How the Sentencing Amendment Act 2014 could impact your business
From 6th December 2014 the Sentencing Amendment Act comes into force. This Act introduces changes that extend the ability of the New Zealand Courts to award compensation for losses suffered as a result of personal injury.
Quick Summary
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Change to the law allows Courts to impose a sentence of reparation to meet any shortfall in a victim’s statutory ACC compensation
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Only impacts criminal liability. Unlikely to change civil cases
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Main area of impact is Health & Safety in Employment Act
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Will result in awards of larger reparations and potentially more expensive defence costs
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Is already covered under most regular Statutory Liability insurance policies
Background to Sentencing Amendment Act 2014
In 2009 the Supreme Court in Davies v NZ Police overturned the decisions of the High Court and Court of Appeal and ruled that loss of earnings consequential on physical harm are not subject to reparations under the Sentencing Act 2002 where the victim had some entitlement under the Accident Compensation Act 2001.
However, the Government now considers that sentences of reparation should be able to top-up any shortfall in a victim’s statutory ACC compensation and as a result the Sentencing Amendment Act 2014 has been passed into law effectively overturning the Supreme Court’s decision.
What changes to the Sentencing Act means
The Sentencing Amendment Act only has application where there are criminal proceedings. It was introduced as the “Victims of Crime Reform Bill” and, although there has been some mixed legal commentary, the changes it makes to legislation do not affect the civil liabilities that an offender may have in relation to any incident. A merely negligent party who has not committed a crime remains immune from this change.
One of the major areas affecting all New Zealand businesses where the Sentencing Amendment Act will have potential impact is the Health & Safety in Employment Act 1992 (HSE Act). Under the HSE Act duties are imposed on a wide range of businesses and people including all employers, principals, self-employed persons, employees and volunteers to maintain a safe working environment. Where there is a breach of the HSE Act the offender may face a criminal prosecution and this could include claims from injured parties.
In the previous legal environment an injured party may have faced a shortfall in what they received from ACC:
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1. Due to the 80% cap on weekly compensation payments, 20% of a claimant’s loss of income is not recoverable
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2. ACC payments are capped at a maximum of $1,847.23 per week
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3. ACC calculates its support figures using actual earnings figures and does not reflect if prior to their incapacity the victim’s earnings were unusually low
Through the changes introduced by the Sentencing Amendment Act the Courts will now be able to use sentences of reparations to top-up this shortfall of ACC payments and claimants will now also be able to recover medical bills and loss of benefits.
Insurance Response
In New Zealand Statutory Liability policies will respond to a breach of the HSE Act unless they are amended to the contrary. While it is not currently possible to insure for fines or penalties awarded for a breach of the HSE Act, policies will indemnify the insured where they are sentenced to pay the victim reparations.
Therefore, the liability arising from this change does not create an uninsured risk, however it does potentially impact the amount of cover that is now appropriate. The top-ups that can now be awarded through reparations are not insignificant.
Where the injured party is a healthy 40 year old earning an annual salary of $50,000, who suffers a severe injury that prevents them working for the rest of their life, the 20% shortfall in their weekly income alone could amount to $250,000. Extrapolate this out to a 40 year old executive on a salary of $150,000 and the additional reparations that can be awarded under the new regime could be over $1.2m.
It remains to be seen whether the Courts have an appetite to make substantial awards like this, but even topping up salary for one year will mean a significant change in an employer’s exposure. The comments of Judge Smith in Worksafe NZ v Woods Contracting Services Limited could provide an insight as to how the Courts may behave;
“I am unable to provide Mr Searle with the loss of wages between the 80 percent and 100 percent wages which he has suffered. That is because the ACC legislation prevents me from re-adjusting those figures, irrespective of what I would have thought was appropriate. So I am restricted, therefore, to considering the actual losses over and above wages and an amount for emotional harm”.
The legal costs of defending an action will also increase considering that significantly more time and expense will be required to examine the validity of compensatory claims.
There is also a potential impact for Motor Vehicle and Public Liability insurance policies where there is exposure to claims for reparation awards from various negligence based criminal convictions.
Sentencing Amendment Act will impact reparation
The Sentencing Amendment Act 2014 will likely result in an increase in reparation awards.
Statutory Liability insurance policies will continue to provide cover for reparation awards as they have done in the past.
However, all insureds should undertake a review of the limit of liability of their Statutory Liability insurance policies in light of the fact that there is now greater potential for awards of higher reparations.