Written by James Clarke
Australian Courts have shown a willingness to find that host companies may be vicariously liable for their contracted labour hire workers where there has been a requisite transfer of control – even if the Host company is not the employer of the worker. The leading case being Mt Owen Pty Ltd v Parkes [2023] NSWCA 77 (Mt Owen) – you can read Ligeti’s commentary on the case here.1
However, could labour hire companies or their insurers inadvertently become liable for the negligence of the host company’s employees? According to a recent Western Australia Court decision, the answer might be yes.
On 17 October 2025, the Western Australia Court of Appeal handed down its decision in AAI Ltd (t/as GIO) v Pilbara Iron Company (Services) Pty Ltd [2025] WASCA 150 (GIO v PICs) where there was a labour hire agreement between GIO’s insured and the respondent.
The Court in GIO v PICs required the insurer for a labour hire company (GIO) to indemnify the host company for the negligence of their own employee due to ambiguity in a policy extension clause.
GIO v PICs is a reminder to the parties of labour hire agreements and their insurers to take care when drafting their agreements and policies, lest a party become exposed to more risk than they may have originally intended.
Background
In GIO v PICs, Mr Fussell was a labour hire worker employed by WorkPac Pty Ltd (WorkPac), a labour hire firm. Mr Fussell was hired out by WorkPac to work on a mine site operated by Pilbara Iron Company (Services) Pty Ltd (PICs).
Mr Fussell was injured in a collision involving an employee of PICs (Mr Reidy) and brought a claim for damages of $1.1 million against PICs.
Prior to the incident, WorkPac had arranged an extension of their worker’s compensation policy with WorkPac’s insurer (GIO) under an extension clause. The extension clause was ostensibly for the purpose of extending indemnity to PICs to some degree. Mr Fussell claimed against PICs for his injuries, PICs in turn cross-claimed against GIO for indemnity under the policy extension.
Original Trial Decision
One of the core issues before the Court was whether the policy extension included a distinction between PICs’ direct negligence and Mr Reidy’s alleged negligence for which PICs was vicariously liable. GIO argued that if such a distinction existed, then GIO was only required to indemnify PICs for damages arising under PICs direct negligence – if any.
GIO argued that PICs had not breached its direct non-delegable duty of care to Mr Fussell. PICs was left in the odd position of having to effectively argue in favour of a finding of negligence against itself in order that it might be indemnified under the policy.
GIO denied it was obliged to indemnify PICs under the policy extension if it was not directly negligent, having specific regard to the wording of clause 4 of the policy:
“4. Where:
4.1 Injury to, or death of, an Employee arises out of and occurs during the performance of the work required to be done by you under a contract with a Principal during the Policy Period;
4.2 the Employee is employed in, and, at the time when the Injury occurs, is working in the Business; and
4.3 the Injury or death is caused by or contributed to by the Principal's negligence and the Principal is liable to pay damages, or to contribute to an award of damages, for that Injury or death;
we shall indemnify the Principal against that Common Law Liability.”
(emphasis added)
GIO argued that the term “Principal’s negligence” was limited to PICs’ negligence for which it was directly liable. GIO’s contention (in substance) was that the extension clause responded only where the principal (PICs) was directly negligent, and the term did not extend to PIC’s vicarious liability for the acts of their employee. A similar, albeit less forceful, argument was raised with respect to the term “Common Law Liability”.
PICs argued that the terms should be read expansively as to include both direct and indirect negligence attributable to PICs as the principal. The Court ultimately found both Mr Reidy and PICs had been separately negligent. Mr Reidy for his failure to keep a proper lookout and safe distance (for which PICs was vicariously liable) and PICs for failing to maintain proper safety precautions on site.2
As the Court found PICs was a directly negligent party, the Court accepted PICs was entitled to be indemnified under the terms of the policy extension and elected not to comment on whether clause 4.3 considered a distinction of PICs’ direct negligence and any vicarious negligence.
Notably, the trial Judge found PICs was not entitled to be indemnified for its legal costs of defending where the extension clause did not explicitly provide for the indemnification of legal costs.
Appeal Decision
GIO appealed the Court’s decision with respect to both the finding of PICs’ negligence and the construction of the term “Principal’s negligence”, and PICs cross-appealed the Court’s decision on PICs entitlement to costs.
The Court of Appeal upheld the original trial judge’s decision on both counts. The Court of Appeal accepted that the term “principal’s negligence” included vicarious liability even if PICs had not directly breached its own duty of care (which was not the case here). The Court took the same approach to the construction of the term “Common Law Liability”.
In coming to its decision, the Court of Appeal first noted the paucity of evidence as to the parties’ (and WorkPac’s) discussions and intentions with respect to the policy and the construction of its terms. In the absence of any contemporary explanatory material, the Court construed the phrase “Principal’s negligence” in what it considered the most commercially sensible way and determined it should extend to all liabilities incurred in the operation of the PICs’ business – not just those arising under PIC’s non-delegable duty of care.
The Court of Appeal also upheld the trial judge’s decision not to grant PICs its costs of defending Mr Fuller’s claim.
It should be noted that whilst the case was confined to a worker’s compensation matter, the Court of Appeals findings would likely be equally relevant to general insurance matters.
Implications
The consequence of this case is clear, a poorly worded policy (or policy extension) may result in an insurer being inadvertently on the hook for far greater damages than originally intended under the policy. In GIO v PICs, the labour hire companies’ policy was required to respond and indemnify the direct negligence not just of the host company, but also the indirect negligence of the host company’s employees.
It should go without saying that it behoves parties to be specific and comprehensive when drafting agreements. However, there is a combined lesson to be learnt when GIO v PICs is considered in conjunction with Mt Owen. Insurers and their clients must be alive to the following points when drafting and considering a policy which covers or involves labour hire agreements:
1. vicarious liability may shift away from a labour hire employer to the host company where control of a labour hire worker is transferred – potentially requiring the host company’s insurance policy to respond;
2. contracting parties should always be clear in their agreements about whom the parties intend to be responsible for indemnifying:
(a) the negligent acts of the labour hire workers;
(b) the negligent acts of the host company; and
(c) the negligent acts of the host company employees;
and in what circumstances the relevant policy is expected to respond.
3. clear coverage limitations, so as to match the intended risk-transfer, with clear distinction between direct liabilities, vicarious liabilities and statutory liabilities where appropriate;
4. parties should be aware of and make clear where liability lies for the different possible heads of damage and subsequent costs that may arise out of the claim.
In a post-Mt Owen landscape, host employers should no longer assume that a labour-hire provider’s policy will respond simply because the negligent worker is the labour hire provider’s employee. Where vicarious liability is fixed on the host company, the host’s own insurance policy would become the primary source of cover for the labour hire worker’s negligence.
However, GIO v PICs illustrates how imprecise drafting in labour-hire agreements and associated insurance policies can have the unintended effect of manufacturing an indemnity where none was intended to exist, exposing insurers to liabilities that do not reflect the underlying common-law risk allocation – inadvertently shifting a risk back onto the labour hire provider (and their insurer).
These decisions underscore the need for insurers to scrutinise labour-hire arrangements, policies and extensions, and attribution clauses to ensure that liability allocation, indemnity scope, and coverage intent are aligned, clearly expressed, and priced for the risk actually assumed.
Should you wish to discuss any of the above, please contact Jessica Woods on 03 9946 4516 or one of the Ligeti Partners team members on 03 9947 4500.