A recent court decision rejecting an insurance claim under a management liability policy has drawn attention to the limits of such coverage in addressing employee entitlement claims.
At the same time, calls for a unified national workers’ compensation system have gained renewed focus, with experts emphasising the inefficiencies of Australia’s fragmented framework.
Law firm Barry Nilsson has reviewed the implications of a court ruling involving a Perth-based real estate agency.
The agency sought indemnity under its management liability policy for costs related to settling employee demands for unpaid wages, commissions, and entitlements.
The claims arose after changes to the Real Estate Industry Award 2010 (WA) required the agency to formalise employment agreements with commission-only staff. The agency failed to comply with these requirements, leaving employees eligible for minimum wages, leave entitlements, and other benefits.
Between 2020 and 2021, employees lodged claims for accrued leave, unpaid commissions, and allowances. The agency sought cover under its insurance policy, but the insurer denied the claims, citing multiple reasons:
The court upheld the insurer’s decision, ruling that the payments made to employees were pre-existing obligations rather than an insurable loss.
Barry Nilsson emphasised that the judgment reinforces a key principle: insurance policies are designed to cover specified losses, not to address liabilities already owed by the insured.
“This judgment confirms the well-known position that a policy of insurance is not an instrument by which an insured can seek to put itself into a better position than it would have been but for a ‘loss’ being incurred,” it said.
In a separate development, workplace risk experts have called for a national overhaul of Australia’s workers’ compensation system.
Gary McMullen, workplace risk director at Aon, argued that the current state-based framework creates unnecessary complexity for businesses and inequities for employees.
Australia’s workers’ compensation system operates through 11 different state and territory schemes, each with its own rules, benefit structures, and claims processes.
McMullen pointed out significant variations in compensation payouts for similar injuries. For instance, permanent impairment claims can reach up to $713,000 in Victoria but are capped at $261,000 in the Australian Capital Territory.
The lack of uniformity not only complicates administration for businesses operating nationally but also results in inconsistent outcomes for workers, McMullen said.
