What is proportionate liability?
Proportionate liability refers to the concept that liability for a plaintiff’s loss should be apportioned to the defendants in accordance with the extent of their responsibility for that loss.
Why was the proportionate liability scheme introduced?
The Ipp report (named after chair David Ipp who handed down the report) was commissioned to review the law of negligence, consider the causes of rapidly rising insurance premiums in the wake of the HIH collapse and to suggest reforms.
One of many recommendations of the Ipp report was that the Commonwealth, States and Territories introduce legislative proportionate liability schemes.
Proportionate liability is basically a departure from the concept of ‘joint and several liability’. In matters where defendants were held jointly and severally liable, the plaintiff could recover the entire judgment from any one of the defendants, regardless of the extent to which they were responsible for the loss.
In such circumstances, a defendant with ‘deep pockets’ or insurance cover may have been left picking up the liability exposure of impecunious or uninsured defendants. This in turn required insurers of deep pocketed defendants to set premium on the basis that such defendants would be completely liable for a plaintiff’s loss, even if their actual responsibility for the loss was relatively minor.
When does proportionate liability apply in Queensland?
Firstly, it is important to note that the proportionate liability regime does not apply to claims for damages for personal injury. A defendant can still be jointly and severally liable for a personal injury claim.
Under section 31 of the Civil Liability Act 2003 (Qld) (CLA) a defendant who is a ‘concurrent wrongdoer’ must only be held proportionately liable for a plaintiff’s loss.
Section 30 of the CLA provides that a concurrent wrongdoer is one of two or more persons whose acts or omissions caused, independently of each other, the loss or damage the subject of the claim. Section 32 obliges the plaintiff to commence proceedings against all ‘concurrent wrongdoers’.
Liability will be apportioned against a concurrent wrongdoer according to the extent to which they caused the plaintiff’s loss, regardless of whether they have insurance or financial means to meet the judgment.
Can you avoid the proportionate liability scheme in Queensland?
Section 7(3) of the CLA contains an express prohibition against contracting out of the proportionate liability regime. This means, in property damage or pure economic loss claims, a defendant cannot rely upon a contractual indemnity to reduce the extent to which it is proportionately liable for a plaintiff’s loss.
Perversely, this provision does not apply to personal injuries claims. In such claims, defendants can reduce their liability (as proportionately assessed at common law according to the extent of their wrongdoing) by relying on a contractual indemnity given in their favour.
What does all of this mean for contracting parties in Queensland?
One party can still contractually assign risk to another party in Queensland.
However, in the case of a claim for property damage or economic loss that falls under the proportionate liability regime in the CLA, the indemnity will have no effect.
The contractual indemnity, depending on the strength of its drafting, may still have effect in the event of a claim for damages for personal injury.
What does this mean for insurance?
Property damage and economic loss claims
The proportionate liability regime ensures that risk lies where it falls for property damage and economic loss claims. Insurers do not have to assess premium assuming a ‘worst case scenario’ and defendants are not left wearing the loss simply because they have the capacity to pay.
Personal injury claims
The proportionate liability regime does not apply for personal injury claims and liability can still be contractually assigned for such claims in Queensland. This means a party that is primarily liable to an injured plaintiff may obtain 100% relief via a contractual indemnity from another party that may have no liability to the plaintiff at common law.
Most public liability policies contain a ‘contractual liability exclusion’, which excludes any liability assumed under contract beyond that which would otherwise arise at common law.
If a party is granting a contractual indemnity, it must ensure that its policy of insurance does not include a contractual liability exclusion or other terms that will exclude any claim from cover.
The corollary is, the recipient of an indemnity should ensure that the indemnifier has insurance cover in place or sufficient means to satisfy the indemnity. If the indemnifier does not have insurance or means, under the principle of joint and several liability which still applies to personal injury claims, the liability will vest back in the recipient of the indemnity.
If in doubt how the proportionate liability regime in Queensland may affect your business and insurance, contact your broker for advice.