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The Scenario :

An employee of a contractor is on the client's property.

The employee suffers injury in the course of his employment duties.

The employer's workers compensation insurer pays workers compensation benefits; weekly wage loss, medical and related expenses, lump sum benefits if applicable.

The workers compensation insurer, in the shoes of the employer (subrogation) seeks recovery from the client of the workers compensation benefits paid, on the basis that the injury to the worker was caused by the client's negligence.

The Law:

If the client has a liability to pay damages should the worker have brought proceedings against the client, the employer is entitled to be indemnified to the extent of its workers compensation paid.

The indemnity is not a claim for personal injury damages. It is a claim to be indemnified for monetary payments made.

The indemnity is limited to the amount of damages the worker would achieve if he or she sued the client successfully; s.151Z(1)(d).

The limitation period is six years from the date of each payment.

Each payment is a separate cause of action.

The cause of action is not the date of injury.

If the employer, through its workers compensation insurer, issues Court proceedings under s.151Z(1) it is entitled to claim interest at the normal Court rates with respect to the payments to which it is entitled to recover.

The Effect:

Where a worker has a case in damages against the client (for example the occupier of property where the injury occurred) on most occasions the workers compensation payments will not exceed the damages which would have been awarded had the worker sued the party at fault.

Workers compensation benefits comprise weekly wage records at the industrial award rate for the first six months, followed by weekly payments at a statutory rate (Workers Compensation Act 1987) which is determined by the number of dependents to the worker. The benefits also comprise medical and related costs, and lump sum benefits for loss of use or impairment of a part of the body and pain and suffering if relevant (ss.66 and 67 Workers Compensation Act NSW 1987).

Apart from the ss.66 and 67 benefits the other aspects could be awarded in a damages claim, the quantum of which would be greater because of the following:

• Wage loss awarded in a damages claim is the net weekly equivalent of the gross wages. Workers compensation benefits cover the industrial award rate for the first twenty-six weeks and after that the statutory rate which is significantly below the award rate on most occasions.

Common Law damages actions include an amount for non-economic loss, subject to the threshold of the Civil Liability Act and the sliding scale up to 33% of a most extreme case. On most occasions this will exceed lump sum benefits under s.66 and s.67.

However

Damages which a worker may receive against the client at fault can be reduced by the following:

• The worker's contributory negligence,

• The liability of the employer if sued (s.151Z(2).

The argument most used to argue that the damages if awarded would be less than the worker's compensation benefits is that contributory negligence is high and/or that the damages against the non-employer would be reduced by the employer's liability.

EXAMPLE OF THE EFFECT OF THE LIMITATION PERIOD:

Injury 1 January 1997

Workers compensation payments made regularly since that date.

Employer brings recovery action 1 January 2006.

Nine years after injury sustained.

Employer can only recover workers compensation benefits paid for the period from six years prior to the date of filing the Statement of Claim; 1 January 2000.

All workers compensation payments made from 1 January 1997 to 1 January 2000 are therefore statute barred.

INTEREST:

Assuming the employer is successful Interest is awarded on the payments recovered since 1 January 2000.

The Interest is at the Court rates.

These rates range between 9.5% p.a. from 1 September 1998 up to 11% (from 1 September 2000 to 31 August 2001) down to 9% from 1 March 2002 to date and continuing.

Workers compensation insurers are not distressed by failing to recover all payments made, if the action is litigated after six years from when the first payment is made, because they can recovery Interest at the generous Court rates to recoup the shortfall.

The Interest rate applies to each payment. As payments accumulate the amounts awarded for Interest increase. It is not a matter of calculating the average interest rate over the period on the total workers compensation benefits paid over the period, and then multiplying that by the number of years for which payments are recovered.

A meticulous way of calculating interest would be:

Ascertain when each payment is made.

Note interest rate at time payment made, and rates since.

Calculate the interest on each payment for the period until the action is determined.

This is cumbersome. For example if monthly payments of weekly benefits were paid for six years, there would be seventy-two different payments on which to calculate interest. The earliest payment would entitle the employer to interest from the date it was made. The latest payment may be shortly before the Court determination and thus the interest would be for a small amount.

