Legal Briefing No. 60

Number 60

31 July 2001

Comcover

Since its inception on 1 July 1998 Comcover has been
a vital part of the Commonwealth Government. Comcover is
the Commonwealth's self managed fund for insurable risks.
Generally, unless Commonwealth departments and agencies
are insured, they will have to meet losses and liabilities,
including the costs of defending claims against them, from
their normal running costs. This represents a fundamental
shift from the previous regime. This briefing addresses
the previous regime, the reasons for the change and the
way the current regime operates. The briefing concentrates
on aspects relating to coverage for legal liabilities,
as this is the area of greatest effective change.

The Previous Regime

The previous regime dated back to 1909. Sometimes it
was called a self-insurance regime. More accurately, it
was a non-insurance regime. In particular, funding for
departments' legal liabilities, and for most related legal
expenses, was available from a Compensation and Legal Expenses
appropriation. That appropriation was separate from appropriations
for departments' running costs and, in practical terms,
constituted an inexhaustible supply of funds for legal
liabilities and expenses. There was no single body responsible
for administering the regime.

The rationale for the previous regime was that the Commonwealth's
size and resources enabled it to bear its own losses. Another,
but not insurmountable, factor was that money paid to departments
was (and generally still is) required to be paid into the
Consolidated Revenue Fund. Thus, despite paying premiums
for insurance, departments could not generally keep the
proceeds of an insurance pay-out.

The main benefit of the previous regime was that the
Commonwealth paid no commercial insurance premiums (which
of course include a profit component for the commercial
insurers).

However, the previous regime involved:

  • no general oversight of the cost to the Commonwealth
    of legal liabilities incurred by departments
  • very little planning for management of potential liabilities,
    and
  • very little incentive for departments to take steps
    to reduce their liabilities.

Reviews of the Previous Scheme

The non-insurance regime had been regularly reviewed
and endorsed since 1909, and as recently as 1981 and 1990.
However, during the latter part of that period there were
progressive moves towards devolution of authority, requiring
managers to operate more commercially, and making managers
more accountable. Also, state governments, and various
Australian and overseas commercial corporations, were generally
moving towards internal self-managed insurance funds.

In 1997 a further review was commissioned. The review
team comprised officers from the Department of Finance
and the Insurance and Superannuation Commission. That team
was oversighted by a Steering Committee chaired by the
Department of Finance and comprising officers from the
Australian National Audit Office, the Attorney-General's
Department and the Australian Government Actuary. Following
the report of that review, the Government decided to establish
the Comcover regime.

The Comcover Scheme

Its Features

The Comcover scheme was established on 1 July 1998. The
scheme is an administrative scheme, not established under
legislation. Features of the Comcover scheme include:

  • an insurance fund separate from Consolidated Revenue,
    was established under section 20 of the Financial Management
    and Accountability Act 1997
  • the fund is managed by a small unit (called 'Comcover')
    within the Department of Finance and Administration
  • Comcover's performance is monitored by an Advisory
    Board
  • Comcover has outsourced provision of its member services,
    eg. claims management and payments
  • eligible fund members include all Commonwealth General
    Government Sector Organisations - that is, those covered
    by the Financial Management and Accountability Act
    1997 and the Commonwealth
    Authorities and Companies Act 1997 - but excluding Public Trading and Financial Enterprises:
    CGGS organisations are listed in the Consolidated Financial
    Statements on the web site of the Department of Finance
    and Administration
  • for those eligible, membership of Comcover is compulsory,
    unless specifically exempted by the Minister for Finance
    and Administration
  • fund members pay premiums to Comcover and receive from
    Comcover its policy manual and a specific Schedule of
    Cover
  • Comcover provides broad cover for all classes of normally
    available general insurance, eg. general liability and
    professional indemnity, directors' and officers' liability,
    property loss, destruction or damage, business interruption
    and consequential loss, motor vehicle loss, destruction
    or damage, personal accident, official travel overseas,
    personal effects: Comcover also provides cover for a
    number of special risks, eg. marine and aviation liability,
    for members requiring that cover
  • if Comcover makes a payment in relation to a claim
    Comcover will then be subrogated to any rights of the
    fund member to recovery against a third party
  • if a fund member disagrees with Comcover in relation
    to a matter under the policy (eg. regarding the defence
    or settlement of a claim), the disagreement is to be
    referred first to a mutually agreed mediator, then to
    the Secretary of the Department of Finance and Administration
    and the CEO of the fund member or their nominee, and
    ultimately to the relevant Ministers
  • Comcover bears some of the insurance risk itself but
    takes out external commercial re-insurance for most of
    the risk
  • Comcover (through its outsourced claims management
    provider) manages claims covered by its insurance, although
    external commercial re-insurers may become involved in
    some circumstances
  • the Compensation and Legal Expenses appropriation has
    ceased to exist (thereby leaving a department to meet
    its liabilities and losses from insurance, running costs,
    or from any additional appropriation which the department
    can persuade the Government to support).

