December 2020

Workers Compensation Recoveries - a money saving opportunity, if done well

Not all employers pay insurance companies to manage employee work-related injury claims and compensation. Many choose to self-insure, either individually or through a mutual specialised insurer like StateCover.

This approach offers significant benefits as well as risks and obligations.

Section 151Z – the employer’s friend

One benefit is the ability to recover compensation paid to an employee, where a third party is responsible for the employee’s injury. Given that compensation payments are a direct expense to your business, any opportunity to recover them should be taken.

This ability is granted by Section 151Z of the Workers Compensation Act 1987 (NSW).

The key is to establish that a third party either caused, or was in some way responsible for, your employee’s injury, and that they are liable to pay damages to your employee.

What are damages?

Damages are paid to compensate for a loss or injury. Unlike compensation, they are a once-and-for-all lump sum payment as opposed to periodic payments over time.

Entitlement to damages for personal injury is governed by common law principles of negligence. Over time those principles have been written into different pieces of legislation.

For example, a worker injured in a car accident will only be entitled to damages if they satisfy the Motor Accidents Compensation Act 1999 (NSW) or the Motor Accident Injuries Act 2017 (NSW), depending on the date of the accident.

Otherwise, the Civil Liability Act 2002 (NSW) will likely apply. It covers trips, slips and falls, manufacturing defects, nervous shock and even assaults.

For an employer to recover payments made, the damages the worker may be entitled to must exceed the compensation payments they have received.

Are all workers compensation payments recoverable?

The short answer is yes, as long as the payments of compensation are in fact payments of compensation.

For example, payments made for legal or investigation expenses, which are not categorised as compensation under the Act, are not recoverable.

The following workers compensation payments are recoverable:

  • Weekly payments

  • Medical expenses

  • Lump sum compensation

  • Property damage payments

  • Commutation payments

  • Death benefits.

Note that compensation paid for unrelated work injuries is not recoverable. The liability of the third party to pay damages to the worker and the liability of the employer to pay compensation must arise out of the same injury.

The only other restriction relates to motor vehicle accidents from 1 December 2017, for which only weekly payments of compensation can be recovered.

Lump sum compensation paid under sections 66 and 67 can also be recovered if the worker satisfies the greater than 10% whole person impairment threshold in the Motor Accident Injuries Act 2017 (NSW).

How it works

Typically, an employee claims and receives workers compensation payments following an injury. From here, two rights of recovery exist.

The first right is directly against the third party who caused the employee’s injury. This requires a letter of demand to that party (or, more appropriately, their insurer given they will be the one writing you a cheque).

The letter provides the compensation payments made to the employee, the evidence for the third party being responsible for the injury, and the medical evidence confirming the employee’s injuries.

From here, negotiations for reimbursement begin. Issues such as liability, contributory negligence, the damages the worker is entitled to, the effect of any previous or subsequent injuries, and the effect of any employer negligence, will all be considered.

If negotiations break down, Court proceedings may be commenced.

The second right arises if your employee has already received damages from the third party responsible for their injuries. That right of recovery is directly against the employee themselves.

This right exists to avoid an employee being doubly compensated for an injury.

The legislation says an employee must repay workers compensation payments once they receive damages for the same injury.

The reason for two rights of recovery is that not all employees seek damages from the third party. In that case, an employer must be able to seek the recovery from the third party themselves.

Limitation period

Following each payment of compensation, parties have six years to:

  1. Recover the payment

  2. Obtain a written admission of liability from the third party (which has the effect of re-starting the six-year limitation period from the date of the written admission) or

  3. Commence Court proceedings to recover those payments.

While six years seems a generous time, the reality is that the evidence to support a claim for damages is much easier to obtain just after an injury. The moral: don’t wait six years.

The Bartier Perry Team

Our new and highly experienced Recoveries team have recovered millions of dollars for clients, and helped recoveries become standard in workers compensation setups across NSW. Our team also provides insights into trends and organisational issues that can impact recoveries and the risk of future injuries.

Author: Michael Lamproglou