Workers Compensation Nominal Insurer v Earl - [2012] NSWWCCPD 61

WORKERS COMPENSATION COMMISSION
DETERMINATION OF APPEAL AGAINST A DECISION OF THE COMMISSION CONSTITUTED BY AN ARBITRATOR
CITATION:			Workers Compensation Nominal Insurer v Earl [2012] NSWWCCPD 61
APPELLANT:			Workers Compensation Nominal Insurer
RESPONDENT:			David Lancelot Earl
FILE NUMBER:			A1-2194/12
ARBITRATOR:	Mr G Capel
DATE OF ARBITRATOR’S DECISION:			26 June 2012
DATE OF APPEAL HEARING:		19 October 2012
DATE OF APPEAL DECISION:			31 October 2012
SUBJECT MATTER OF DECISION:			Purported cancellation of statutory policy of workers compensation insurance; cls 17 and 18 of statutory policy; need for consent of WorkCover Authority of NSW to cancel statutory policy; whether employer’s statutory policy validly cancelled; whether employer uninsured at date of injury; s 155AA of the Workers Compensation Act 1987; exempt employers; whether consent needed to cancel statutory policy of an exempt employer; meaning of “should be lapsed”; meaning of “compensation” and “in connection with a claim for compensation”; s 352 of the Workplace Injury Management and Workers Compensation Act 1998
PRESIDENTIAL MEMBER:			Deputy President Bill Roche
HEARING:			Oral
REPRESENTATION:			Appellant:	Mr P Perry, instructed by DLA Piper Australia
Respondent:	Mr P Stockley, instructed by Goldbergs Lawyers
ORDERS MADE ON APPEAL:			The Arbitrator’s determination of 26 June 2012 is confirmed. The appellant is to pay the respondent’s costs of the appeal, assessed at $2,530 plus GST.

INTRODUCTION

The issue in this appeal is whether the Nominal Insurer is entitled to recover from an employer compensation paid by the Nominal Insurer to a worker. The answer turns on whether, at the date of injury, the worker’s employer carried a mandatory worker’s compensation insurance policy (the statutory policy).
The employer submitted that he was insured because, before purporting to cancel his policy by letter dated 19 September 2008, the insurer had not obtained from the WorkCover Authority of NSW (WorkCover) written consent to cancel the policy. In the alternative, if the insurer had consent, the purported cancellation was ineffective. It followed that, under the terms of the statutory policy, his policy was automatically renewed after 30 June 2008 up to the date of injury on 5 January 2010.
The Nominal Insurer submitted that there was no need to cancel the employer’s policy because, when the employer’s wages bill dropped below $7,500, as it did in 2008, he became an “exempt employer” and he was not required to have a policy of workers compensation insurance but was insured under the “deemed policy” provisions. However, when his wages bill exceeded $7,500, as they did in 2009 and 2010, he was required to obtain a new policy, which he did not do.
In the alternative, the Nominal Insurer submitted that, in a document issued by WorkCover on 28 August 2008, WorkCover directed scheme agents to lapse policies held by exempt employers and that that direction provided the written consent for the cancellation of the employer’s policy by the insurer on 19 September 2008. If that cancellation was defective, because it purported to cancel the policy from 30 June 2008, it was effective to cancel the policy on and from 30 June 2009.