Its Benefits

The benefits of the Comcover scheme include:

  • fund members, and the Commonwealth's budget, are protected
    from unexpected insurable losses
  • there is greater transparency and accountability in
    the management of the Commonwealth's insurable risks
  • Comcover's whole of government approach to external
    commercial re-insurers enables insurance premiums to
    be kept as low as possible
  • there is a greater capacity to attain a coordinated
    and uniform approach to claims against the Commonwealth
    and to adopt more coordinated risk management policies
    and practices to reduce the number of such claims.

Comcover as a Government Entity

As indicated, Comcover is part of the Department of Finance
and Administration. Accordingly, Comcover is bound to deal
with claims in accordance with the Legal Services Directions
issued by the Attorney-General under the Judiciary Act
1903.

Comcover has entered into arrangements with its key re-insurers
ensuring that claims covered by its external commercial
re-insurance are also dealt with in accordance with those
Directions. Under those arrangements, Comcover manages
claims.

Fund Member Obligations

Apart from paying premiums, important obligations on
fund members include:

  • to disclose to Comcover all matters relevant to a decision
    by Comcover to offer cover, and to update Comcover on
    any significant change to the fund member's risk exposure
    during the period of the insurance (including the granting
    by the fund member of contractual indemnities) - as this
    is a condition of cover, Comcover may reduce its liability
    in respect of any claim affected by such a failure to
    disclose: NB - contractual indemnities by the Commonwealth
    should be granted only in accordance with the Finance
    Circular 1997/06
  • to inform Comcover immediately of any claim covered
    by Comcover, or of any event that might lead to such
    a claim, and to comply with incident recording obligations
    - in relation to liability insurance and directors' and
    officers' insurance, Comcover can refuse to indemnify
    a fund member in relation to claims made against the
    fund member within a period of cover that are not notified
    within 30 days of the expiry of the period of cover -
    initial notification may be by a telephone call or other
    convenient means of communication but should be followed
    up by completion of a Comcover claim form
  • with Comcover's assistance, to maintain effective risk
    management strategies
  • to advise Comcover if any risk placed with Comcover
    is also covered by another insurance policy: in that
    event Comcover would enter into discussions with the
    fund member for the orderly cessation of the other insurance
    policy
  • to comply with all conditions relating to events covered
    by Comcover insurance, for example:
    • refraining from making any statement to possible
      claimants or witnesses to an incident, or taking any
      action, that could be construed as an admission of
      liability, without Comcover's prior written approval
      - if liability is admitted without Comcover's prior
      written approval Comcover is entitled to refuse indemnity
    • taking all reasonable steps to provide assistance
      to an injured prospective claimant
    • obtaining details of witnesses to an incident
    • where possible, taking photographs or videos, or
      making sketches, of incident scenes
    • where appropriate immediately reporting incidents
      to the police
  • not to disclose, without the prior consent of Comcover,
    the nature and limit of the liabilities covered
  • if an operation is established, whether temporarily
    or permanently, outside Australia, to obtain any insurance
    required by local law to carry out operations in that
    particular jurisdiction
  • as fully as possible to cooperate with and assist Comcover
    in dealing with claims covered by Comcover insurance.

If a fund member's employee is sued (either on his or
her own or with the Commonwealth or relevant government
agency as a co-defendant) it is for the fund member, rather
than Comcover, to determine whether the employee should
be indemnified in relation to the claim (including the
costs incurred in defending the claim).

In relation to officials employed in agencies covered
by the Financial Management and Accountability Act, the
decision whether to indemnify an official will be made
under the scheme embodied in Appendix E to the Legal Services
Directions regarding Commonwealth assistance to officials.

It is important that member agencies keep Comcover informed
of decisions to indemnify employees as those decisions
can affect how Comcover responds to a claim.

Although the relationship between Comcover and many of
its fund members is not one to which the Insurance Contracts
Act 1984 applies, Comcover is likely to act consistently
with the Act in determining whether to deny coverage on
the basis of a failure of a fund member to fulfil its obligations.

