such as demergers.  No doubt you have heard of Project Wickenby which has already obtained  a high profile scalp and has more in its sights.

Stockbrokers and margin lenders
We have seen a number of high profile actions involving brokers and margin lenders in the aftermath of the GFC.

Fraud
Classically, as economic conditions deteriorate the threat of fraud tends to become a more real one as desperation levels increase.  Having said that, insured fraud often comes about due to the activity of the employees of a company – that is, by people who ostensibly at least do not appear to be the worst affected by economic conditions.

We have seen an increase in fidelity claims, however, it must be said that at this time the majority of these relate to frauds occurring prior to the onset of the GFC.  I think what may become apparent is that in the boom times systems were allowed to deteriorate allowing frauds to occur.  In some cases, it  seems that firms were simply too busy making money to pay the required attention to internal risk management systems.
This is certainly an area that we are keeping an eye on and there is scope for other areas of fraud impacting and feeding through to PI policies through land and lending transactions and the like.

Financial planners
As is well understood, planners started getting hit before the GFC.  The claims against them began with Westpoint and Fincorp.  I am not currently managing many planner claims as they are now underwritten only by a relatively small number of underwriters.  I expect that they will continue to have a torrid time of it.

Defamation
Strangely enough we are seeing increased activity in the area of defamation.  I am yet to pin point the reason for that but it may be that relates at least partly to the newish legislation across the country.
We have seen the recently widely publicised decision of Trad which dealt with a claim by the Muslim cleric and community leader against radio station 2UE relating to the aftermath of the Cronulla Riots.  It makes for some interesting reading.

 

Are there any other emerging trends or issues?
Proportionate liability
I am finding that the ability to apportion liability amongst defendants is now (finally!) becoming something which is providing assistance to underwriters in the management of litigation.  Up until fairly recently I read a lot of legal commentary on the relevant legislation but it had not yet started to impact much on the day to day management of litigation.  That has started to change and despite their complexity the regimes have the potential to be beneficial to insurers in their management of exposure to litigation.

The rise of the litigation funder
The litigation funder is here and here to stay.  Their imperatives and motivations are already changing the way large scale class action and liquidators’ actions are being run.

What are we expecting to see in the medium term?

We think that the in the medium term we are likely to see increasing claims activity in financial lines.  Even if the economic downturn and recovery is ‘v shaped’ as some are now saying and we see a return to growth there will be pain to wash through the system for some time yet and particularly as the labour market is predicted to continue to soften.  We expect that there is still some development in the claim continuum for claims against professionals and advisers and we are yet to see the real emergence of the claims by liquidators and the claims against directors in the form of insolvent trading claims.
Perhaps more interestingly for most of you, it is more difficult to say with any certainty where premium rates are headed for financial lines policies.  The insurers and some brokers have been valiantly trying to talk up rates across the board with not a lot of result I understand.  I expect that what we will see – and have already seen to some extent – is markets within markets – good risks will attract competitive rates and the hard risks may find that they are very expensive or difficult to find a market for. 

Welcome Stuart Greaves

Stuart Greaves has joined our Brisbane office as Manager, Property. Stuart will be responsible for our short tail property business and in particular will bring his extensive London and Lloyds experience to the benefit of our coverholder and underwriting clients. Stuart was most recently at Catlin in London as their Property Claim Manager. Prior to that Stuart spent some 7 years at Hiscox syndicate.  We are excited to have such an experienced London Claim manager join our team.

Stuart will be helping us to build our property and motor business and will work closely with Richard Thomas to ensure our insurance clients are provided the services they are after.

Welcome Michelle Young

Michelle Young joins us as Manager of Organisation and Development. Michelle will be responsible for the ongoing development of our staff and ensuring that we have the best people within our structure so that our customers receive the best service possible. Michelle is currently busily developing job profiles to align with our corporate values and vision, and is also developing training plans to ensure people have the skills in their roles that they need to do their job. We know it sounds a bit like Human Resources but we prefer to think of it as a little more about developing the best organisation we can be… and Michelle will be playing an integral role in that.

Michelle will also be starting a column in our newsletter on who is new at Proclaim. You can look at our website to catch up with all our staff….

http://www.proclaim.com.au/our-people-culture/

 
Footy tipping
 
After a tight season at the top of the tipping ladder we had a three way tie – Ben Broome, Seb Broome and Neil Stephenson from Zurich. The tips went to sudden death and Neil was out in the first week courtesy of the Blues tripping up.  In the second week Ben went for Collingwood, Seb for Adelaide in a semi-final and as a result Ben was crowned Proclaim footy tipping champ for 2009. Well done to all who participated.

Happy 10th Birthday. Merry Christmas.

As the year comes to a close so do our 10th Birthday celebrations. Thanks for all who have supported us over the last 10 years -  we have been very fortunate to have strong support from many companies who have challenged us to provide superior solutions. Our vision remains to be the best at what we do and to raise the bar  in claims services – without our customers we would not get that opportunity. 

We wish everyone a Merry Christmas and great 2010.