For Australian business owners and HR professionals, understanding workers’ compensation is more than a compliance box to tick. In 2025, as workplace risks evolve and legal environments tighten, the details of your coverage can make a critical difference. Among the most misunderstood elements: Coverage B in workers’ compensation insurance.
What Is Workers’ Compensation Coverage B?
Most employers are familiar with the basic—or ‘Coverage A’—component of workers’ compensation. This covers statutory benefits for employees who suffer work-related injuries or illnesses. But Coverage B offers an additional layer of protection, stepping in when statutory benefits fall short or when legal action is taken against an employer for work-related injuries.
- Coverage A: Pays for medical expenses, lost wages, and rehabilitation as mandated by state or territory law.
- Coverage B: Provides cover for damages awarded to employees who sue their employer for work-related injury or disease, typically when negligence is alleged and statutory benefits don’t fully address the loss.
Essentially, Coverage B is the employer’s safeguard against common law claims—those rare but potentially devastating lawsuits that can arise after a workplace incident.
2025 Updates: Legal Landscape and Policy Trends
The last year has seen several significant changes impacting workers’ compensation in Australia. With an uptick in workplace safety litigation and a push for mental health inclusion, Coverage B is in sharper focus for 2025:
- Common Law Claims Are Rising: According to Safe Work Australia, 2024 saw a 12% increase in common law claims, particularly for psychological injuries. This trend is expected to continue as awareness grows and legal thresholds for ‘serious injury’ claims are clarified by recent court decisions.
- Expanded Mental Health Coverage: New South Wales and Victoria have both updated their workers’ compensation statutes to more clearly address psychological injuries and stress-related claims. Coverage B may now be triggered by alleged employer negligence in managing psychosocial risks, adding complexity to potential litigation.
- Higher Statutory Benefit Caps: In 2025, several states raised their statutory compensation caps, but for catastrophic cases or long-term disabilities, common law damages can still far exceed these limits—making Coverage B indispensable for larger employers or those in higher-risk industries.
Insurers are responding to these changes with policy adjustments, stricter underwriting, and closer scrutiny of workplace risk management practices. Employers need to ensure their Coverage B limits and exclusions are aligned with their risk exposure and current legal obligations.
Real-World Scenarios: Why Coverage B Matters
Consider two examples:
- Manufacturing Mishap: A factory worker suffers a severe injury due to a machine malfunction. Statutory benefits cover initial costs, but the employee alleges the employer failed to maintain equipment adequately. The resulting negligence lawsuit leads to a six-figure damages award—fully covered by Coverage B.
- Psychological Harm Claim: An office employee develops a stress-related disorder after repeated bullying by a supervisor. Statutory compensation is limited, but with new 2025 regulations, the employee’s successful common law claim for employer negligence triggers Coverage B, protecting the business from direct out-of-pocket loss.
Without Coverage B, such claims could financially cripple a business, especially as legal costs and damages continue to rise.
Key Takeaways for Employers in 2025
- Review Policy Limits: Ensure your Coverage B limits reflect the scale of potential liability, especially if you employ staff in physically or psychologically demanding roles.
- Understand Exclusions: Be aware of any carve-outs in your policy, such as intentional misconduct or non-compliance with safety laws, which could void coverage.
- Invest in Prevention: Proactive workplace health and safety programs—and robust documentation—can both reduce the risk of common law claims and help insurers offer more favourable terms on Coverage B.
- Monitor State-Based Changes: Workers’ compensation remains a state-regulated area in Australia. Stay up to date with legislative changes in each state or territory where you operate, as these can impact both statutory and common law entitlements.