BACKGROUND

David Earl conducts a farming business near Forbes in New South Wales under the business name of Monomeeth Pastoral Company. For several years up to and including the year ending 30 June 2008, he held the farm’s workers compensation insurance with CGU Workers Compensation (NSW) Ltd (CGU), a scheme agent under the NSW workers compensation scheme.
On 23 April 2008, WorkCover wrote to CGU and informed it of proposed amendments to the Workers Compensation Act 1987 (the 1987 Act). Under the amendments, employers with annual wages of less than $7,500 would be exempt from maintaining a policy of workers compensation insurance. WorkCover directed CGU to notify all employers of these changes when sending renewal notices for policies commencing on or after 30 June 2008 and provided a pro forma letter (the pro forma letter) to be sent to employers for that purpose.
The parties have assumed that, consistent with their previous dealings, CGU invited Mr Earl to renew his policy shortly before 30 June 2008, though there was no evidence to that effect. On an unidentified date, CGU sent Mr Earl a copy of the pro forma letter WorkCover had sent to it on 23 April 2008. The letter stated that, from 30 June 2008, employers who expected to pay $7,500 or less in annual wages would no longer require a workers compensation insurance policy, but a policy would still be required if an employer engaged an apprentice or trainee, or was a member of a group for workers compensation purposes.
The pro forma letter added that employers who expected to pay more than $7,500 in annual wages over the next year, or expected to employ an apprentice or trainee, would need to complete and submit the attached wages estimate and renew their policy. Employers who paid more than $7,500 in annual wages in 2007/08, but expected to pay $7,500 or less over the next financial year were still required to submit a wages estimate to CGU. If the employer satisfied the exemption conditions, the policy would not be renewed. However, if at any time the employer’s circumstances changed and it expected to pay more than $7,500 in wages, it would need to obtain a workers compensation policy.
The pro forma letter said that if the recipient of the letter was an employer who no longer required a workers compensation policy from 30 June 2008, its workers would still be covered. If a worker made a claim, it would be allocated to a scheme agent and an administration fee of $175 would be payable. Incidents involving injury or illness to workers should be reported to WorkCover within 48 hours.
By letter dated 15 August 2008, CGU advised Mr Earl that it had not received his declaration of actual wages for 30 June 2007 to 30 June 2008, or his declaration of estimated wages for the period 30 June 2008 to 30 June 2009. The letter added:
“Please be advised that in accordance with WorkCover, if we do not receive your Declaration of Actual Wages and Declaration of Estimated Wages forms by 29/08/2008, CGU will automatically renew your policy using last year’s wages estimate, plus a 30% loading to calculate your premiums. To ensure that your final premium is calculated using the actual amount of wages paid, please submit the above forms by the specified date.” (emphasis included in original)
CGU again wrote to Mr Earl on 26 August 2008. This letter was headed “Invitation to Renew Your Workers Compensation Policy”, which was due for renewal at 4 pm on 30 June 2008. The letter essentially repeated the statement reproduced in the preceding paragraph about the need to provide a declaration of actual and estimated wages by 29 August 2008. It added that, if the declaration of estimated wages was not received by that date, “WorkCover require CGU to automatically renew your policy using your previous year’s wages, plus a 30% loading to calculate your premium”.
On 28 August 2008, WorkCover issued a document headed “Small Employer Policy Exemption” subtitled “Scheme Agent Administrative Requirements” (the exemption document). In summary, the exemption document provided details of the “procedures and requirements impacting employers and Scheme agents as a result of the introduction of the small employer policy exemption”. It stated in cl 4.3.1 that scheme agents should not renew policies with known wages of $7,500 or less unless an employer advised that estimated wages for the renewal were greater than that figure. If an employer with a policy renewal date on or after 30 June 2008 and known wages greater than $7,500 notified their scheme agent in writing prior to the renewal date that their estimated wages for the renewal year would be $7,500 or less, “the policy should be lapsed” (cl 4.3.2).
On 29 August 2008, Mr Earl faxed a declaration of actual wages for 30 June 2007 to 30 June 2008 and an estimate of wages for the following year. Actual wages from 30 June 2007 to 30 June 2008 were $7,365 and estimated wages for 2008 to 2009 were $7,000.
On 19 September 2008, CGU wrote to Mr Earl a letter headed “Exempt Policy Cancellation Notice”. The letter stated that their records indicated that his estimated wages (for 2008–2009) were $7,500 or less and, as a result, he was “classified as an exempt employer” and no longer required to hold a NSW workers compensation insurance policy. His policy had “therefore been cancelled with effect from 30/06/2008”. He was again advised that, should one of his workers sustain an injury, he had to report the injury to WorkCover within 48 hours and that WorkCover would arrange for a scheme agent to manage the claim for an administration fee of $175. He was also informed that, if he anticipated that his annual estimated wages would be above $7,500, he employed an apprentice, or was a member of a group for workers compensation purposes, he was required to immediately take out a NSW workers compensation insurance policy.
On 5 January 2010, Laurence Perry (the worker), gave to Mr Earl a notice of injury. The parties have accepted that 5 January 2010 is the correct (deemed) date of injury. On 29 June 2010, Mr Earl notified CGU that the worker had sustained a work related injury.
CGU wrote to Mr Earl on 30 June 2010 stating that a case manager would be assigned to advise and support him until the case was finalised. The case manager would contact Mr Earl within three days and provide him with his/her details and keep in regular contact and guide him through the worker’s recovery and efforts to return to, or remain in, the workforce. The letter enclosed a summary of the rights and responsibilities “set by the Workplace Injury Management and Workers Compensation Act 1998”.
On 30 November 2010, the worker completed a ULIS claim form (a form used for claims where the employer is alleged to be uninsured) in which he said he became aware of his condition on 28 May 2004 and that he stopped work on 5 January 2010.
Responding to a letter from WorkCover dated 17 December 2010 (not in evidence), Mr Earl wrote to a Mr Vale at WorkCover on 24 December 2010 stating:
“Monomeeth Pastoral Company had a policy with CGU Insurance (Number: 20WOR8720153122) that lapsed in 2008 due to the wages paid out being below the threshold level of $7500.00. We were informed by CGU that our policy was cancelled from 30^th June 2008 and we were then covered by WorkCover NSW.
CGU were notified on 29/06/2010 that Laurence Perry had sustained a work related injury/condition. They then informed us via a letter dated 30/6/2010 (letter attached) that a Case Manager from CGU had been assigned to the case to advise and support us until the case was finalised. A claim number was recorded (102896469122). This led us to believe that we were still covered by CGU.
We have completed Schedule A as requested.
Should you have any further questions please do not hesitate to contact us.”
The document referred to as “Schedule A” in Mr Earl’s letter is a series of questions, the answers to which Mr Earl swore on 24 December 2010 to be correct. Mr Earl replied “yes” to the question of whether he had a policy of insurance for workers compensation “as at the date of injury”. Mr Earl said his insurer “as at the claimed date of injury” was CGU and the policy number was “CGU reference 852 claim No 10289649122”. His estimated gross wages for the current financial year (the year ending 30 June 2011) were $12,000-$13,000. He said he had provided “all wage records for three years prior to injury”.
In October 2011, WorkCover paid to the worker lump sum compensation in the sum of $47,500. This was in addition to medical expenses of $89.10 paid on 4 April 2011. How the lump sum compensation was calculated is not known but not relevant to the appeal.
On 25 January 2012, Jason Mansfield, recoveries officer with WorkCover, wrote to Mr Earl as follows:
“RE: WORKERS COMPENSATION – UNINSURED LIABILITIES
INURED [sic] WORKER: Laurence Perry
DATE OF INJURY: 05/01/2010
AMOUNT: $47,589.10
A claim has been lodged and subsequently accepted under Division 6 of Part 4 of the Workers Compensation Act 1987 (‘the Act’) in respect of the above named injured worker. Accordingly, under section 145 of the Act the Workers Compensation Nominal Insurer is now seeking reimbursement of payments made from the Workers Compensation Insurance Fund (‘Insurance Fund’) to or in respect of the above named injured worker.
Enclosed with this letter is a Notice issued under s145(1) of the Act. The Notice requires reimbursement to be made to the Insurance Fund within 28 days from the date of service.
Should you wish to dispute this Notice you have 28 days from the date of service to file an application for review with the Workers Compensation Commission. The Workers Compensation Commission can be contacted on 1300 368 040 or more information can be found on their website at
Should you wish to discuss this matter or arrange settlement please contact me on (02) 4321 5876.”

