The eruption of Whakaari White Island on 9 December 2019 was a shocking tragedy that resulted in the deaths of 22 people and life-changing injuries to another 25. Following the event, WorkSafe brought charges against 13 persons and companies under the Health and Safety at Work Act 2015. The last of the prosecutions concluded on 31 October 2023[1] with sentencing of the guilty parties delivered in a judgment of 1 March 2024 [2].

Now that judgment has been delivered, we may reflect upon the lessons for insurers from the proceedings. Health and safety prosecutions impose increasing risks upon businesses and by extension, their insurers. The case highlights the financial risks associated with non-compliance, including substantial fines, potential reparations and defence costs. Furthermore, the successful defence of the charges by around half of the defendants may encourage businesses to defend WorkSafe prosecutions, potentially increasing defence costs for insurers. There are potential conflicts of interest to navigate.

The decisions

WorkSafe brought charges against 13 defendants, including tour operators and the operator and owners of the island. By the end of the trial, Whakaari Management Limited (WML), the operator of the island on behalf of its owners, was the only party left in the proceeding, with six other defendants pleading guilty and six others having had their charges dismissed. WML defended charges brought against it under sections 36 and 37 of the Act, which impose the following requirements:

• Section 36 requires employers to ensure, as far as is reasonably practicable, the health and safety of their employees.
• Section 37 requires an employer to take all reasonably practicable steps to ensure the safety of anyone who enters a workplace controlled by the employer, whether they work for the employer or not.

WML succeeded in having the charge under section 36 dismissed. Judge Thomas held that section 36 is applicable only to the employer’s business activities and that WML did not carry out its business on the island – it authorised others to do so. Section 36 is generally only relevant to an employer’s premises or premises where its employees are working.

However, Judge Thomas found that WML breached its duty under section 37 of the Act by not conducting a risk assessment before allowing tours to commence on the island. This was deemed a “reasonably practicable” step that could have informed WML of the risks of permitting tour activities and other steps that could be taken to manage the health and safety risk. The Judge emphasised that risk assessments should not only be conducted at the outset but also revisited and reviewed periodically.

WML argued that it had engaged with GNS Science, which monitors volcanic activity in New Zealand, and had received information about the island. Judge Thomas rejected this argument, finding that the section 37 duty remains with the person in charge of a business or undertaking or ‘PCBU’ and cannot be transferred. The information provided by GNS did not relieve WML of its obligation to conduct a risk assessment.

Judge Thomas imposed a fine of $1.04 million upon WML (less significant for insurers as health and safety fines cannot be insured in New Zealand) as well as reparation orders totalling $4.88 million (which is more significant to insurers as these can be insured). As the latter figure illustrates, health and safety reparations orders can be very substantial.

WorkSafe also charged WML’s directors, who are also the owners of the island, under section 44 for failing to exercise due diligence to ensure that WML complied with its obligations.[3] These charges were dismissed due to lack of evidence about the individual roles and responsibilities of each director.

Key takeaways for insurers

The “reasonably practicable” standard

The Court’s explanation of the “reasonably practicable” standard in the context of a number of different parties with a variety of involvements is one of the key takeaways from the case. The Court found that the defendants could have taken additional steps to prevent harm, even though they had put safety measures in place. While this is a development of existing law, and whether a defendant took all reasonably practicable steps will depend upon the circumstances of each case, the judgment indicates that the courts will take an exacting approach to parties that claim to have taken all reasonably practicable steps. 

For insurers, this means that insured businesses must undertake comprehensive and thorough risk assessments. It will not be sufficient merely to have safety measures in place; they must do everything that is reasonably practicable. This will include taking the necessary steps to identify everything that can reasonably be done and by putting all such safety measures in place, along with regularly reviewing and updating these measures. Insurers may wish to take a proactive approach to ensure that insured businesses are taking these necessary steps.

Reparations

The Whakaari White Island proceedings serve as a reminder of the potential for insured financial liabilities associated with breaches of health and safety regulations. While the fines imposed by the Court were substantial, that is not a direct risk for insurers, as fines under the Act are not insurable. Of more significance were the substantial reparations orders, as liabilities for reparations are commonly insured. The Court ordered reparations totalling more than $10 million. 

White Island Tours had insurance cover for up to $5 million for reparations, so Judge Thomas increased its share of the overall reparation liability to $5 million, noting that the insurance cover was the most reliable source of funds for victims and should be maximised. This results in the somewhat curious outcome that reparations orders were made not solely by reference to culpability but also by reference to ability to pay. It is difficult to see what, if anything, insurers can do to reduce the risk that their insureds may be found liable for increased amounts by reason only that other liable parties are not so well insured. That is also the outcome in tort claims where joint tortfeasors contribute to a loss, so insurers will be familiar with a similar principle.

Costs of defended health and safety trials

The Whakaari White Island case was noteworthy for the relatively high degree of success by the defendants. Defendants in health and safety prosecution often enter early guilty pleas and pay fines and reparations for commercial reasons and to achieve sentencing discounts (i.e. reduced fines). Prosecutions are seldom fully defended. However, the defendants in the Whakaari White Island case achieved an unusual degree of success, with the dismissal of charges against nearly half of them. This may encourage defendants in similar proceedings to defend charges brought against them, where the same considerations apply.

Health and safety prosecutions can be expensive to defend, particularly when they arise from incidents involving multiple parties and significant harm, such as in the Whakaari White Island case. Such cases often require extensive investigation, expert evidence and legal representation, all of which contribute to defence costs. Insurance policies typically provide cover for these defence costs, while not providing cover for fines.

This has the potential to create a divergence of interests between insurers and insureds. While insurers can be expected to defend cases on a principled basis, insureds will be conscious of who will be paying the relevant costs and liabilities. It may be in insurers’ interests to settle a case quickly and avoid incurring insured defence costs, when the outcome will be that the insured will pay an agreed fine which is uninsured. Insureds may have the opposite motivation, however – they may be motivated to defend cases if they may be defendable, as their insurers will pay their defence costs but will not cover liabilities for fines. Where reparations liabilities are concerned, however, insurers have a reason to defend claims for reparations where they may be able to do so, as reparations liabilities are commonly insured.

The Whakaari White Island case also raises a further complication, which is that the courts may prefer to impose larger reparations costs where defendants are insured, rather than impose fines that are not insured. It is conceivable that insurers may baulk at proposed agreed penalties that appear to inflate reparations liabilities to the benefit of reducing fines, where the former are insured and the latter are not. Insurers may wish to be vigilant against arrangements of this nature if they do not appear to be principled.