Statutory Liability

Statutory liability is a legal term meaning that someone can be held responsible for a certain action or omission because of a related law that is not open to interpretation. This is a generic term that can apply to any field, not just finance, but in finance, it may come up in reference to real estate transactions, stockholder obligations or the behavior of board members, to name just a few examples.

In New Zealand and Australia, businesses commonly purchase statutory liability insurance to protect themselves from the fines, penalties and legal fees that can result from an accidental breach of law. These may include occupational health and safety laws, environmental laws and employment laws.

All organizations in all industries have exposure to potential liabilities that may arise from investigations or court cases brought by regulatory bodies for alleged breach of statute. Statutory liability policies can cover liabilities that arise out of unintentional breaches of almost all New Zealand laws.  Some of those statutes include

• Resource Management Act
• Building Act
• Fair Trading Act
• Health & Safety in Employment Act (excluding fines)

While corporations in New Zealand always face higher risks for prosecution, directors, executives and employees can also experience personal liability exposure in the New Zealand court system, which have the ability to impose a range of penalties, such as fines and or even imprisonment. Statutory liability insurance can indemnify organizations and individuals against the costs associated with an investigation or prosecution for unintentional breaches of statute. (The punishment for these breaches is a fine if convicted). Policies typically cover:

• Judgments (fines)
• Defence costs
• Reparations (Health & Safety in Employment Act only)
• Representation costs at official inquiries or complaints tribunals

It is common for offenses that allege breach of statute to operate on a "strict liability" basis, which means it does require intent to be proven for a prosecution to be successful. Coverage protects against the unexpected, not the outcomes of intentional misconduct or ignorance of the law. As such, criminal allegations or liability that come from deliberate, willful or reckless acts or omissions do not qualify for protection under such insurance.

In general, criminal and transport-related offenses are excluded from statutory liability insurance coverage due to the moral hazards involved with covering people for these types of activities. Statutes generally excluded include Arms Act 1983, Crimes Act 1961 and Aviation Crimes Act 1972, Transport Act 1962 and several other related acts.