Attached to Mr Mansfield’s letter was a “Notice to Reimburse” under s 145(1) of the 1987 Act claiming from Mr Earl reimbursement of the $47,589.10 paid to the worker from the Workers Compensation Insurance Fund.
On 22 February 2012, Mr Earl’s solicitor, Michael Moore, spoke to Mr Mansfield by telephone and requested him to “advise by return whether there is evidence on the file that CGU Insurance ever received written approval from WorkCover to cancel our client’s policy”.
On 24 February 2012, Mr Mansfield wrote an email to Mr Moore in which he referred to the telephone conversation of 22 February, and said:
“I have spoken with my Appeals Branch. According to WorkCover guidelines permission to cancel a policy because wages are below the exemption limit is not required. A letter is sent to the employer informing them of the cancellation. I have requested a copy of the letter sent to your client and expect to have this by Monday.”
Mr Moore wrote to Mr Mansfield on 29 February 2012. Without referring to Mr Mansfield’s email, Mr Moore confirmed the conversation of 22 February 2012 (see [23] above) and added that Mr Earl was a “long term insured of that insurer and in relation to advising him we want to be certain as to the factual situation concerning the insurance policy”. The parties agreed at the arbitration that WorkCover did not respond to this letter.
By a Miscellaneous Application (the Application) received in the Commission on 5 March 2012, Mr Earl disputed his liability to reimburse to the Nominal Insurer the compensation it paid to the worker and sought a determination of liability pursuant to s 145(3) of the 1987 Act on the following grounds:
“1.     He admits that as at 5 January 2010 he was an employer of Laurence Perry
2.    He denies that he was uninsured as at that date
3.    He alleges that at all material times he held a policy of insurance issued by CGU Workers Compensation (NSW) Limited”
Under “Submissions in Support” in Part 6 of the Application, the following appears. (To highlight the points made, I have added spaces between the relevant paragraphs, which do not appear in the original):
“The applicant [Mr Earl] insured his Workers Compensation Liability with CGU for each of the years from 2002 to 2008.
His policy with CGU was renewed in accordance with usual procedure and the terms of the policy on or about 30 June 2008.
On 19 September 2008, CGU purported to cancel the Policy numbered 20WOR8720153122.
The purported cancellation was in contravention of the mandatory provisions of the said policy Clause 18 of Schedule 3 Workers Compensation Regulation 2010 and therefore of no effect.
The policy by operation of Clause 17 was therefore renewed on its expiration on the 30^th of June 2009. The policy was by operation of s. 155A [sic] of the Workers Compensation Act therefore in force as at the alleged date of injury of Laurence Perry.”

In a Reply filed on 28 March 2012, the Nominal Insurer raised three “liability issues”. At the arbitration, the Reply was amended to rely on only one issue, namely, whether the Nominal Insurer had properly made payments to and on behalf of the worker as a result of a claim brought against it by the worker pursuant to s 140(1) of the 1987 Act. This issue turned on whether, at the time of injury, Mr Earl was uninsured.

THE ARBITRATOR’S DECISION

In his decision delivered on 26 June 2012, the Arbitrator said the parties agreed that the following issues remained in dispute:
“(a) Whether [Mr Earl] held a valid policy of insurance after 30 June 2008 – s 155 of the 1987 Act;
(b) Whether the [Nominal Insurer] properly made payments to, for and on behalf of [the worker] as a result of the claim brought against it by [the worker] – s 140(1)(a) of the 1987 Act, and
(c) Whether [Mr Earl] is liable to reimburse WorkCover, on behalf of the Nominal Insurer, for payments made to, for and on behalf of [the worker] who sustained injury during the course of his employment with [Mr Earl] – s 145(3) of the 1987 Act.”
In a detailed and carefully prepared decision, the Arbitrator found (at [77]) that the exemption document (which he described as “guidelines”) did not remove the need for insurers to seek WorkCover’s consent to cancel a policy and failed to give any guidance as to the mechanism of dealing with the cancellation of a policy of an exempt employer, but only directed that the employer was to be advised that he or she was an exempt employer and would not need to take out a policy.
The Arbitrator added (at [78]) that the letter of 23 April 2008 (see [6] above) that WorkCover sent to insurers put CGU on notice that employers who had annual wages of $7,500 or less would not be required to hold an insurance policy and would be known as exempt employers, but it gave no details about renewal and cancellation of policies. In his view, the letter was “merely an information bulletin about proposed changes and did not deal with procedural issues”. Its language could not be “construed as providing consent to cancel or refuse to renew existing policies”.
He added (at [79]) that, while it may seem unreasonable for insurers to “seek consent in relation to the cancellation of policies for every exempt employer, the legislation says what is [sic] says and…should not be interpreted in any other fashion.” WorkCover’s consent was required and, as CGU failed to obtain consent to cancel the policy in September 2008, it remained in place and was automatically renewed under cl 17 of the statutory policy of insurance.
It followed that, as CGU had failed to obtain WorkCover’s written consent to cancel Mr Earl’s policy in September 2008, the policy remained in place and was automatically renewed in accordance with cl 17 of Pt 3 of the standard Form 3 policy in Sch 1 of the Workers Compensation Regulation 2003 (the 2003 Regulation) and Mr Earl was not uninsured in respect of the worker’s claim.
As a result of this finding, the Nominal Insurer did not properly make payments to the worker as a result of the claim brought against it by him under s 140(1)(a) of the 1987 Act, because Mr Earl was not uninsured at the date of injury, and Mr Earl was not liable to reimburse the Nominal Insurer.
The Commission issued a Certificate of Determination on 26 June 2012 in the following terms:
“1. The applicant held a valid policy of insurance with CGU Workers Compensation (NSW) Ltd for all relevant periods after 30 June 2008 in accordance with section 155 of the Workers Compensation Act 1987.
2. The respondent did not properly make payments to, for and on behalf of Laurence Perry as there was a valid policy in existence at the date of injury in accordance with section 155 of the Workers Compensation Act 1987.
3. The applicant is not liable to reimburse the respondent for payments made to, for and on behalf of Laurence Perry as there was a valid policy in existence at the date of injury in accordance with section 155 of the Workers Compensation Act 1987.
4. The respondent to pay the applicant’s costs. I certify a 25 per cent uplift for both parties pursuant to Schedule 6 Part 2 Table 4 Item 4 of the Workers Compensation Regulation 2010.”