An easier way of calculating the approximate interest is to follow the method for calculating interest on past economic loss between date the loss commenced and date of determination at hearing. The practice was for the parties to assess the average interest rate over the period, say 10%, divide it in two; 5%, and calculate the interest on the entire economic loss over the period at 5% per annum.

As workers compensation benefits also accumulate, this is a simple method by which you can calculate the approximate interest over the period during which the recovery award for workers compensation payments is made.

Example:

Payments since 1 January 2000 $200,000

Average interest rate over the period 10%

Half average rate 5%

Interest calculated at 5% on $200,000 over six years to 1/1/2006: $60,000

The effect of interest on a litigated claim for recovery of workers compensation benefits is thus significant. To avoid interest payments it is best to negotiate on an unlitigated basis with the workers compensation insurer, IF the liability of the client is clear.

CONCLUSION ON THE LAW:

Workers compensation recovery claims are significantly increased by Interest payments, when the claim is litigated.

There is also the cost of the plaintiff's lawyers to add (the lawyers of the workers compensation insurer).

Recovery claims negotiated in the absence of litigation are therefore more economic if the client's liability is clear.

For the reasons explained below this is not to say that every time the client receives a claim for recovery of workers compensation benefits made, by the workers compensation insurer on behalf of the employer, you should simply roll over and pay the amount.

THE HISTORY:

It is necessary to examine history to help understand why s.151Z claims have escalated in recent years.

Under the 1926 Workers Compensation Act the equivalent section to s.151Z was s.64. By the wording of s.64 an employer had no right to indemnity for workers compensation payments made if the employer was also liable to the worker; Public Transport Commission of NSW v J Murray-More (NSW) Pty Ltd High Court of Australia 6 ALR 271, 1975.

Thus there were very few s.64 litigated recovery actions other than against motor vehicle compulsory third party insurers (via their insureds). Typically the recovery claim related to a worker travelling to work in a motor vehicle and suffering injury whereby the driver of another vehicle crashed into the rear of the vehicle in which the worker was a driver or passenger. In this instance it was clear that the employer could not be liable. But in a public liability scenario, for example where the worker employed by a contractor was injured at the premises under the control of the public liability insured, the development of the law of negligence regarding employers was such that virtually no s.64 recovery claims were made after J Murray-More.

The Common Law employer's duty of care developed in the 1980s to the extent that employers have a non-delegable duty of care to ensure that their employees are placed in a safe place of work, regardless of whether this place of work is away from the employer's premises. The employer could not delegate this duty to the occupier of the premises; Kondisv State Transport Authority (1984) 154 CLR 672.

While this did not mean that there was strict liability against the employer, the result in litigation was to this effect. There was an explosion in the number of common law damages actions against employers in the 1980s up to the Workers Compensation Act 1987 which initially abolished all such actions.

With the explosion in damages actions against employers, the workers compensation insurers' solicitors were flat out defending these actions, rather than assisting their clients to identify and pursue recovery actions.

The 1989 amendments to the 1987 Workers Compensation Act returned restricted Common Law benefits to workers against their employers. As workers' solicitors slowly came to terms with the 1989 amendments the number of Common Law actions against employers increased until the State Government in 2001 again amended the Act to ban all Common Law actions against employers except where the worker had a permanent impairment of 15%, as assessed by a medical panel on the basis of whole person impairment. Furthermore the only damages which could be awarded were for past and future economic loss.

The outcome of the 2001 amendments has been to virtually abolish all Common Law actions against employers.

However the wording of the 1987 Act with respect to recoveries; s.151Z(1) and (2) means that the authority of J Murray-More no longer applies. A recovery can be obtained against a non-employer even where the employer has been partially liable for the injuries sustained to its worker.

Experienced workers compensation insurers' lawyers from 2001 had much less work because there are virtually no Common Law actions against employers. Their work decreased further when the Compensation Court was abolished, the cost scales changed to provide payments for one lawyer (not a solicitor and a barrister) and disputed claims referred to the Workers Compensation Commission.

