The NSW Court of Appeal handed down its decision in QBE Workers Compensation (NSW) Limited v Dolan on 15 December 2004.
The case concerns the right of a workers compensation Insurer to recover workers compensation payments made to a worker from a CTP Insurer where the worker’s claim against the CTP Insurer has been compromised for a verdict for the defendant.
Whilst the Court’s confirmation of the rule in McDonald’s case is not surprising, the implications flowing from the reasoning when applied to consent judgments at large are potentially adverse to the interests of CTP insurers.
The worker was injured in a motor accident on the way home from work when a vehicle driven by the CTP insured collided with the worker’s vehicle. The workers compensation Insurer had made workers compensation payments to the worker totalling $91,320.85. However, the worker’s claim against the CTP Insurer was settled for a verdict for the Defendant with an agreement that the Defendant would pay the worker’s costs calculated at $4,000.00.
At first instance, Gibb DCJ entered a verdict for the Defendant in the Section 151Z (1) (d) proceedings.
The leading judgment in the Court of Appeal was delivered by Beazley JA with whom Mason P and Tobias JA agreed.
On appeal, the CTP insurer argued that the workers compensation insurer was estopped from asserting that the CTP Insured was liable to pay damages in respect of the injury of the worker by reason of being privy in interest to the consent judgment between the CTP insured and the worker.
In the alternative, the CTP Insurer argued that by reason of the consent judgment between the CTP insured and the worker, the CTP insured was not a person in whom a liability was created within the meaning of Section 151Z (1) (d).
However, Beazley JA held that there was no privity of interest or derivative cause of action in respect of the relationship between the employer and the employee. Her Honour reasoned that the right conferred by Section 151Z(1) (d) upon the employer existed independently of the worker’s right to bring a claim for damages against the CTP insured. The right upon the employer to seek indemnity from the CTP Insured rested upon the existence, for however brief a period of time, of a true liability in the CTP insured to pay damages for the relevant injury.
As a consequence of this reasoning, Beazley JA held that the employer was not bound by a consent judgment between a worker and a CTP insurer that does not reflect a legal liability in the third party that had existed at some point in time.
At paragraph 78, Her Honour observed as follows:
“ In this case, the consent judgment in favour of the respondent, accompanied by the agreement that the respondent pay the employee’s costs, appears to be a resolution of the matter in a way which does not reflect the respondent’s legal liability to the employee. There could have been a variety of reasons why the employee and Dolan reached the agreement they did. That is not a matter that concerns this Court… And, as I have already mentioned, if the question of the quantum of damages awarded in a consent judgment may, arguably, be challenged… presumably a consent verdict for a defendant might, in proceedings in which legal liability is in issue, be challenged. If that is the case, that provides another reason why there is unlikely to be either an issue estoppel or res judicata estoppel operating in a case such as this. “
Accordingly, the Court of Appeal allowed the workers compensation insurer’s appeal and entered a verdict in its favour against the CTP insured for the total sum of the workers compensation payments.
The Court of Appeal’s reasoning in this matter is potentially dangerous for CTP Insurers given that part of the rational appears to be that where a compromise struck between a Claimant (worker) and a CTP Insurer does not arguably reflect the true legal liability of the CTP Insurer, the Court may, in the Section 151Z recovery proceedings, go behind the compromise and award to the workers compensation Insurer a sum greater than the amount paid by the CTP Insurer to the worker pursuant to the compromise.
Having said that, it is difficult to envisage, in practice, many cases where the claimant would settle with the CTP insurer for a sum less than the workers compensation payback.