The Nominal Insurer has appealed the Arbitrator’s determination.

PRELIMINARY MATTER

Monetary threshold

Section 352(1) of the Workplace Injury Management and Workers Compensation Act 1998 (the 1998 Act) provides that a “party to a dispute in connection with a claim for compensation may appeal to the Commission constituted by a Presidential member against a decision in respect of the dispute by the Commission constituted by an Arbitrator”.
There is no appeal under s 352 unless the “amount of compensation at issue on appeal” is both “at least $5,000” and “at least 20% of the amount awarded in the decision appealed against” (s 352(3)).
Mr Earl has submitted that neither the Application nor the Arbitrator’s determination were in respect of a “dispute in connection with a claim for compensation”. The issue before the Arbitrator was whether he was insured by CGU as at 5 January 2010. The Nominal Insurer made a demand as a consequence of payments made to the worker and it was therefore never a “party to a dispute in connection with a claim for compensation”.
Further, as there was no amount of compensation at issue before the Arbitrator, there is no amount of compensation at issue on appeal (Grimson v Integral Energy [2003] NSWWCCPD 29 (Grimson) and El-Said v 3WJ Pty Ltd [2008] NSWWCCPD 50 (El-Said)).
I do not accept these submissions.
The Commission’s jurisdiction to hear disputes of this kind is found in s 145(3) of the 1987 Act, which provides that a person on whom a notice is served under s 145(1) may, within a set time, apply to it “for a determination as to the person’s liability in respect of the payment concerned”. The reference to “the payment concerned” is a reference to compensation payments made by the Nominal Insurer to the worker.
The Commission may hear such applications and make such determination and such awards or orders as to the payment of compensation under the 1987 Act to, or in respect of, the injured worker concerned as it thinks fit (s 145(4)). The power extends to the making of orders against either an employer or insurer (GRE Workers Compensation Insurance (NSW) Ltd v Nohil Pty Ltd (1996) 13 NSWCCR 74).
The term “compensation” is defined in s 4 of the 1998 Act to mean “compensation under the Workers Compensation Acts, and includes any monetary benefit under those Acts”. The money the Nominal Insurer paid to the worker ($47,589.10), and which it now seeks to recover from Mr Earl, was paid as lump sum compensation and for medical expenses. It is undeniably a “monetary benefit” under the legislation and is therefore “compensation” that exceeds $5,000.
Mr Earl’s reference to Grimson and El-Said was misplaced. In those decisions, leave to appeal was refused because the appeals were from decisions relating solely to costs and it was held that “costs” are not “compensation”.
The current matter relates to the Nominal Insurer’s right to “claim” from Mr Earl the “compensation” it has paid to the worker. Mr Earl has disputed the Nominal Insurer’s right to recover that compensation on the ground that, on 5 January 2010, he was insured by CGU. It follows that the issue in dispute, namely, whether Mr Earl was insured at the relevant time, is directly connected with a claim for compensation and that the Nominal Insurer and Mr Earl are parties to a dispute “in connection with” such a claim.
It does not matter that the Application merely sought orders in respect of insurance. Those orders were essential to the determination of the disputed claim for reimbursement of compensation the Nominal Insurer paid to the worker. That the Arbitrator’s award did not include an order for the payment of money does not mean that no “compensation” is “at issue” on appeal, but merely that the resolution of that issue requires the insurance question to be determined. It follows that the compensation “at issue” on appeal is more than $5,000 and the first limb of s 352(3) is satisfied.
As to the second limb of s 352(3), the situation is analogous to the position where, in a claim for compensation by a worker, there is an award for the respondent employer. In that situation, as no compensation is payable, the 20 per cent rule cannot be strictly applied and it is necessary to look to the quantum of the compensation claimed (Mawson v Fletchers International Exports Pty Ltd [2002] NSWWCCPD 5).
In the present case, the compensation in dispute is over $5,000 and liability to pay the whole of that amount is “at issue” on appeal. The second limb of s 352(3) is therefore satisfied.
It follows that the monetary thresholds in s 352(3) are satisfied.

ISSUES IN DISPUTE

The issues in dispute in the appeal are whether the Arbitrator erred in:
(a)     finding that Mr Earl had a valid policy of workers compensation insurance;
(b) his interpretation of s 155AA of the 1987 Act;
(c)     his interpretation of cls 17 and 18 of the statutory policy;
(d)     concluding that the workers compensation policy previously issued to Mr Earl had not been validly cancelled and/or validly not renewed, and
(e) not determining that Mr Earl was liable to reimburse the Nominal Insurer the amounts sought in the s 145 notice dated 25 January 2012.
The appeal turns on whether s 155AA removed the need for an insurer to seek consent to cancel a policy and, if it did not remove that requirement, whether CGU cancelled the statutory policy. After setting out the legislation and the relevant parts of the statutory policy, I will deal with these issues under two headings: “section 155AA” and “whether CGU cancelled the statutory policy”.
All transcript references below are references to the appeal transcript (AT).

LEGISLATION

Section 155(1) provides:

“155 Compulsory insurance for employers

(1) An employer (other than a self-insurer) shall obtain from a licensed insurer, and maintain in force, a policy of insurance that complies with this Division for the full amount of the employer’s liability under this Act in respect of all workers employed by the employer and for an unlimited amount in respect of the employer’s liability independently of this Act (but not including a liability for compensation in the nature of workers compensation arising under any Act or other law of another State, a Territory or the Commonwealth or a liability arising under the law of another country) for any injury to any such worker.”

Section 155AA provides:

“155AA Exempt employers not required to obtain policy of insurance

(1) An employer is an ‘exempt employer’ during a financial year while the employer has reasonable grounds for believing that the total amount of wages that will be payable by the employer during the financial year to workers employed by the employer will be not more than the exemption limit for that financial year.
(2) An employer is not an exempt employer whenever the employer:

(a) is a member of a group constituted under Division 2A, or
(b) employs a person under a training contract (within the meaning of the Apprenticeship and Traineeship Act 2001 ).

