Unfair Claims Handling Practices in Workcover Insurance – No tortious Duty of Good Faith


Workcover insurers have no common law good faith duties. Australia does not recognise the tort of acting in bad faith.  Further, there is no term implied in a workers compensation insurance contract that the insurer must act in good faith….and that, folks, is one of the biggest problems injured workers have.

Unfair Claims Handling Practices in Workcover Insurance – No tortious Duty of Good Faith


In the USA, claiming that an insurer has failed to act in good faith towards its insured can result in large damages awards.  While embracing the proposition that a duty of good faith and fair dealing is imposed by contract, the American courts also consider contracts of insurance to create a special relationship that gives rise to a tortious duty of good faith – hence exposing insurers to punitive or exemplary damages.

In Australia, a duty to act in good faith exists as an implied term in all insurance contracts regulated by the Insurance Contracts Act (by virtue of section 13 of the Act).  A breach of this duty of good faith results in a liability for no more than compensatory damages and does not create any potential liability for exemplary or punitive damages.  The question of whether a tortious duty of good faith exists for insurers in Australia has often been raised – particularly in regard to policies not regulated by the Insurance Contracts Act.

In Gibson v Parkes District Hospital (1991) 26 NSWLR 9, Badgery-Parker J concluded that there was at least an argument available that such duty existed but did not go so far as to find that such a duty formed part of Australian law.

To date Australian Courts have generally resisted following the American line of caselaw based on the existence of a tortious duty of good faith owed by an insurer.  On 10 August 2007, the NSW Court of Appeal has confirmed (in a case where TressCox acted for the insurer) that the tortious duty of good faith does not exist in Australia.
In other words: Australia does not recognise the tort of acting in bad faith.  Further, there is no term implied in a workers compensation insurance contract that the insurer must act in good faith….and that, folks, is one of the biggest problems injured workers have.

View the insurance contracts Act which states workcover insurers are exempt of good faith !

Garcia –v- CGU Workers Compensation (NSW) Limited

Mr Garcia suffered an injury at work and sought compensation payments under a workers compensation insurance policy (a policy not regulated by the Insurance Contracts Act) taken out by his employer.

The insurer initially commenced weekly payments and met the costs of medical treatment but continued its investigations as to the injury and the extent it was work-related.  Relying on a medical report, the insurer later declined the claim and ceased payments – on the basis that the injury was not work-related.  Mr Garcia commenced proceedings against the insurer alleging that he suffered psychological injury and financial loss as a result of the insurer’s denial of his claim which, he said, represented a breach of the duty of good faith by the insurer.

Full text of the legal case can be read here>>

NSW District Court Judgment

The trial judge found that due to the nature of the relationship between the insurer and Mr Garcia (as the worker, although not the insured) the insurer had a tortious duty to act in good faith to deal honestly and fairly in processing the claim.  The trial judge further found that maintaining the insurer’s denial of the claim based on one medical report amounted to a breach of the insurer’s tortious duty of good faith to Mr Garcia.  This breach gave rise to compensatory and exemplary damages.

The trial judge did not consider whether there was an implied contractual duty of good faith because of his conclusion reached in relation to the tort claim.

NSW Court of Appeal Judgment

The Court of Appeal unanimously held that the existing law did not support the existence of a tortious duty of good faith.  Mason P, Santow JA and Hodgson JA agreed that the tort was not needed to meet any of the suggested inadequacies in the workers compensation statutory policy which were alleged on behalf of Mr Garcia.  Furthermore, having regard to the statutory scheme for workers compensation which prescribes in detail the substantive and procedural rights and obligations of all participants, there were policy reasons negating the need to find that a tortious duty of good faith or an implied contractual duty of good faith existed.

In any event, the Court of Appeal did not accept that the insurer breached any duty by denying the claim and ceasing its payments.  The statutory framework did not preclude the insurer from changing its position on the claim in response to new evidence.

The Court of Appeal also unanimously found that there was no authority to support the suggestion that an implied term of good faith is to be inserted into every contract or even into every aspect of a particular contract.  In any event, this alleged implied contractual duty was not necessary to give efficacy to the statutory policy created by the workers compensation legislation and would in fact contradict the express terms of the policy and the statutory framework.

This NSW Court of Appeal decision is reassuring to insurers and is consistent with decisions made in other common law jurisdictions in the world (outside the USA).  Insurers can breathe a sigh of relief and know that they are not exposed to any claims for exemplary or punitive damages arising from alleged breaches of a suggested common law duty of good faith.

No Tortious Duty of Good Faith

Direct link>>

Thanks to our co-author “Trinny” we also found an excellent, but mainly NZ based, article very revealing about good faith in Australia and whom it serves:

A Leap of Good Faith:A Possible Response to Unfair Claims-Handling Practices in Insurance

Direct link>>


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9 Responses to “Unfair Claims Handling Practices in Workcover Insurance – No tortious Duty of Good Faith”

  1. The only way to counter this is to get income protection (yes I know it is another contract with the devil) and sue the employer directly for strict negligence with punitive damages. Have nothing to do with Workers Comp. It seems like we have to right back to where we started to address the obvious abuse of our common law rights. We only need a few cases with payouts in the millions to make employers scream for a fairer system. That is the way we originally got WC, looks like we have to do it again.

    • The high court of Australia would overturn this, but as usual who has the money to go that far. This poor guy was stopped at the Court of Appeals, grossly unfair.

      • When the price of Justice is too high for the poor, there is no Justice. So we must fight for it.
        Maybe we could look to crowd source funding for a Legal Workover Defence Team, or try to find pro bono lawyers who share our Aims or at least enough of em to allow them to work together with Injured Workers in making Workover dismantling court challenges.

      • Bunny & Mr Bunny
        whenever I read your comments I am blown away by the level of grammar
        I ask you both to write an exemplary letter post it on hear so that we could all copy and send it to the link below.
        This advocacy group claims to fight for social justice and if we are able to all send a well worded letter that captures the injustices and pain we are all being put through then we may be able to fight these laws.

        • Good move Ataloss. There’s also PILCH in Victoria, and probably similar organisations in the other States.

  2. These big Corporations are a law unto themselves. They often have bigger turnovers than a lot of countries. Some have their own armies. Our governments laid down for them long ago. But we don’t have to. There have been many successful little folk actions against some of the Corps both in the Courts and at the grass roots.

  3. If the future of Australia is to be governed by corporations and privatisation then shouldn’t the consumers of the products be protected from dishonest and unethical practices? In Workcover there seems to be some blurring of the boundaries between the insurance company acting as a service provider to being legislated to control (power) over people. The later is concerning. There should be no place in any society where any group of people should have their lives made subservient to a business. To do anything with at will, lab rats. This is what is occurring in Workcover. Our politicians are giving this a tick of approval. It is a human rights issue.

    • Tinny well put and you are absolutely right.

      it is time to really push for the legal envelope.

      if I could articulate a well worded letter that best describes how we are all suffering I would and send it to the Advocacy centre in the link below.


  4. wow interesting read forget about unfair get the upper management off the insurers to attend capital city parks for the friday arvo arse kicking now thats unfair because i forgot every politician thats sold their soul to big biz maybe they’ll get to no the meaning