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LEGAL CASE STUDY

Are you on top of the increased liability exposure facing your clients later this year? By Crossley Gates, DLA Phillips Fox

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n early December 2014 an amendment to the Sentencing Act 2002 comes into force. Think this hasn’t got anything to do with insurance? Think again. In the 1980s the criminal law added a civil remedy at the end of criminal trials to fasttrack compensation to victims of crime. If an accused was convicted, the court had the power to not only punish the offender, but also order the offender to pay civil compensation to the victim for the emotional harm (not covered by ACC) and/or property damage suffered by the victim arising from the crime. If the offender was convicted of wilful damage (vandalism), he or she would not only be fined or worse, but be ordered to pay the victim the cost of repairing the damage. This order was called a reparation order. It had the status of a civil judgment and could be enforced in the same way as a civil judgment. The court was obliged to take into account the offender’s ability to pay. Therefore, the order was not necessarily for the total cost of the repairs or was sometimes not ordered at all, if the offender had no ability to pay as assessed by the court. This power of the courts led to the slightly strange situation of a criminal court entering a civil judgment against the offender in the course of the criminal process.

Now fast-forward to 2002 when the Sentencing Act 2002 was passed. This Act incorporated the same powers referred to above in an Act that reformed the whole law of sentencing of offenders. What was previously called an order of reparation became a sentence of reparation. The Sentencing Act 2002 also addressed the issue of the interface between sentences of reparation and ACC. You will recall that ACC contains a statute bar against any civil proceedings directly or indirectly connected with personal injury by accident covered by ACC. In other words, if your personal injury is covered by ACC you cannot sue the party responsible for your injury. Unfortunately, the section in the Sentencing Act 2002 addressing this statute bar was ambiguously drafted. It could be read two ways. It either prohibited sentences of reparation in relation to personal injuries covered by ACC to any extent (consistent with the ACC legislation) or it only prohibited them to the extent of the ACC cover. In other words, a sentence of reparation could top up the ACC entitlement to whatever the common-law allowed as damages. After a district court judge clearly topped up a victim’s ACC entitlement in a sentence of reparation, DLA Phillips Fox was instructed by the insurer who insured the offender (arising out of a motor vehicle accident) to appeal the sentence as being contrary to the Sentencing Act 2002 and contrary to the whole scheme of the ACC legislation. After losing in the High Court and the Court of Appeal, we were eventually successful in the Supreme Court. The Supreme Court held that the section was to be interpreted as prohibiting the topping up of ACC. The Sentencing Act 2002 was amended earlier this year. In an example of the supremacy of Parliament, the ambiguous section was amended to make it clear that a sentence of reparation can top up ACC entitlements. In other words, it legislated to overturn the Supreme Court decision. We view this as an unprincipled reform. This amendment will result in a two-tier

compensation system in New Zealand. The victim of a negligent party who has committed no crime cannot sue that party for a top-up of his or her ACC entitlement. However, the victim of a criminal offender can. We struggle to see a good reason for this distinction. In our view, it is the beginning of the end of the ACC system. However, that is another story. What this means is that a person convicted of a crime faces the prospect of a sentence of reparation that tops up the victim’s ACC entitlement. Where the victim suffers serious permanent disabilities the potential difference between the ACC entitlements and commonlaw damages could be significant. Of course, many crimes involve deliberate personal injury or property damage. Therefore the perpetrator’s liability (through a sentence of reparation) for the injury/damage will never be covered under any insurance policy. But there are two areas, in particular, where coverage will potentially be available. The first is a Statutory Liability Policy that covers reparation sentences as well as fines. As most of the offences covered under this policy are strict liability offences, they can be committed accidentally and the injury/damage that results is equally accidental. The large exposure here will be convictions under the Health and Safety in Employment Act. The second is motor vehicle policies. While the traffic offence may be deliberate, the consequences of it usually aren’t. So, victims of motor vehicles accidents will be free to seek sentences of reparation that top up their ACC entitlements for their injuries. As sentences of reparation are, effectively, civil judgments, they are potentially covered under section two of a motor vehicle policy. It is important to remember that this exposure only arises though sentences of reparation made under the Sentencing Act 2002. In other words, unless the author of the injury/damage is convicted of a criminal offence, this exposure to ACC top-ups does not arise. The change in the law comes into force on December 6. www.covernotemag.co.nz

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Cover Note September Issue 2014  

Cover Note September Issue 2014  

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