A ruling in favour of a recruitment company that indemnified a client against on-hire injury claims is not a blanket protection for all recruiters that agree to hold harmless or indemnity clauses, warns a lawyer.

Recruitment companies should triple check their insurance policies to see if they're afforded the same cover as Brisbane-headquartered agency People Resourcing, which recently recouped both its and its client's shares of an injured on-hire worker's $450k damages bill, said Jessica Fisher, who is a partner at specialist law firm FCB Group.

WorkCover Queensland ultimately failed to prove that its insurance policy did not cover the recruitment company's "self-imposed commitment to indemnify" the client, but Fisher warned that other insurers might now tighten up the language and clauses in their policies to avoid a similar finding.

"The scary part of these [hold harmless and indemnity] clauses is that it's an unknown kind of quantum that you could be liable for. What this shows is that, at least in some circumstances, there is the ability to recoup your loss through a properly drafted insurance policy," she told Shortlist.

"My advice to recruiters is to go and have a look at your policy and then have another look at it to make sure that... if you believe you're paying for a certain level of cover, then actually that is what you're likely to get in a certain set of circumstances."

Recruiters should look particularly closely at the definitions of terms in the contract to ensure they're on the same page as their insurer, said Fisher.

"You need to look at, not just saying, 'of course, someone's made a legal claim against me... therefore [I'm covered because] that's the word that's used in the policy', but is that actually how it's defined and what it means?

"And notwithstanding that, [look at] what is included and then go and have a look and see if there are any exemptions," she said.

"Sometimes where there is a fault element some insurance policies will therefore not be able to be applied."

The People Resourcing case hinged on whether or not the insurer should be held to the policy, said Fisher.

"Ultimately the decision was that yes, the insurance policy did cover this set of circumstances, but I'm sure we've all seen many times where people thought they were covered for certain events... and when the policy was tested it was found to have some gaps in it which allowed the insurer to not pay," she said.

Given the high stakes in this area, recruiters should also consider seeking advice from a specialist lawyer to determine what their policy covers, added Fisher.

"Get proper advice from a proper insurance lawyer to ensure that the policy actually does cover the range of circumstances that you intend it to, because it can be an expensive... error to find out after the fact that you're not actually covered."

Indemnity clauses "an open-ended liability"

Part of the problem with agreeing to a contract with hold harmless or indemnity clauses is that recruiters can't determine if – or when – that clause will trigger and how big their liability will be, said Fisher.

"The big clients of recruitment companies have been increasingly requiring these sorts of clauses to be inserted to get the job at all and I think there's been this level of realistic fear... because it can be an open-ended liability that the recruiter might end up owing," she said.

In a scenario where multiple people are injured, or equipment is damaged, "it's not inconceivable by any means that... there could be millions of dollars that have to be paid out as a result of triggering that clause", she warned.

Smaller recruitment companies in particular should look for ways to protect their businesses against those kinds of costs, Fisher said.

"If you can't offset your own costs to an insurance company, is that then something that could actually put your business at risk? Do you need to put something in your accrued provisions for those... types of loss?" she said.

"Obviously actuaries can predict a whole range of different things and their likelihood, and businesses can make some sort of provision against them, [but the liability from an indemnity clause is] a very hard one to try and estimate, and quantify."

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