Note: A ‘training contract’ is a contract entered into for the purpose of establishing an apprenticeship or traineeship.
(3) An employer who is an exempt employer for the whole or any part of a financial year is deemed to have obtained from the Nominal Insurer (and the Nominal Insurer is deemed to have issued) a policy of insurance in compliance with section 155 (an ‘exempt employer policy’) for any period for which the employer is an exempt employer during the financial year. No premium is payable for an exempt employer policy.
(4) An exempt employer policy covers the employer for any period for which the employer is an exempt employer but does not cover the employer for any period for which the employer has actually obtained a policy of insurance under section 155.

(5) An administration fee of an amount prescribed by the regulations is payable to the Nominal Insurer by an employer in respect of each claim made against the employer in respect of an injury to a worker received during any period for which an exempt employer policy covers the employer.

(6) The regulations may make provision for or with respect to the payment of an administration fee, including provision for or with respect to any of the following:

(a) the period within which an administration fee must be paid,
(b) the payment of a late payment fee if an administration fee is not paid within the required period,
(c) the full or partial waiver or refund of an administration fee or late payment fee.

(7) The Nominal Insurer is entitled to recover as a debt in a court of competent jurisdiction an administration fee payable by an employer together with any late payment fee payable.
(8) In this section:

‘exemption limit’ for a financial year means $7,500 or such other amount as may be fixed by an insurance premiums order as the exemption limit for that financial year.

‘financial year’ means a period of 12 months commencing on 1 July in any year.
‘wages’ means wages as defined in section 174 and includes any distribution to a worker as a beneficiary under a trust that would (under section 174AA) constitute wages for the purposes of section 174.”

STATUTORY INSURANCE PROVISIONS

Part 3 of the standard Form 3 policy in Sch 1 of the 2003 Regulation provides for mandatory provisions in an employer’s workers compensation insurance policy. Clause 17 deals with renewals of policies and provides:
“Renewal of Policy
17 This Policy is renewed on the expiration of the current period of insurance to which it applies, except where:
(a) the Employer has given written notice to the Insurer (before the expiration of the current period of insurance) that renewal is not required, or
(b) the Insurer has given the Employer notice in writing not less than 14 days before the expiration of the current period of insurance that the Insurer refuses to renew the Policy, but the Insurer cannot refuse to renew this Policy unless the WorkCover Authority has given its prior consent in writing to the refusal.
The period of each renewal is 12 months, or such shorter period as the Insurer and the Employer agree to before renewal.”

Clause 18 of the policy provides:
“Cancellation of Policy
18 The Insurer may cancel this Policy at any time if the Insurer has first obtained the written consent of the WorkCover Authority (and cannot cancel this Policy in any circumstances without that consent). The Insurer cancels this Policy by giving notice of cancellation in writing to the Employer. The cancellation takes effect on the cancellation day notified in the notice of cancellation but that day must not be less than 7 days after the notice of cancellation is given to the Employer. Section 184 of the Act applies as if the Policy had been cancelled under that section.”

The 2003 Regulation was repealed by the Workers Compensation Regulation 2010 (the 2010 Regulation), which commenced on 1 February 2011. However, any act, matter or thing that, immediately before the repeal of the 2003 Regulation, had effect under any of that Regulation continues to have effect under the 2010 Regulation (cl 186). In any event, the above clauses are reproduced in the same terms in sch 3 of the 2010 Regulation.

SECTION 155AA

Submissions

The Nominal Insurer’s first argument was that when Mr Earl became an exempt employer in 2008 (because his wages for the financial year ending 30 June 2008 were below $7,500), s 155AA operated and he was not required to take out a policy of workers compensation insurance, but was covered under a “deemed policy” (s 155AA(3)).
Mr Earl remained an exempt employer, and insured under a “deemed policy”, but when his status changed from an exempt employer (when his payroll exceeded $7,500 per annum, as it did in 2009) that change required him to obtain a new policy. Having not obtained a new policy after he ceased to be an exempt employer, he was uninsured on 5 January 2010.
Section 155AA has the effect of placing exempt employers into their own category and there was no need to cancel the existing policy because, upon attaining the status of “exempt employer”, a fresh policy could not issue and an existing policy could not be renewed. To that extent, s 155AA overrode any requirements in the statutory policy relevant to cancelling or renewing extant policies.

Discussion

I do not accept these submissions.
Section 155AA(1) merely provides that an employer is an “exempt employer” during a financial year while the employer has reasonable grounds for believing that its annual wages will be $7,500 or less. Such an employer is “deemed to have obtained from the Nominal Insurer (and the Nominal Insurer is deemed to have issued)” a policy of insurance (an exempt employer policy) in compliance with s 155 for any period for which the employer is an exempt employer (s 155AA(3)).
An exempt employer policy covers the employer for any period for which the employer is an exempt employer but does not cover the employer for any period for which it has “actually obtained a policy of insurance under section 155” (s 155AA(4)). An administration fee of $175 is payable to the Nominal Insurer by an employer in respect of each claim made against the employer in respect of an injury to a worker received during any period for which an exempt employer policy covers the employer (s 155AA(5)).
Though it is true that Mr Earl became an exempt employer when he notified CGU at the end of August 2008 that his actual wages for the 2008 financial year were below $7,500, that did not mean that his policy with CGU was no longer governed by the terms of the statutory policy. Section 155AA says nothing, expressly or impliedly, about the circumstances in which policies can be cancelled (or not renewed) and nothing about the requirement that an insurer must obtain the consent of WorkCover before it can cancel (or refuse to renew) a statutory policy. The terms of the statutory policy were not altered by s 155AA. They had to be complied with before a policy could be validly cancelled.
Section 155AA does not say, expressly or impliedly, that existing statutory policies, that is, policies on foot at the time the section was introduced in May 2008, were cancelled or were of no effect. Its purpose was clearly stated in the second reading speech in the Legislative Council of 14 May 2008, namely, to exempt “employers who pay wages below a threshold, initially of $7,500, from the requirement to hold a workers compensation policy” and to “reduce the costs and administrative burden on several hundred thousand small and domestic employers by removing the requirement to obtain a minimum premium or domestic workers compensation policy”.
The fact that an “exempt employer policy” covers employers for any period while the employer is an “exempt employer”, but does not cover the employer for any period for which the employer “has actually obtained a policy of insurance under section 155” (s 155AA(4)), strongly suggests that the legislature envisioned situations where statutory policies would remain on foot, even though the employer’s wages dropped below $7,500. It follows that such policies take effect according to their terms. Those terms include cls 17 and 18.
It follows that s 155AA does not have the effect of placing exempt employers into their own category and eliminating the need for an insurer to obtain written consent before cancelling existing policies. It does not override or replace the steps necessary to cancel validly a statutory policy.

