The Rising Regulatory Risk for Businesses
the regulatory environment has become significantly more demanding over the past decade. The Health and Safety at Work Act 2015, the Privacy Act 2020, the Fair Trading Act, and a range of other legislation impose obligations on businesses — and the consequences of non-compliance have never been more severe.
WorkSafe NZ has increased the number and severity of prosecutions following workplace incidents. The Commerce Commission has become more active in Fair Trading Act enforcement. The Privacy Commissioner has received record numbers of breach notifications since the new Privacy Act came into force. Companies and directors are facing fines that were previously uncommon in the regulatory landscape.
Statutory liability insurance is the cover specifically designed to address this growing risk.
What is Statutory Liability Insurance?
Statutory liability insurance covers a business's legal defence costs and fines arising from alleged breaches of legislation, where those breaches are unintentional. Key legislation typically covered includes:
Health and Safety at Work Act 2015 (HSWA) WorkSafe NZ's primary enforcement legislation. Under the HSWA:
- Companies can be fined up to $1.5 million per offence
- Individuals (including directors and officers) can be fined up to $300,000 personally
- A term of imprisonment of up to 5 years applies for the most serious offences
- Prosecution can follow even where the business had good health and safety practices, if an incident occurs
Privacy Act 2020 Fines of up to $10,000 per offence under the Privacy Act, with the potential for higher damages through civil proceedings. The Act's mandatory breach notification requirements mean that Privacy Commissioner investigations can arise after any significant data breach.
Resource Management Act 1991 Environmental non-compliance can result in substantial fines under the RMA. Businesses operating near waterways, dealing with waste or managing land use need to be mindful of RMA compliance.
Building Act 2004 Building work that doesn't comply with the Building Code can trigger Building Act prosecutions. Penalties include fines and liability for remediation costs.
Food Act 2014 and other sector legislation Businesses in food production, healthcare, transport and many other sectors are subject to specific statutory obligations with associated fine and prosecution regimes.
What Statutory Liability Insurance Covers
A standard statutory liability policy covers:
Legal Defence Costs The cost of engaging lawyers to defend a prosecution or investigation — which can be substantial even before any fine is imposed. Legal defence in a contested WorkSafe prosecution can easily cost $100,000–$500,000.
Fines and Penalties (where insurable) Note: some categories of statutory fine are not insurable — specifically fines intended as punishment or deterrent. However, many regulatory fines and penalties can be covered by statutory liability insurance, including:
- WorkSafe infringement notices and fines
- Commerce Commission fines
- Local authority fines under resource management or building legislation
Reparation Orders In some cases, courts can make reparation orders requiring payment to victims. Some policies cover court-ordered reparations.
What Statutory Liability Insurance Does NOT Cover
- Criminal fines imposed because of intentional or deliberate unlawful acts
- Fines arising from fraud, dishonesty or wilful non-compliance
- Civil compensation claims (covered by public liability or professional indemnity)
- Prior known non-compliance or deliberate decisions to contravene legislation
WorkSafe NZ: The Biggest Statutory Liability Risk
WorkSafe NZ is the most active regulatory prosecutor for most businesses. Its prosecution activity has increased consistently since the HSWA came into force in 2016, and fines have reached record levels.
Key WorkSafe NZ facts:
- WorkSafe receives around 70,000+ incident reports per year
- It initiates prosecutions in cases where there is sufficient evidence and public interest
- The average fine for a company in a contested WorkSafe prosecution exceeds $300,000
- Directors and senior managers can be personally prosecuted as PCBUs (Persons Conducting a Business or Undertaking)
- Even businesses with good safety records can face prosecution if an injury or fatality occurs
The Personal Liability Dimension
Under the HSWA, "officers" of a company — directors, senior managers and others who have significant influence over management — have personal due diligence obligations. If those obligations are breached, officers can be personally prosecuted and fined up to $300,000 individually.
Statutory liability insurance can be structured to protect both the company and individual officers, providing legal defence costs for personal prosecutions of directors and senior managers.
How Statutory Liability is Typically Packaged
Statutory liability is most commonly sold as part of a combined liability package:
- Combined Liability (Public + Employers + Statutory) — the most common package for SMEs
- Management Liability — combines Directors & Officers, Employment Practices Liability and Statutory Liability for companies
How Much Does Statutory Liability Insurance Cost?
Statutory liability is relatively affordable given the scale of risk it covers:
- Small to medium businesses: $500–$2,000/year as part of a combined package
- Larger businesses or higher-risk industries: $2,000–$8,000/year
Getting Statutory Liability Cover
Given WorkSafe NZ's increasingly active enforcement profile and the breadth of legislation that can affect businesses, statutory liability insurance should be considered essential cover for virtually all businesses.
Connect with a specialist commercial insurance adviser through this website to include statutory liability in your business insurance programme.
A specialist in commercial insurance for businesses across New Zealand, with expertise in helping SMEs and professional services firms navigate the commercial insurance market.