While the cost of compensating those injured in workplace accidents is usually eased by general liability insurance, increasingly an additional layer of costs will come from health and safety regulation, and consequent investigations and prosecutions. This article looks at how costs might arise, how legal costs may or may not be covered by liability insurance, and how the ever-increasing focus of enforcement agencies demands the allocation of resources to risk management. In this environment, the financial and administrative burdens of implementing and maintaining efficient health and safety systems can be far less than those of dealing with an accident.
How does insurance fit with health and safety regulation?
Whereas in most circumstances a general liability policy provides indemnity for defence legal costs in dealing with civil claims for compensation, it does not inevitably follow that the costs associated with a health and safety investigation or prosecution will also attract cover. While the potential for indemnity for legal costs will exist, this is often subject to limits, and the scope of cover should be checked carefully with brokers.
Some policies will indemnify the defence legal costs associated with a prosecution, inquiry or inquest, but not the expenses involved in an investigation that ultimately does not proceed further. Although insurers might agree to reimburse legal expenses of an investigation where incurred with their prior written consent, there is no clear guidance from the courts as to whether there is an implied requirement for that discretion not to be unreasonably withheld. Keeping insurers closely informed is therefore essential.
Where regulatory cover is granted it is common for policies to cap liability, for example once legal expenses have reached, say, £50,000. Often cover is restricted to representation at summary courts, but no further (thereby excluding from cover Crown Court representation, or appeals). Some policies expressly provide indemnity cover for an award of prosecution costs (which can be significant); others do not. Fines cannot be insured against.
Where individuals are being interviewed in a personal capacity, for example directors, senior managers or staff directly involved in an incident, there may be an indemnity for the legal costs of separate representation, either as a nominated individual under a general liability policy, or within the scope of a directors’ and officers’ policy. However, cover may well be limited in similar ways to those outlined above.
legislative framework
The government’s stated intention is to decrease the incidence of injury in the workplace, this being neatly encapsulated by the Health and Safety Executive (HSE) statement that:
‘The [HSE] Strategy is designed to promote our vision: to see health and safety as a cornerstone of a civilised society and, with that, to achieve a record of workplace health and safety that leads the world.’
Part of its armoury in the war against injury is education. The HSE website, for example, contains a plethora of guidance notes, statements of good practice, case reports, press releases, and hints and tips for promoting safety. Another weapon is enforcement; the HSE website sets out its policy on enforcement generally. There are also specific ‘hotspot’ areas of risk at which resources are directed, for example asbestos-related conditions, falls from height, or injuries arising from vehicles or fleet management.
Regulation functions within a comprehensive and highly detailed legislative framework. Practically all workplace situations will or can be covered by the Health and Safety at Work etc Act 1974, and secondary legislation – the so called six-pack regulations – and other regulations aimed at reducing the risk in hazardous activities.
Certain industry sectors will have their own industry-specific rules. The Construction (Design and Management) Regulations 2007, for instance, set out the processes for managing health and safety in construction projects, both at the pre-construction planning phase and the construction phase. Detailed obligations are set out for the client in a construction project, with roles and duties set out for other defined parties, such as the CDM co-ordinator, the principal contractor, and other contractors. The Regulations typify the thrust of other health and safety legislation with their emphasis on effective systems of planning for health and safety, ensuring competence of anyone involved in a project, maintaining an adequate health and safety plan and promoting the free flow of relevant information between parties.
Corporate Manslaughter and Corporate Homicide Act 2007
Of the Acts with a broader focus, the most high-profile recent example is the Corporate Manslaughter and Corporate Homicide Act 2007, which came into force on 6 April 2008. This is one of the most well-publicised statements of government health and safety intent on the Statute Book.
The detail of this Act is not for this article (see detailed review in IHL159 and 160). Suffice to say that the meat of the new law is its fixation on organisations having clearly defined and well-enforced health and safety systems. In essence, the Act is intended to help the battle against all injury, not just fatalities.
The Act achieves this by referring expressly to compliance with a wide range of sources of health and safety benchmarks, including any legislation, enforcement authority standards, and industry guidelines, and providing significant penalties for serious non-compliance.
The gravity of the new offence is reflected in the punishments available. The Act provides a means to convict organisations where the gross negligence of its senior managers (the definition of ‘senior’ is potentially wide) has caused or materially contributed to a person’s death. The offence is reserved for the most serious of corporate failures, as is illustrated by the penalties likely to be imposed on those convicted. Fines are potentially unlimited. While the arrival of definitive sentencing guidelines is imminent, they may well follow Sentencing Guidelines Council recommendations for a starting point fine amounting to 5% of the offender’s average annual turnover during the three years prior to sentencing, ranging from 2.5% to 10% depending on mitigating or aggravating features, such as the offence being a one-off or a repeat respectively.
