A recent Western Australian Court of Appeal decision has highlighted how workers’ compensation policy wording can affect the allocation of risk between labour hire employers, host employers, and insurers.
On Oct. 17, 2025, the Court of Appeal in AAI Limited trading as GIO v Pilbara Iron Company (Services) Pty Ltd [2025] WASCA 150 considered whether an indemnity extension under a workers’ compensation policy responded to a principal’s liability for injuries suffered by a labour hire worker at the West Angelas iron ore mine. The court upheld a first instance ruling that Pilbara Iron Company (Services) Pty Ltd (PICS), the principal contractor at the mine, was liable in negligence and that WorkPac’s workers’ compensation insurer, AAI Limited trading as GIO, was required to indemnify PICS for the full amount of common law damages awarded.
In an insight article, Gilchrist Connell lawyers Melissa Fenton, Shayma Sorefan, and Olivia Giacomelli examined the judgment and its interaction with New South Wales authority on vicarious liability and non-delegable duties, and outlined the implications for policy construction in labour hire arrangements across Australia.
The proceedings arose from a collision on site between a stationary haul truck and a front-end loader. The haul truck was operated by labour hire worker Graham Fussell, employed by WorkPac, while the loader was driven by PICS employee Reidy. Fussell commenced proceedings against PICS, alleging that Reidy failed to maintain sufficient separation between vehicles and that PICS was vicariously liable for his negligence. PICS, in turn, issued third-party proceedings against GIO, seeking indemnity under an extension to WorkPac’s workers’ compensation policy.
The extension purported to indemnify PICS where a worker sustained injury while performing contracted work for PICS and the injury was caused or contributed to by “the principal’s negligence.” At first instance, the trial judge found that PICS had breached its duty of care in relation to the safe system of work at the mine. The court awarded Fussell approximately $1.1 million in damages and held that the indemnity extension responded, entitling PICS to an indemnity from GIO for the full amount of the judgment.
GIO appealed, challenging both the negligence finding and the interpretation of the indemnity extension. It argued that PICS had taken reasonable steps to manage collision risks through general safety rules and operator training, and that the trial judge erred in relying on a “3 metre clearance rule” as a benchmark in circumstances where evidence about its practical implementation in mine operations was limited. On the coverage question, GIO submitted that the extension should be confined to cases involving breach of a non-delegable duty owed by the principal, and should not extend to situations where the principal was only vicariously liable for the acts of an employee. PICS cross-appealed, seeking indemnity for its defence costs.
The Court of Appeal dismissed both the appeal and the cross-appeal. It confirmed that PICS had operational control of the site – including plant layout, traffic coordination, and supervision of workers – and therefore owed a duty to put in place and communicate a system of work addressing vehicle separation and collision risk. On that basis, the negligence finding was left undisturbed and PICS remained liable to Fussell.
The Gilchrist Connell commentary considers how a similar dispute might be treated under New South Wales law. NSW courts have recognised that a host employer may be liable for breach of non-delegable duties to labour hire workers treated as employees pro hac vice, particularly where the host controls work systems, site safety, and day-to-day direction. In Mt Owen Pty Ltd v Parkes, the NSW Court of Appeal indicated that a transfer of control sufficient to give rise to host employer liability requires control over the manner in which the work is performed, not only over the workplace more generally. On that approach, where a host exercises full practical control over operations, there is an increased likelihood of findings of vicarious liability. The commentary also notes observations in De Martin & Gasparini that labour hire workers, while integrated into a host employer’s operations, are expected to be familiar with routine tasks and to coordinate and communicate in higher-risk activities, which may support findings of contributory negligence on appropriate facts.
The second key issue in Pilbara was the scope of the indemnity extension. The Court of Appeal held that the phrase “principal’s negligence” in the policy wording was not limited to situations involving direct fault by the principal and was wide enough to encompass vicarious liability.
In reaching this conclusion, the court referred to the High Court’s reasoning in Bird v DP, which distinguished vicarious liability from liability arising out of a non-delegable duty. In that case, the High Court stated that “true vicarious liability involves attribution of another’s liability to a defendant even where the defendant is free of fault, distinct from liability arising from a non-delegable duty, which imposes a direct obligation to ensure reasonable care is taken.” The Court of Appeal treated this distinction as relevant to how “negligence” should be understood in the policy context. With no extrinsic evidence of negotiations or surrounding contractual arrangements, the court applied standard principles of policy construction and interpreted the wording in its commercial setting. On that basis, it found that the term “principal’s negligence” was capable of including both direct breach and attributed fault.
The court also examined the definition of “Common Law Liability” in the primary policy and found that it did not differentiate between liability arising from a principal’s non-delegable duty and vicarious liability for a worker’s conduct. It held that “Common Law Liability” encompassed both, in line with the commercial purpose of insuring principals who may face liability for acts of workers under their control.
For insurers writing workers’ compensation and liability policies that interact with labour hire and host employer arrangements, the Pilbara decision illustrates how general or ambiguous drafting can affect the scope of indemnity. According to the Gilchrist Connell commentary, where host employers, in practice, exercise control over labour hire workers, courts are likely to interpret uncertain expressions such as “principal’s negligence” and “common law liability” by reference to that operational reality, especially where there is no clear written evidence of the parties’ intended allocation of risk.
The commentary identifies several practical steps for insurers, including:
For insurance professionals, the decision underscores that questions of operational control, labour deployment, and policy wording can significantly influence claim outcomes and the distribution of loss between principals, labour hire employers, and their insurers.