WHETHER CGU CANCELLED THE STATUTORY POLICY

Submissions

Counsel for the Nominal Insurer, Mr Perry, submitted that consent to cancel Mr Earl’s policy is found, in cl 4.3.2 of the exemption document, which provides:
“4.3.2 Notification by an employer
If an employer with a policy renewal date on or after 30 June 2008 and known wages greater than $7,500 notifies their Scheme agent in writing prior to the renewal date that their estimated wages for the renewal year will be $7,500 or less, the policy should be lapsed.”
Clause 4.3.4 of the exemption document adds that scheme agents “must not issue a policy for an employer whose wages are $7,500 or less, even if it is requested”.
Mr Perry said that, consistent with cl 4.3.4, the word “should” in cl 4.3.2 was a direction and a direction includes consent. He said that “lapsed” means “cancelled” and it followed that CGU had consent to cancel Mr Earl’s policy, which it did in the letter of 19 September 2008.
Mr Perry acknowledged that there was a potential difficulty with his argument because the letter of 19 September 2008 stated, in breach of cl 18 of the statutory policy, that the policy was cancelled “with effect from 30/06/2006”. Clause 18 provides that the cancellation takes effect on the cancellation day notified in the notice of cancellation “but that day must not be less than 7 days after the notice of cancellation is given to the Employer” (emphasis added).
He attempted to overcome this problem by arguing that the cancellation was still effective but the date on which it took effect was postponed until 30 June 2009. That was because, given the content of the pro forma letter (see [8] above), and by giving notice of his wages in the fax of 29 August 2008 (see [13] above), Mr Earl gave notice that renewal was not required (AT20.43) and the policy was not renewed in June 2009.
Counsel for Mr Earl, Mr Stockley, made the point that the exemption document stands on its own with no evidence that CGU ever received it and no evidence from WorkCover to explain its provenance, or to indicate the power under which it was issued. Whatever its contents, there are serious concerns as to what its involvement was with CGU and this employer in this transaction.
While the exemption document has on it a handwritten note “Issued 28/8/08 NI corro” and the date “20080828” at the foot of each page, there is nothing else to identify its place in the chronology.
The word “lapsed” is a term used in underwriting circles. However, it is not defined in the workers compensation scheme and, in light of the contents of the statutory policy, it has no utility in the scheme. It is not an act to be undertaken by a party and is not a cancellation of a policy. CGU purported to cancel Mr Earl’s policy, not to “lapse” it, and the purported cancellation was ineffective. Thereafter, the policy renewed by its own terms and was in force in 2010. On a proper legal construction, despite what Mr Earl may have believed, he was insured as at 5 January 2010.
It followed that, if the purported cancellation in the letter of 19 September 2008 was ineffective, it cannot constitute consent by Mr Earl to not renew at the end of 2009. His fax of 29 August 2008, in which he provided his declaration of actual wages for 30 June 2007 to 30 June 2008 and his estimate of wages for 30 June 2008 to 30 June 2009, is of no relevance.
Mr Stockley added that cl 4.3.2 has no application to the facts in the present matter because, by August 2008, Mr Earl’s policy had already been renewed. The clause refers to notice given prior to the renewal date and therefore cannot apply in this case. The 2009 year was not in contemplation and there was no evidence of the contemplated wages for 2010.
Mr Perry said in reply that, at the time Mr Earl sent his fax on 29 August 2008, he was on notice that he did not require insurance in certain circumstances. That meant that the employer gave notice that renewal was not required.

Discussion

Clause 18 of the statutory policy is in clear and unequivocal terms: an insurer cannot cancel an employer’s statutory policy in any circumstances without WorkCover’s written consent. The question therefore arises: did CGU have consent to cancel Mr Earl’s policy? If it did, did it validly cancel his policy?
The answer to the first question turns on the meaning and effect of cl 4.3.2 in the exemption document.
The word “lapse” is defined in the Macquarie Online Dictionary as follows:
“noun 1. a slip or slight error: a lapse of concentration.

2. a failure or miscarriage through some fault, slip, or negligence: a lapse of justice

3. a gliding or passing away, as of time: *She took that up after a lapse of two hours, and spoke to the old lady. –NEVIL SHUTE, 1952.

4. the act of falling, slipping, sliding, etc., slowly or as by degrees.

5. Law the termination of a right or privilege through neglect to exercise it or through failure of some contingency.

6. a falling, or sinking to a lower grade, condition, or degree: a lapse into savagery.

7. a moral fall, as from rectitude.

8. a falling into disuse.
–verb (i) (lapsed, lapsing)
9. to pass slowly, silently, or by degrees.

10. Law
a. (of a right) to lose effect through passage of time.
b. to become void, as a legacy to someone who predeceases the testator.

11. (of insurance) to cease to be in force.

12. to fall or sink to a lower grade or condition.

13. to fall into disuse.

14. to fall, slip, or glide, especially downwards.

15. to deviate from principles, accuracy, etc.; make a slip or error.

16. to pass away, as time.