An additional feature of the new Act will be the court’s ability to impose publicity notices, effectively requiring organisations to self-publicise the offence, perhaps by way of advertisements in the national press, or on radio or television. In addition to any fine imposed, the financial implications of consequent reputational damage of this sort of penalty could be considerable.
Encouraging a culture of safety
What this really adds up to is that the Act is a prominent signpost towards the HSE vision of ‘health and safety as a cornerstone of a civilised society’. To understand this more clearly, it is instructive to look at the type of criteria to which juries will be directed when considering the gravity of a breach of duty being considered under the corporate manslaughter legislation.
Section 8 of the new Act directs juries to the following criteria in assessing that question:
- Most importantly, is there demonstrable evidence of non-compliance by the organisation with any health and safety legislation relevant to the breach in question?
- Does evidence show that an organisation’s attitude to policies, systems or accepted practices within the organisation are likely to have encouraged the failure or to have produced a tolerance of it?
- How does the organisation’s failing fit in with any health and safety guidance relating to the alleged breach; this means ‘any code, guidance, manual or similar publication that is concerned with health and safety matters and is made or issued… by an authority responsible for the enforcement of any health and safety legislation’.
- The jury may have regard to ‘any other matters’ they consider relevant. There is no restriction on what the jury may consider.
The significance of this extremely wide-ranging set of criteria is twofold.
First, responding to an investigation of an onsite fatality will potentially take up a huge amount of management time. The investigating authorities will wish to undertake a root and branch analysis, not only of an organisation’s health and safety paperwork, but also of its accepted practices and evidence of what actually happened on the ground among its workforce. There will be a parallel investigation by both the police/Crown Prosecution Service (CPS) (investigating potential manslaughter charges) and the HSE (investigating ‘second tier’ health and safety breaches). Naturally the CPS would wish to present the jury with as much evidence as possible to criticise an organisation’s attitude towards health and safety, drawing on the guidance given by s8, and they will dig deep. Dealing with enquiries of this nature will inevitably require many hours of valuable time of an organisation’s staff, including the direct witnesses, management at all levels, and in-house legal staff.
Secondly, it is absolutely clear that the Act is intended to drive the government vision of a corporate culture at which health and safety is at the fore. Many larger organisations are alive to this, which can be demonstrated outwardly in their promotional material as well as through their own internal systems and procedures. Construction companies, for example, commonly advertise the steps they are taking to maintain safety in their business, making this an essential feature of their business product. Not all organisations are so far ahead.
cost of investigations
Clearly, uninsured losses such as a substantial fine (and possibly prosecution costs) will make a considerable financial impact. But even if an investigation does not lead to a prosecution, it could be costly. As well as the indirect cost of human resources being directed at managing an investigation rather than remunerative work, an organisation can face direct expense. When facing an investigation, whether the result of a fatal accident, a non-fatal injury or a near miss, there will be issues likely to require the instruction of a lawyer.
Part of the lawyer’s role may be tactical, for example to advise on the most appropriate response to requests for information, such as whether or not to agree to an interview under caution. Equally the role can be directly supportive, for example attending with an individual being interviewed under caution.
Other legal questions may include an assessment of what written information must be provided to the enforcement authority, as opposed to sensitive material that may attract legal professional privilege. For example, to what extent might it be possible to demonstrate that the dominant purpose behind creation of a particular document was its use in actual or potential litigation? This is by no means always a clear-cut question, as was demonstrated recently by the decision of Beatson J in West London Pipeline and Storage Ltd & anor v Total UK Ltd & ors [2008]. In that case, the fact that external lawyers were instructed promptly after the Buncefield explosion was taken as indicative of privilege existing over a sensitive document prepared for use by those lawyers, even though no claims or prosecution had actually been threatened at the time of their instruction.
Conclusion
In a climate of ever-increasing health and safety regulation, it is essential to ensure that robust, workable systems are in place and are followed. The cost of doing so may well be far less than the uninsured losses incurred in dealing with an adverse event.
Insurers will increasingly require more details of an organisation’s health and safety procedures as part of their underwriting decisions on premium and the level of cover provided. Therefore, as part of the overall risk management process, organisations should check with their brokers the extent of their insurance cover. In particular, they should check whether the legal costs associated with a health and safety investigation and/or prosecution are included, as the cover provided may not be as extensive as expected.
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