Insurer decision to decline cover to an insured under a management liability policy for payment of employee entitlements upheld by the court.
In issue
- In this case, the applicant sought indemnity pursuant to a Management Liability Policy (Policy) in respect of the costs it incurred in compromising claims brought by employees for failure to pay entitlements.
- Insurers denied cover under the Policy on numerous grounds, including that the operative clause of the Policy was not triggered as the claims were not for a 'loss' (under the Policy) and that the claims were not in respect of a 'Wrongful Act' (under the Policy).
- Further, to the extent that the operative clause was triggered, insurers relied upon numerous extensions, including in relation to contractual liabilities, business liabilities, or obligations under an industrial instrument, to exclude cover to the applicant.
The background
The applicant is a real estate agency based in Perth, Western Australia.
In or around 2014, there was a change to the Real Estate Industry Award 2010 (WA) (Award), which required the applicant to enter into new employment contracts with its sales staff who had formerly been classified as 'commission only' employees.
From early 2015, the applicant held employment with at least 12 individual employees (Employees) on the basis that they would be remunerated by way of commission on their sales, pursuant to clause 16 of the Award. However, the applicant did not strictly comply with the requirements of the Award (namely, the execution of a written agreement), which resulted in a number of the Employees remaining eligible for the accrual of certain rights, such as a minimum wage and the accrual of annual and long-service leave.
During the period 10 August 2020 to March 2021, the Employees each pressed demands (Demands) against the applicant relating to the Employee’s accrual of unused or unpaid annual and long service leave, unpaid commissions, unlawful deductions, underpayment of minimum wages and unpaid motor vehicle and telephone allowances.
From 11 August 2020, the applicant sought cover for the Demands under the Policy. Cover was declined to the applicant on at least 5 occasions. Proceedings were commenced by the applicant, seeking to challenge insurers decision to decline cover.
The decision at trial
Following trial of the matter, the court made findings that:
- the claims advanced did not constitute a 'loss' within the meaning of the Policy,
- the claims advanced were not 'claims' within the meaning of the Policy (as they were not 'for compensation or damages'), and
- even if the claims were within the scope of the Insuring clause, they were nevertheless excluded by the 'contractual liabilities', 'business liabilities' or 'obligations under an industrial instrument' exclusions.
In essence, the court found that the Policy did not provide any avenue for payment to Attree in respect of the shortfall in the amounts which it had been obliged to pay as the cost of engaging its Employees. The payments made in settlement of their claims merely represented the fulfilment of its antecedent obligations to pay its employees their full entitlements. Attree did not suffer any 'loss' because it had already agreed to pay those amounts as the consideration for the Employees’ services which it received.
Implications
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.
