Common law and recoveries

Overview

If a worker’s injury is caused wholly or in part by the negligence of a person(s) other than the employer, then the insurer may recover compensation from that other person. The ‘other person’ is commonly referred to as the third-party.

Early screening of new claims to identify potential recovery allows insurers to collect evidence around the circumstances of the accident and the culpability of the parties involved.

In all third-party recovery matters, it is necessary to establish that a person(s) other than the worker’s employer is liable to pay damages for the injury/illness sustained by the worker. An insurer may commence action for recovery directly against the third-party. The worker does not have to sue the third-party – it is sufficient for the worker to have an entitlement to sue (an entitlement to damages).

Part 5, Division 5 of the Workers Compensation Act 1987 (1987 Act) provides the legislative mechanism for recovery. A proper understanding and effective use of recoveries can benefit employers by reducing their overall cost of claims.

This Insurer guidance looks at common types of recoveries and the operation of the legislation.

Early screening for potential recovery

Standard of practice S6. Recoveries specifies initial screening within 15 working days of receipt of a new claim. Early screening allows insurers to obtain evidence surrounding the circumstances of the accident and the culpability of the parties involved. This evidence is important in order to assess the extent of any liability of the third-party and any contributory negligence on the part of the worker.

The mechanism used to screen potential recovery claims is a matter for the insurer and will be informed by the nature and size of their insurance business.

Common recovery types

Scenarios that may lend themselves to recovery action include:

• injury as a result of a motor vehicle accident
• worker injured while on third-party premises
  • labour hire
  • working away from base
  • multi-party worksites eg construction site
• slips, trips and falls eg while on an authorised break away from workplace
• assaults (in very limited circumstances)
• Australian Consumer Law claims.

Motor vehicle accidents and workers injured on third-party premises represent most recovery actions in the NSW workers compensation system.

How recoveries operate in practice

Section 151Z(1) of the 1987 Act states that for the section to operate there must be a third-party (other than the worker’s employer) liable to pay damages for the injury sustained by the worker. Once an insurer has identified that there is a third-party, then section 151Z(1) (a) to (f) needs to be considered.

Section 151Z(1)(b) of the 1987 Act provides that if a worker firstly recovers compensation and then later recovers damages:

• they must repay out of the damages the compensation received from the insurer, and
• they are not entitled to any further compensation.

This brings an end to their workers compensation rights and generally allows the claim to be closed.

In practice, workers will generally claim weekly payments and medical expenses immediately following the injury from their employer’s workers compensation insurer. Once the injury has stabilised, the worker may then choose to bring a claim for damages against the employer or other insurer, for example, the compulsory third-party (CTP) insurer or the public liability insurer.

If a worker recovers damages first, there is no entitlement to workers compensation benefits.

It is important to understand that the liability of the third-party is limited to an amount that the third-party would, but for the legislation, be liable to pay to the worker at common law.

When a worker brings their own claim for damages

Against a third-party only

If the worker sues the third-party directly and recovers damages, the worker must reimburse the workers compensation insurer for the amount of compensation paid. A worker cannot ‘double-dip’ and retain both damages and compensation.

If a worker sues the third-party only, the third-party may seek to join the employer and other parties to the proceedings. Once the worker recovers damages, they will cease to be entitled to any further compensation under the Acts and the workers compensation claim can usually be closed once the damages, legal costs and any other outstanding invoices are paid.

If the employer has not been joined to the proceedings, there is a risk that the worker’s damages may be paid without the appropriate recovery to the employer. Insurers should exercise diligence to avoid over-payment of statutory compensation to workers and to ensure they proactively recover out of the worker’s damages.

If payments are made by the workers compensation insurer after the worker has settled their third-party claim, then the right to recover is against the worker (not the third-party insurer). This can be difficult in practice and is best avoided by careful management of the claims.

Against the employer and a third-party

If the worker sues the employer as well as one or more third-parties, then the amount of compensation that can be recovered by the workers compensation insurer depends on the extent of the third-party’s contribution towards the cause(s) of the worker’s injury.

The assessment of damages under the Motor Accidents Compensation Act 1999 (MACA), Motor Accident Injuries Act 2017 (MAIA) and the Civil Liability Act 2002 (CLA) is different to the way in which work injury damages are calculated under the Workers Compensation Act 1987.

Work injury damages are only payable if the worker has at least 15 per cent whole person impairment and the damages are limited to past and future economic loss only.

A claim for damages under the MACA, MAIA or CLA will potentially recover damages for past and future economic loss, treatment and care expenses, domestic assistance, and non-economic loss, etc – subject to meeting the thresholds and specific requirements of the separate legislation.

Where a worker commences against both an employer and non-employer, different damages calculations will apply in respect of the same incident. Legal providers who are experienced and understand the complexities of the different legislative regimes and how they interact will be able to assist insurers in this regard.