By way of illustration, the Act provides that where an
insurer would, but for the Act, be entitled to refuse to
pay a claim by reason of certain acts of the insured, the
insurer cannot refuse to pay the claim but the insurer's
liability will be reduced by the amount that fairly represents
the extent to which the insurer's interests were prejudiced
as a result of the insured's acts (section 54).

Exclusions from Insurance Cover

Exclusions from Comcover insurance cover include:

  • merits or judicial review of administrative action
  • fine, penalties, punitive, exemplary or aggravated
    damages
  • liquidated damages or performance warranties (unless
    liability would have arisen in any event)
  • loss of revenue due to false claims being made under
    legislation
  • appearing before an inquiry, except where covered under
    directors and officers' liability insurance
  • liability arising from:
    • the disregard of members and their employees of the
      need to take all reasonable steps to avoid losses
    • ionising radiation
    • asbestos
    • illegal acts
  • a claim arising from:
    • war
    • most cases of confiscation, nationalisation, requisition
      or damage to property ordered by a government authority
    • the discharge of pollutants unless sudden, identifiable,
      unintended, unexpected and accidental.

Legal Representation

Once Comcover accepts a claim, Comcover becomes the agency
responsible for the management of the claim, including
for the defence and settlement of the claim and any litigation
relating to the claim. In most cases, Comcover will use
its member agency's lawyers or lawyers from the member
agency's legal panel. Comcover's responsibility includes
developing appropriate strategies for the defence and settlement
of claims in consultation with the member agency concerned
and the Office of Legal Services Coordination in the Attorney-General's
Department (which is responsible for administering the
Attorney-General's Legal Services Directions).

Conflicts of Interest

Comcover does not favour denying claims because of overly
technical interpretations of its policy manual. However,
until Comcover has had the opportunity to consider a claim
and has accepted that the claim is covered by its insurance,
there is a potential for Comcover and its fund member to
have a conflict of interest, ie. if a dispute arises as
to whether the claim is covered by the insurance or whether
the fund member has met a condition of the insurance policy.
This potential exists in relation to any insurer and cases
of actual conflict seldom arise. However, if a lawyer has
already been engaged by the fund member to advise the fund
member in relation to a claim, that lawyer would, without
the fund member's agreement, be precluded from advising
Comcover whether the claim was covered by Comcover insurance.
Corresponding issues could arise if a lawyer has previously
advised Comcover and is asked to advise the fund member.

Comcover is aware of the potential for conflict and seeks
to manage it with a view to making the claims management
process as smooth as possible and preserving a good working
relationship with its fund members. One measure which assists
to avoid the issue, and which also meets fund members'
obligations under the Comcover scheme, is for fund members
to refer claims immediately to Comcover without having
first obtained legal advice in relation to the claim. That
course would assist Comcover to meet its commitment to
use fund members' choice of lawyer(s) on most occasions.

Members' Involvement

Once Comcover takes over the conduct of a claim it is
responsible for the resolution of the matter and is required
to meet the associated legal costs as it retains the legal
services needed for that process. Accordingly, as the lawyer
will be instructed by Comcover, the member will not necessarily
have unfettered access to that lawyer. Rather, prior to
the lawyer providing information to the member, it is likely
that the lawyer will need Comcover's consent to release
that information. Nonetheless, Comcover is acutely aware
of the need for members to be involved in and fully informed
of the progress of claims and attempts to meets members'
expectations and reasonable requirements to the extent
possible.

For further information please contact

Andrew Hughes of our Canberra office on telephone (02)
6253 7416 or e-mail andrew.hughes@ags.gov.au,
or any of the following lawyers:

Canberra

Louise Vardanega

(02) 6253 7276

Andrew Berger

(02) 6253 7405

Sydney

Simon Konecny

(02) 9581 7585

Melbourne

Martin Bruckard

(03) 9242 1386

Brisbane

Barry Cosgrove

(07) 3360 5647

Perth

Paul Shanahan

(08) 9268 1117

Adelaide

Sarah Court

(08) 8205 4231

Darwin

Rick Andruszko

(08) 8943 1400

Hobart

Peter Bowen

(03) 6220 5474

For enquiries regarding supply of issues of the Briefing,
change of address details etc, tel: (02) 6253 7052 or fax:
(02) 6253 7313 or e-mail: ags@ags.gov.au.

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

The material in this briefing is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please contact
AGS before any action or decision is taken on the basis
of any of the material in this briefing.

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