–phrase
17. lapse of memory,
a. an instance of incorrect recall.
b. lack of recall. [late Middle English, from Latin lapsus (noun) a fall, slip]
–lapser, noun”

The Shorter Oxford Dictionary, 6^th ed, defines “lapse”, as a noun, as follows, (omitting illustrations):
“1.LAW. The termination of a right or privilege (orig. to ecclesiastical patronage) through disuse or failure to follow appropriate proceedings. LME.
2. The gliding or passing away of time, one’s life, etc; an interval of time elapsed. LME. b A gliding or flow of water. Also, a gentle downwards motion. Arch. M17.
3. A slip of the memory, the tongue, the pen, etc.; a mistake, a slight error. L15.
4. A weak or careless deviation or falling from what is right; a moral slip. L15. b THEOLOGY. A falling away from the faith or into heresy. M17.
5. A decline to a lower state or degree. Formerly also, a fall in temperature. M16.
6. A falling into ruin. Rare. E17.”
And, as verb (omitting illustrations):
“I verb intrans. 1. a Of time: pass away. LME. b gen. Glide or pass effortlessly; descend gradually. L18. c Of water: flow gently. Also, (of a person or a vessel) float, glide gently over water. M19.
2. a Fall into error, heresy, or sin. E-M17. b Fall (away or back) into an inferior or previous state; fail to maintain a position or state, esp. through absence of effort or influence. Foll. By from, into. M17.
3. a LAW. Of a right, privilege, etc,: become void, revert to someone, through non-fulfilment of conditions, absence of heirs, etc. E18. b COMMERCE. Of a contract, agreement, policy, etc.: become void or ineffective, usu. through the withdrawal of one party or the failure to pay a premium. M19.
II verb trans. 4 Pounce on as an offender, apprehend. rare (Shakes). Only in E17.
5. Cause to slip or fall; let slip, let pass. M17-E18.
6. Allow (a right etc.) to lapse; cause or allow (a contract, agreement, policy, etc.) to become void or ineffective, esp. through non-payment; forfeit, lose (esp. a member or one’s membership) usu. through breach of rules. M17.”
Having regard to the context in which the word “lapsed” is used in the present case, that is, in reference to a statutory insurance policy, the most relevant of the above definitions are the 10^th and 11^th in the Macquarie Online Dictionary, namely, “(of a right) to lose effect through passage of time” and “(of insurance) to cease to be in force”. The 3^rd definition, as a verb, in the Shorter Oxford Dictionary is also relevant, namely, “Of a contract, agreement, policy, etc.: become void or ineffective”.
The verb “cancel” is defined in the Macquarie Online Dictionary to mean, among other things, to “make void; annul”. The Shorter Oxford Dictionary provides meanings that include “revoke an order or arrangements for; put an end to”, and, as an intransitive verb, “become void or null”. These definitions are, for all practical purposes, identical to “void or ineffective”, or “cease to be in force”, in the definition of “lapse”.
A contract of general insurance will often (though not always) “lapse” or “come to an end” when an insured has not paid his or her premiums within a specified time (Halsbury’s Laws of Australia vol 15 Insurance [235-313]). However, a statutory policy issued under the workers compensation legislation in NSW does not “lapse” or “come to an end” (“cease to be in force”) because of the non-payment of premiums, or the mere passage of time. A positive step is required: it must be “cancelled”, and it can only be cancelled with WorkCover’s consent and in the manner stated in the statutory policy.
If the exemption document merely said that the statutory policy would “lapse” upon an employer becoming an exempt employer, such an expression would not constitute consent to cancel the policy. However, the exemption document says that, if certain specified circumstances exist, the statutory policy of certain employers “should be lapsed”. There can be no doubt that the modal verb “should” states an obligation to do something. An obligation to do something carries with it, as a matter of logic and commonsense, consent to do that thing.
The direction was that the statutory policies of certain employers “be lapsed”. The use of the intransitive verb “lapsed” was unhelpful. However, in context, its meaning is clear: if certain circumstances exist, the statutory policy of certain employers should cease to be in force or become void. The only way that can happen under the statutory policy is if it is cancelled. Therefore, I believe that “should be lapsed” can only mean, “should be cancelled”.
It is not to the point that “lapsed” is a term used in underwriting circles. Questions of renewing or cancelling policies of insurance are underwriting issues and that is the context in which the word is being used here. Though the exemption document could have been drafted with more care, its meaning is clear.
I do not accept that there is no evidence of the provenance of the exemption document. While it is surprising and unsatisfactory that WorkCover did not call specific evidence on this issue, it is clear from the face of the document, which includes WorkCover’s logo and name, its form and content, which includes detailed references to the changes introduced by s 155AA, that it is a WorkCover document.
I have not overlooked the evidence in Mr Mansfield’s email to Mr Moore on 24 February 2012 when he said, after checking with the appeals branch (presumably with WorkCover), that, “according to WorkCover guidelines permission to cancel a policy because wages are below the exemption limit is not required”. Mr Mansfield’s statement was incorrect. Consent is required to cancel a statutory policy of an exempt employer. In any event, the question before the Commission is the applicability of the exemption document to Mr Earl’s circumstances and Mr Mansfield’s opinion is of little weight on that issue.
While there is no direct evidence that CGU received the exemption document, the reasonable inference from the chronology of events, namely, the issuing of the exemption document on 28 August 2008 and CGU sending its letter to Mr Earl on 19 September 2008, is that CGU received the document. It is inconceivable that WorkCover would not have sent the exemption document to all scheme agents immediately after 28 August 2008.
However, that is not the end of the analysis. For an insurer to cancel validly a statutory policy, two conditions must be satisfied. The insurer must have the written consent of WorkCover to cancel that policy, and the cancellation day “must not be less than 7 days after the notice of cancellation is given to the Employer” (emphasis added).
Dealing with the first condition, the consent concerned must be consent to cancel Mr Earl’s policy. The exemption document did not provide that consent. Clause 4.3.2 only provided consent to cancel the policies of employers who:
(a)     had a policy with a renewal date on or after 30 June 2008;
(b)     had known wages greater than $7,500, and
(c)     notified the scheme agent in writing “prior to the renewal date” (emphasis added) that their estimated wages for the renewal year would be $7,500 or less.
The first condition applied to Mr Earl because his policy fell to be renewed on 30 June 2008. However, the second and third conditions did not apply to him. The second did not apply because, as at 30 June 2008, he did not “have known wages greater than $7,500”. The third did not apply because he had not notified CGU prior to the “renewal date” (30 June 2008) that his estimated wages for the “renewal year” (30 June 2008 to 30 June 2009) would be $7,500 or less. If follows that the exemption document could not have provided consent for the cancellation of Mr Earl’s policy because the clause on which the Nominal Insurer now relies did not apply to him.
Even assuming that CGU obtained WorkCover’s consent to cancel Mr Earl’s policy, its attempt to do so was invalid. That is because, as Mr Perry conceded, the letter of 19 September 2008 was defective in that it purported to cancel the policy from 30 June 2008. That could not happen because cl 18 states that the cancellation takes effect on the cancellation day notified in the notice of cancellation “but that day must not be less than 7 days after the notice of cancellation is given to the Employer” (emphasis added). As the purported cancellation day (30 June 2008) was two and a half months before the date of the notice of cancellation (19 September 2008), the notice was of no effect.
Mr Perry attempted to get around this problem by arguing that the effect of the notice was “postponed” until 30 June 2009 (AT17.26). He said that, having regard to the pro forma letter, which informed Mr Earl of the proposed changes for employers with wages under $7,500, and having regard to Mr Earl’s fax of 29 August 2008, when he advised CGU of his actual wages for 2007–2008 and his estimated wages for 2008–2009, the effect was that Mr Earl said to CGU was “that renewal was not required” (AT21.19) and that provided an exemption to the automatic renewal in cl 17.
I reject this submission. The purported cancellation on 30 June 2008 was invalid and the letter of 19 September 2008 provided no alternative date for cancellation. The invalidity of the notice made it ineffective to cancel the policy on 30 June 2008, or on any other date. As CGU issued no other notice of cancellation, it did not cancel Mr Earl’s policy.
The submission that Mr Earl told CGU that renewal in 2009 was not required attributed to Mr Earl something that he did not say. The fax of 29 August 2008 did nothing more than provide a “Declaration of Actual Wages” for 30 June 2007 to 30 June 2008 and a “Declaration of Estimated Wages” for 30 June 2008 to 30 June 2009. Neither document said anything about the renewal of Mr Earl’s policy for either 2008 or 2009.
It is untenable to suggest that the combined effect of the fax on 29 August 2008 and the letter of 23 April 2008 meant that Mr Earl told CGU that renewal was not required in 2009. The fax was nothing more than Mr Earl’s response to CGU’s letter of 26 August 2008 requesting declarations of actual and estimated wages. The handwritten note on CGU’s letter of 26 August 2008, which said, “can CGU be flexible on this date & cover me”, is clear evidence that, contrary to Mr Perry’s submission, Mr Earl expressly sought the renewal of his insurance.
Clause 17 of the statutory policy states that a policy is renewed on the expiration of the current period of insurance to which it applies, except where one of two conditions applies. Either, the employer has given notice that renewal is not required, or the insurer has given the employer notice in writing not less than 14 days before the expiration of the current period of insurance that the insurer refuses to renew the policy, but the insurer cannot refuse to renew the policy unless WorkCover has given its prior consent in writing to the refusal.
As to the first exception in cl 17, Mr Earl did not give notice that renewal was not required. As to the second, whether or not it had obtained WorkCover’s consent to refuse to renew Mr Earl’s policy, which I do not accept it did, CGU did not give Mr Earl notice not less than 14 days before the expiration of his policy (whether the expiration was on 30 June 2008 or 30 June 2009) that it refused to renew his policy.