If the employer is found to be liable to pay damages to the worker, then the workers compensation insurer will receive ‘credit’ for the compensation already paid and pay the balance of their portion of the damages. If the amount of damages to be paid by the employer is less than the amount of compensation already paid, then the workers compensation insurer will ‘recover’ the difference out of the worker’s overall damages award.

In practice, many multi-party matters settle at mediation or informal settlement conference. Insurers should provide an accurate and up-to-date list of payments prior to any mediation or settlement conference, to allow the mathematical calculations to be undertaken accurately by all the parties.

Insurer attendance at mediations and settlement conferences can assist in achieving settlement and provide opportunities for case managers to better understand the complexities of the legislation. Refer to Insurer guidance GN 8.2 Insurer participation in disputes and mediations for more information.

Against the employer only

Where the worker brings a claim for damages solely against the employer (a work injury damages claim), then an ‘accounting’ or credit for payments made exercise is undertaken (rather than a true third-party recovery). This means that the employer gets credit for payments of weekly compensation already made under the Act.

In a claim for damages against the employer (a work injury damages claim), the worker’s damages are limited to past and future economic loss only and so credit is only for the weekly payments paid.

If a worker decides not to bring a claim for damages

There can be circumstances where a worker claims statutory workers compensation benefits only and chooses not to bring a claim for damages, despite being entitled to do so. There can be good reasons for this. For example, a worker with highest needs (degree of permanent impairment greater than 30 per cent), who has significant ongoing treatment and care needs and is entitled to have those met under the statutory scheme may choose not to exercise their right to bring a claim for damages.

An insurer may commence action for recovery directly against the third-party/parties, in the name of the employer (see clause 12 of Schedule 3 to the Workers Compensation Regulation 2016 for more on subrogation). The worker does not have to sue – it is sufficient for the worker to have an entitlement to sue (an entitlement to damages). The insurer can bring the claim ‘in the shoes of the worker’ to get a determination on liability and a notional assessment of damages.

The claim is brought under section 151Z(1)(d) of the 1987 Act. If a liability is established and the notional damages exceed the amount of compensation paid, then the third-party is required to indemnify the workers compensation insurer for the full amount of compensation paid (section 151Z(2)(e) of the 1987 Act).

The notional damages will establish a pool out of which any future compensation payments may be recovered. If the notional damages are less than the workers compensation payments, then the recovery is restricted to the amount of damages assessed.

An employer is only entitled to litigate to recover on one occasion and that action will set the notional pool of damages for all time. In practice, commercial insurers will often seek to reach an agreement to pay a lump sum that will finalise their obligations (rather than pay regular reimbursements to the workers compensation insurer).

Experienced recovery practitioners can assist employer/workers compensation insurers in managing these matters.

Other practical considerations in third-party recoveries

Interim payments

It is not uncommon for workers compensation insurers to issue a ‘letter of demand’ on a third-party insurer (eg a CTP insurer or public liability insurer). The third-party insurer may respond by sending a cheque by way of initial payment (to avoid any future claims for interest).

Insurers are encouraged to carefully examine any accompanying letters from a third-party insurer to make sure there is no assertion that the payment is made in ‘full and final settlement.’ If the insurer does not reject the assertion by the third-party insurer by either returning the cheque (unbanked) or by confirming in writing that the cheque will only be accepted as an interim payment, there may be a risk that the third-party insurer will later assert that the right of further recovery was extinguished.

Insurers may wish to diarise reminders for further periodic recoveries as part of their ongoing management of the claim.

Legal costs and interest

Legal costs in recovery matters, particularly multi-party matters where there are different damages regimes in play, can be complex and significant. The question of costs can be an incentive (or a barrier) to settling matters and insurers should carefully consider cost implications at each stage of the legal proceedings.

Interest on recovery claims can be significant. Interest cannot be claimed on recovery matters where Court proceedings have not been commenced.

Dual insurance

Dual insurance is when two independent insurers indemnify the same insured against the same risk with two different policies. It is not necessary for the insurances to be identical – for example, one may be for workers compensation and another for CTP coverage under the motor accidents injury scheme.

The insured cannot recover more than the loss suffered and indemnified under each of the policies. As both insurers are liable, the doctrine of contribution between insurers has developed in the Courts to ensure appropriate apportionment of claim costs.

Changes to the NSW CTP scheme

The Motor Accident Injuries Act 2017 (MAIA) introduced a new CTP scheme for NSW. Workers injured in a work-related motor vehicle accident on or after 1 December 2017 must first bring any claim against their employer’s workers compensation insurer for statutory benefits (see section 3.35 of the MAIA).

The changes to the CTP scheme represent a significant shift from a common law regime to a statutory benefits scheme and will impact third-party recoveries for workers compensation insurers.

Further amendments were made to the MAIA and the 1987 Act in December 2018 to address anomalies arising out of the interaction between the two Acts. The amendments specifically deal with recoveries and impact the management of recoveries for motor accidents on or after 1 December 2017.