Employer's Liability Insurance in NZ: What Employers Need to Know

The ACC Misconception

Many employers believe that because ACC covers workplace injuries, they do not need employer's liability insurance. This is a dangerous misconception that leaves businesses exposed to potentially significant uninsured losses.

ACC is the no-fault accident compensation scheme — one of the most comprehensive in the world. It covers medical treatment and 80% of income replacement for employees injured at work, regardless of fault. However, ACC does not cover everything. Employer's liability insurance is designed specifically to fill the gaps that ACC leaves open.

What ACC Does NOT Cover

The following are not covered — or are only partially covered — by ACC:

Exemplary Damages the courts can award exemplary damages (a form of punitive damages) against employers who show a reckless or callous disregard for employee safety. These awards, while rare, can be substantial and are not covered by ACC.

Work-Related Gradual Process Claims Some occupational diseases and gradual injury conditions may fall outside ACC's coverage, particularly where the causal link between work and condition is disputed. Claims for these conditions may be pursued as employer's liability claims.

Psychological Injury Without Physical Injury Pure psychological injury — such as stress, anxiety or PTSD caused by workplace events — may be covered by ACC in some circumstances, but coverage can be disputed. Employer's liability insurance covers defence costs for these claims.

Legal Defence Costs Even when ACC is paying compensation to an injured employee, an employer may still face legal action. Employer's liability insurance covers your legal defence costs in Employment Relations Authority proceedings, court cases and WorkSafe NZ prosecutions.

Claims Exceeding ACC Entitlements For serious injuries, the total compensation provided by ACC may be significantly less than an employee's actual loss. Employees can pursue employers for losses beyond ACC through civil litigation. Employer's liability insurance covers this gap.

WorkSafe NZ: An Increasing Prosecution Risk

The Health and Safety at Work Act 2015 (HSWA) significantly increased the liability exposure of businesses. WorkSafe NZ, the regulator, has become more active in prosecuting businesses and individuals following workplace accidents, and fines have increased substantially.

Key facts about WorkSafe NZ prosecutions:

• Fines for businesses can reach $500,000 per breach under the HSWA
• Individual officers (directors, senior managers) can be personally fined up to $300,000
• Prosecutions can take years to resolve — legal costs alone can be crippling
• Even businesses with no prior safety failures can face prosecution if an incident occurs

Statutory liability insurance covers defence costs and fines arising from WorkSafe NZ prosecutions and other statutory breaches. Employer's liability and statutory liability are often sold together as a combined policy.

What Employer's Liability Insurance Covers

A standard employer's liability policy covers:

• Legal defence costs for claims by employees for work-related injuries or illness
• Compensation awarded to employees for losses beyond ACC entitlements
• Exemplary damages awarded by courts for particularly egregious employer conduct
• Employment Relations Authority proceedings costs (often included or available as extension)
• Manslaughter investigation costs following a workplace fatality

What Employer's Liability Insurance Does NOT Cover

• Injuries covered by ACC (employer's liability is designed to complement, not duplicate, ACC)
• Deliberate or criminal acts by the employer
• Contractual obligations assumed beyond legal liability
• Bodily injury to non-employees (covered by public liability)

Recommended Cover Limits

Employer's liability is typically sold with combined limits alongside statutory liability. Common limits:

• Small businesses (under 10 employees): $1–2 million per claim
• Medium businesses (10–50 employees): $2–5 million per claim
• Larger businesses or high-risk industries: $5–10 million+

Industries with higher risk of serious injury — construction, manufacturing, agriculture — should consider higher limits reflecting the potential severity of a major claim.

Managing Employer Liability Risk

Insurance is one layer of protection — but risk management is equally important:

Workplace Health and Safety Management A robust H&S management system, documented safe work procedures, regular hazard assessments and employee training all reduce the frequency and severity of workplace incidents.

ACC Management Plans Working with ACC to manage injured employees' return to work can reduce your overall ACC levy costs and demonstrates a commitment to employee welfare.

Employment Agreements and HR Policies Clear, legally compliant employment agreements and HR policies reduce the risk of employment relations claims. Annual review by an employment lawyer is recommended.

Incident Reporting All workplace incidents — not just injuries — should be documented and investigated. This creates a record that demonstrates due diligence if a claim or prosecution subsequently arises.

Getting the Right Cover

Employer's liability and statutory liability are typically packaged together as a combined policy . The right broker will ensure your policy covers all your activities, all your employees (including contractors in some circumstances), and provides adequate limits for your business size and risk profile.

Connect with a specialist insurance adviser through our website to get advice on employer's liability cover appropriate for your business.