SUMMARY AND CONCLUSION

The position may be summarised as follows:
(a) section 155AA does not put exempt employer’s into their own category eliminating the need to comply with cl 18 of the statutory policy with regard to obtaining consent to cancel the policy concerned;
(b)     the phrase “should be lapsed” in cl 4.3.2 involved a direction (which included consent) to cancel certain statutory policies of certain employers;
(c)     however, as cl 4.3.2 did not apply to Mr Earl, it did not provide consent to CGU to cancel his policy;
(d) in any event, the purported cancellation in the letter of 19 September 2008 was invalid and ineffective because it purported to cancel the policy on a date that breached cl 18;
(e)     Mr Earl gave no notice that renewal in 2009 was not required, and
(f)      CGU did not give Mr Earl notice within the terms of cl 17 that his policy was not renewed.
It follows that, for the reasons given in this decision, the Arbitrator did not err in finding that CGU had failed to obtain the consent of WorkCover before purporting to cancel Mr Earl’s statutory policy on 19 September 2008 and that the policy remained on foot. As a result, Mr Earl was not uninsured on 5 January 2010. As Mr Earl was not uninsured, the Nominal Insurer did not properly make payments to the worker as a result of the claim brought against it by him under s 140(1)(a) of the 1987 Act and Mr Earl is not liable to reimburse it.

DECISION

The Arbitrator’s determination of 26 June 2012 is confirmed.

COSTS

Costs for legal services provided on or after 1 October 2012 were increased by 15 per cent by the Workers Compensation Amendment (Transitional) Regulation 2012 and the maximum costs for an appeal under s 352 are now $2,530. Though this appeal was filed before 1 October 2012, as the majority of the work was done after that date the costs order will reflect that fact.

The appellant is to pay the respondent’s costs of the appeal, assessed at $2,530 plus GST.

Bill Roche

Deputy President
31 October 2012

I, MARGOT UNDERCLIFFE, CERTIFY THAT THIS IS A TRUE AND ACCURATE RECORD OF THE REASONS FOR DECISION OF BILL ROCHE, DEPUTY PRESIDENT OF THE WORKERS COMPENSATION COMMISSION.

ASSOCIATE