Some workers compensation insurers' solicitors have actively marketed their services as s.151Z specialists and have offered to identify claims from the insurers' files where recoveries might be sought, then seeking instructions to issue proceedings.

This suits NSW WorkCover as the greater the recoveries the less the strain on the WorkCover deficit.

Since 2001 there have been more litigated recovery actions against public liability insured defendants. Having said that, we understand that by far the greater proportion of recovery actions are still brought against motor vehicle compulsory third party insurers, liability being typically easier to prove.

THE DYNAMICS WITH A RECOVERY ACTION:

The factors a defendant should know:

• The worker is not interested. The recovery is not his or her claim. The worker has been paid workers compensation benefits. He or she is not interested in remembering the exact circumstances of an accident which could have occurred more than six years ago. His memory of events and therefore evidence is not likely to be as acute as it would be if he was the plaintiff seeking damages.

• In most cases the employer must call the worker to prove its claim. Only by establishing the facts through the worker's evidence of how the accident happened, can the employer prove the negligence of the third party. As there is no financial interest to the worker, invariably the employer's solicitors will have to subpoena the worker. If the circumstances are in dispute as to precisely how the accident happened, the defendant has a far greater chance of having the worker make concessions under cross-examination, that it would if it was the worker's own action.

• There is no sympathy factor on the Bench. Judges appreciate that a recovery action is basically an insurer v insurer claim. The bench does not give priority to such actions. Priority is given to the actions of individual plaintiffs whose livelihood is at stake. The judge is not swayed by sympathy for the injured worker who may be bankrupted if he or she fails to win his case for damages. Thus the judge is more likely to objectively analyse the evidence, than if the worker was bringing his or her own damages action. The defendant has in our opinion a more objective prospect of defeating or reducing the claim. It is a more level playing field.

HOWEVER:

• The length of time since the accident can effect the memories of defence witnesses as well as that of the worker.

• It is therefore extremely helpful if there are contemporaneous records of the events on the day of the accident. These include an accident report identifying all witnesses, site foreman, safety officers and the like, statements by the worker, eye witnesses and the client's employees responsible for occupational health and safety. It is important to keep records of the contractual obligations on site.

• Other material which is useful are transcripts from earlier actions, for example an Occupational Health and Safety prosecution by WorkCover against the client in the Industrial Court or before the Chief Industrial Magistrate. Quite often such actions are many years before the recovery action is instituted.

• The handling of a defence to a recovery action is different to that of the plaintiff's damages action. The defendant's solicitors cannot write to the plaintiff's solicitors (workers compensation insurer's solicitors) to arrange a medical appointment of the worker. The plaintiff's solicitors do not act for the worker. They act for the employer. It would be necessary for the defendant's solicitors to make their own arrangements which would be extremely difficult. The worker is not a party to the proceedings. The parties are the employer and defendant. The defendant cannot force the worker to attend a medical examination. It is necessary to issue subpoenae to ascertain the worker's current medical condition, and thus the likely damages he would have been awarded if he had brought his own damages action.

• This is notoriously difficult. The reality is that often workers compensation insurers, the obvious target of such a subpoena, will not have the worker examined on a regular basis up to the date of the recovery action. Once a determination has been made as to the level of incapacity, that determines the statutory rate of weekly payments made. While it is open to workers compensation insurers to apply for a reduction in a compensation award, if the worker is under Court or Commission award, the success rates of such actions are low. Typically update medical examinations are not arranged by the workers compensation insurer after a determination of incapacity is made.

• Thus it is not easy to determine the current status of the worker's disability when a recovery action has been made. While subpoenae can be issued to the worker's treating doctors and general practitioners, it would not surprise if the worker had not been having update checks, given that he does not have his own action running.
  

4 EXAMPLES:

• Liability Clear
• Liability arguable
• Liability clearly in dispute
• Multi defendant matter

Workers Compensation insurer awaits recovery without issuing proceedings

EXAMPLE 1:

Accident 29 March 1998.

