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LIABILITY ISSUES ON AGENDA FOR AUSSIE ENTITIES

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SYDNEY, Australia-Increasing liability claims and awards against local governments offer important lessons and opportunities for public entity risk managers.

That was the message from lawyers to delegates at the fourth annual Australian Public Risk & Insurance Managers' Assn. Conference.

Speakers warned risk managers that council officers can be sued personally; that employees as well as property owners and injured members of the public can sue councils; and that damage awards are escalating. They also issued a warning that businesses must take steps to ensure that they are in compliance with pertinent laws and regulations, as courts no longer are accepting ignorance as a defense and are increasingly demanding that companies know and follow the law.

But one lawyer said the current climate allows public entity risk managers to demonstrate their skills.

Another lawyer, Chris Wood, a partner in the Sydney law firm McCabe Brown, said the 22 metropolitan councils in the state of New South Wales have seen a 30% increase in the number of liability and professional negligence claims in the past five years.

The New South Wales government in 1995 capped payouts in workers compensation and compulsory third-party vehicle claims. Third-party coverage is required of all vehicles, personal and commercial, in all Australian states. But the downside has been an increase in general liability claims, as claimants sought other avenues to gain compensation for injuries.

Mr. Wood said the large liability claims, which "are invariably insured on the commercial market, with the cost being defrayed through excess insurers or reinsurers," are a lesser problem for local authorities than the smaller, high-frequency claims.

He called on the New South Wales government to implement a minimum claim amount to weed out small claims and to implement statutory defenses for local authorities, including rewards for "genuine risk management efforts."

Mr. Wood said the New South Wales government is unlikely to put a statutory cap on personal injury claims. APRIMA is lobbying for such a cap. But the government "is not adverse to considering other ways" to limit the impact of high-frequency, low-to-mid-range cost claims.

With local governments' deductibles ranging from $10,000 Australian ($7,760) to as high as $100,000 Australian ($77,600), the argument that insurance is affordable is invalid, he said.

Although the Australian liability market overall is soft, "soft rates are illusory if insurance is available" only to local governments with big retentions, he noted.

Mr. Wood said the New South Wales court system, in which the District Court uses arbitrators to try to resolve claims before they go to court, is contributing to councils' costs.

Too many District Court arbitrators reach decisions "designed to appease all parties," he said. "In other words, find for the plaintiff, but award reduced damages" to dissuade parties from seeking a court rehearing.

Mr. Wood said councils' possible defenses are being "ignored or misunderstood, deliberately or otherwise" by the majority of District Court arbitrators in an effort to find for injured plaintiffs. Although claimants bear the burden of proof,"the hurdles they are required to clear to establish liability are minimal."

"Can a system which forces government and local authorities to divert funds from other pressing areas to meet small, high-frequency claims be said to be working?" he asked.

Attorney Michael Down, a Sydney partner with law firm Phillips Fox, warned public risk managers that they and other council employees can be sued personally. Government entities' employees traditionally enjoyed an immunity from prosecution as "servants of the Crown," but legislation has watered down that immunity, he noted.

In New South Wales, for example, the Law Reform (Vicarious Liability) Act 1983 and the Employees' Liability Act 1991 mean government employees can no longer enjoy immunity from tort suits and are being named personally in proceedings seeking damages for negligence, Mr. Down warned.

However, he said the Crown could not seek indemnity from an employee unless the conduct was serious and willful, or did not occur in the course of employment, or did not arise out of employment.

And the Federal Insurance Contracts Act 1983 prevents an employer's insurer from exercising, under subrogation rights, the employer's right to claim against an employee, unless serious or willful misconduct has occurred.

He warned that penalties could include damages, interest and costs for both the claimant and the defendant's own defense costs.

Attorney Diane Beer, a partner with the Sydney firm Abbott Tout, said local authorities should implement legal compliance programs.

"Compliance is expensive but essential," she said, before warning that non-compliance is even more expensive. Breaches of some sections of the federal Trade Practices Act attracted penalties of up to $10 million Australian ($7.8 million) for a corporate entity, including a council, and $500,000 Australian ($388,200) for an individual. Councils cannot pay pen-alties imposed on officers personally, Ms. Beer said.

Successful compliance programs require commitment, an acceptance of responsibility by appropriate council officers, and education and training. A compliance program needs to be continually reviewed and updated as councils' activities, staff, the law and potential risks change, she said.

Ms. Beer warned council risk managers that they must be confident that contractors are addressing risks when council functions are outsourced.

"When something goes wrong, who is responsible to the ultimate consumer?" she asked. "The public sector organization, the contractor, or an insurance company?"

Public sector entities should not assume that responsibility lies with the contractors. "Simply because a council has outsourced its garbage collection service, for example, does not mean that council is absolved of responsibility for the standard of the service, or liability to the user of the service."

But the message was not all bad for public risk managers. Marianne Rob-inson, manager-research with Sydney-based underwriter GIO Australia Ltd., said the environment created by the increase in liability claims means risk managers can prove their worth.

"Don't allow the legal profession to fill you with despair and despondency. Lawyers are not risk managers; they are reactive to things in the past. Don't get bogged down by the past," she said.

Courts today want to see implementation of sound risk management plans. Through due diligence defenses, they give risk managers "a platform" from which to sell their skills.

"At a time when the public sector dollar is rapidly diminishing, risk managers have the ideal opportunity to demonstrate how proactive risk management can save money," she said.

"Risk managers are, by definition, survivors. Daily they run the gauntlet of disinterest in their activities and damage control for the sins of others whose actions or policies have failed," Ms. Robinson said.

But by providing solutions to the developing problems, risk managers could help the public service dollar go further. The challenge for today's risk manager is to give up the "knowledge is power" style of management and ensure that knowledge is shared so risk management commitments and concepts filter down, she said.

"The dilemma facing risk managers is that for years they have endured lack of recognition and been regarded as simple insurance purchasers."

Suddenly the high profile given to corporate governance and legal compliance has created an environment in which they can achieve recognition, she said.