Beyond Pain and Suffering: Psychological Injury in the Wake of NSW Workers Compensation Reforms

Legal concepts are filled with inseparable pairings.

​​​​​​We speak of terms and conditions, breaking and entering and cease and desist as though the words cannot exist without one another. These irreversible binomials have become fixed and, in casualty and insurance litigation, there is perhaps no more familiar pairing than ‘pain and suffering’.

These words appear together with such frequency that their meaning is often assumed. Yet behind those three simple words, the most important may be the ‘and’ in between, where there is room for discussion and extensive deliberation.

Psychological Injuries

It is here that the concept of pain and suffering extends beyond physical injury and into the realm of psychological injury, an area often marked by more complex questions of diagnosis, causation and prognosis.

In Australia, psychological injuries have become one of the most dynamic areas of personal injury law. Once commonly advanced as a consequence of physical injury, psychological conditions are now increasingly the primary injury alleged, bringing greater focus to the assessment and compensation of psychiatric harm.

The rapid growth of psychological injury claims is reflected in the continuing development of the legal landscape as to how such injuries are assessed and compensated.

Workers Compensation Reform

The latest example can be seen in New South Wales, where significant workers compensation reform commenced on 1 July 2026. For workers suffering a primary psychological injury, the Whole Person Impairment (WPI) threshold required to access weekly compensation entitlements beyond 130 weeks has increased from 15% to 25%.

Workers compensation claims often sit alongside common law claims, particularly in workplace incidents involving multiple parties such as principal contractors, subcontractors, labour hire providers and host employers.

We already see practical consequences of this when disputes arise regarding a worker’s entitlement to statutory benefits under the workers compensation scheme. Such disputes can ultimately require determination by the Personal Injury Commission, which may delay the progression of related common law proceedings as the outcome can affect the involvement of the employer in the common law claim, as well as broader issues of contribution, apportionment and recovery between the parties.

What This Means for Insurers

The increasing prevalence of psychological injury claims, coupled with recent workers compensation reforms, is likely to result in greater involvement of parties insured under public liability and similar policies. As claimants increasingly pursue common law avenues of recovery, attention is likely to extend beyond direct employers to principals and contractors. This is particularly relevant in labour hire environments, where a worker may be employed by one entity, supervised by another and performing work for the benefit of a third.

In practical terms, this may also result in longer-running and more complex litigation. Insurers will not only need to consider the challenges traditionally associated with psychological injury claims, but also the complexities arising from modern workplace arrangements and the interaction between workers compensation entitlements and common law claims.

Conclusion 

It remains to be seen precisely how these reforms will affect future claim trends. However, they reinforce the importance of early investigations, careful consideration of all potential parties and the timely procurement of medical evidence to properly assess a policyholder’s exposure.