Cyclist riding downhill on footpath at 11.00 pm on mountain bike with no bell and no light.

He strikes proprietor of restaurant leaving front door, facing footpath, to make a delivery.

Injured proprietor is a working director of his company. He suffers brain damage. He recovers workers compensation benefits.

Years later workers compensation insurer's solicitors discover that cyclist had liability cover through a scheme organised through Bicycle NSW Inc.

Workers compensation benefits total $200,000.

Earlier Court proceedings: Police prosecution against cyclist. Convicted under s.53 Crimes Act for causing bodily harm by misconduct. Transcript Local Court February 1999 obtained.

10 March 2005 Statement of Claim issued against cyclist by employer of worker for recovery of workers compensation payments made.

All payments between 29 March 1998 and 10 March 1999 statute barred, being outside the six year limitation period (action commenced 10 March 2005).

Payments 29 March 1998-10 March 1999 deducted from $200,000

Other non-recoverable payments such as workers compensation insurer's legal costs and its own medical costs deducted.

Total deduction: $50,000

Therefore claim is for $150,000 plus interest on payments since 10 March 1999 plus costs.

Interest calculated on payments since 10 March 1999, on an annual basis at Court rates, totals $66,000.

Therefore calculation of interest more than offsets deduction for payments made beyond the six year limitation period.

Action:

Necessary to first calculate damages, as if worker had sued cyclist.

Taking into account brain damage, calculation comes to $300,000 (worker aged 55 years at time of recovery action).

Consider deduction for contributory negligence.

Contributory negligence not likely as worker would not reasonably expect a cyclist to be traveling on the footpath at speed on an unlit bicycle. No reduction for contributory negligence.

Therefore likely damages would exceed compensation payments made.

Decision - settle - early conference.

EXAMPLE 2:

Accident 6.00 pm 30 May 2001

Worker drives pantechnicon to client's premises to collect a shipment.

Worker regularly collects shipments for his employer from client's warehouse.

Client's practice to shrink wrap produce, load onto pallets and load pallets into trucks by fork lift. Fork lift driver employed by client.

After parking truck worker stood on ground guiding fork lift driver. But worker was not required to be there.

Fork lift driver loaded truck with pallets.

Fork lift driver saw damaged "lip" at rear of truck - raised 60 mm. He manoeuvred the pallets around it.

Worker directed last pallet load in remaining space at rear of truck where lip extruded.

Pallet jammed on lip.

Worker told fork lift driver to lift pallet and reverse. Fork lift driver did so.

Fork lift driver lowered load. Load began to move. Worker tried to stop load. Load too heavy. Load fell off and injured worker.

Worker sustained fractured left leg. Surgery in hospital; open reduction with plate/pin inserted.

Workers compensation benefits $40,000.

WorkCover prosecuted client under s.16(1) Occupational Health & Safety Act; failing to ensure persons not in employment not exposed to a risk to their safety.

Magistrate O'Shane 26 March 2003 found offence proved and fined client.

Statement of Claim in recovery action filed 27 January 2006 in Local Court at Downing Centre claiming $40,000 plus interest plus costs.

Action:

Assessment of damages should worker have brought action and succeeded: $70,000.

Reduce by 25% for contributory negligence (worker in a position he should not have put himself): $52,500.

Reduce by a further 50% for liability of employer: not ensuring that worker knew to keep away: $26,250

Plaintiff employer's case: $40,000 plus interest $10,000, plus costs $15,000: $65,000.

Our assessment: damages $26,250 plus interest $6,500 plus costs $10,000: total $42,750.

Dilemma: Magistrate findings irrelevant to alleged Common Law breach of duty. Findings concerned lack of documents of safe work procedure when loading freight, inadequate lighting, no system to control fork lift loading when persons in proximity.

At Common Law the worker was at fault in placing himself near the fork lift. Therefore liability dispute.

Decision: settle on a compromise basis - informal settlement conference.

Costs to consider: action in Local Court before a Magistrate, experienced in criminal actions, but not civil. Such actions are protracted. Action unlikely to finish in one day before a Magistrate given Magistrate's requirements to handle criminal actions.

EXAMPLE 3:

27 February 1995 employee of hospital taking a trolley of dishes to the kitchen via the hospital elevator. Elevator stopped at the floor she was getting out. She walked backwards pulling trolley and fell over. She fell because the elevator had stopped four inches above floor level.

Worker sustained back injury and underwent spinal surgery.

Workers compensation insurer paid $195,000 in workers compensation.

Client was the contractor for servicing and maintaining the elevators. Client had repeatedly advised hospital that the elevators were not leveling and requested money to carry out necessary repairs. These requests were refused.

The solicitors for the workers compensation insurer instituted recovery proceedings against the client and the manufacturer/installer of the elevator.

Client not even advised of accident until Statement of Claim was issued by workers compensation insurer's solicitors.

The cause of the lift not stopping was the precise problem of which the client had warned the employer. Thus any liability on the client was extremely dubious.

Plaintiff's solicitors (workers compensation insurer's solicitors) issued recovery proceedings 19 March 2001, with allegation that client had breached its maintenance contract with the relevant Area Health Service (employer).

Plaintiff employer claimed $195,000 plus $ 104,000 in Interest, plus costs.

A robust defence was adopted. Plaintiff's solicitors were very slow in complying with timetable for particulars etc.

Client's employees interviewed and their evidence given to plaintiff's lawyers in an attempt to persuade them to drop the case. Instructions to fully contest matter.

Verdict for client agreed on 11 December 2002, with compromise that client pay its own costs.

EXAMPLE 4:

30 November 2003 cleaner operating scrubbing machine in shopping centre.

Awning falls off wall and hits head and shoulders of worker.

Awning not properly screwed on ten days before.

On 29 November 2003 two other awnings had fallen down. This had been reported by Centre Security to Centre Manager. The employer was advised. Employer did not advise worker.

Worker sustained neck and shoulder injuries. Off work since accident. On continuing workers compensation benefits.

2005 Statement of Claim issued by worker against owner, installer and cleaning contractor.

Worker did not issue against employer because of threshold (15% WPI) in Workers Compensation Act.

Workers compensation benefits paid to date $30,000.

Action:

In acting for one or more of three defendants:

• Assess damages: worker aged 34 years: $300,000

• Consider contributory negligence: nil. Worker not aware of badly attached awnings.

• Consider liability of employer if joined: 30%.

• Make deduction as per s.151Z(2) from notional damages: $210,000.

• Given likely damages most probable that employer, although sharing in notional Common Law liability, would receive refund of workers compensation payments made at $30,000.

This is typical of a case where there are:

• Multiple defendants not including employer.

• Plaintiff does not sue employer because of Workers Compensation Act threshold.

• Employer (workers compensation insurer) sits in background confident of obtaining a recovery of payments made, plaintiff being successful against at least one defendant. Therefore does not issue recovery proceedings under s.151Z(1).

CONCLUSION:

The important points to note are as follows:

• The prospects of recovery by the employer/workers compensation insurer are not reduced by the percentage liability of the employer, unless that contribution would take the damages below the amount of compensation paid.

• The prospects of recovery are not reduced by a worker's contributory negligence, unless the contributory negligence percentage would take the damages below the amount of compensation payments made.

• Necessary to assess the damages likely to be awarded. If they are higher than the workers compensation paid, then the employer will obtain full recovery.

• If litigation issues Interest can substantially inflate the claim.

• However there will be cases where the liability of the client is in issue. Solicitors for the workers compensation insurers realise this. They are aware that it is easier to obtain recoveries from motor vehicle compulsory third party insurers.

• At the end of the day WorkCover looks at statistics as to money recovered.

• WorkCover is not keen on paying expensive legal fees for protracted actions against public liability insured defendants where liability is in dispute.

• Adopt a robust defence if liability is clearly in dispute.

• Where liability is arguable or clear, attempt to settle early on compromise basis.

Patrick Thompson
28 September 2006

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