April 6 may have been a Sunday, but it was a big day for UK business. Although chief executives and directors may have spent a relaxing day away from the office, their companies could find themselves on the receiving end of a string of new prosecutions for fatal accidents that occur in the work place as a result of the Corporate Manslaughter Act and Corporate Homicide Act 2007, which came into effect on Sunday.
The key points of the Act are as follows:
1. The Act, which came into force after years of lobbying, clarifies and defines criminal liabilities of companies where the way in which activities are organised or managed results in a fatality.
2. Prosecutions will be brought against organisations as a whole rather than individuals at that organisation, although the failing must be substantially a result of high-level decision making.
3. Companies that are successfully prosecuted will face a fine, which has no upper limit. Factors to be considered when deciding the size of the fine will include whether a breach in health and safety was with a view to a profit, the degree of the risk and the extent of the danger.
4. They will also be subject to a publicity order, requiring them to publicise the conviction and details of the offence.
In 2006-07 alone, 241 people were injured fatally at work, according to the Crown Prosecution Service. Since 1992 there have been 34 prosecutions and six convictions. Marc Spurling, Business Risk Consultant for Marsh’s Risk Consulting Practice says that business leaders should: “review the adequacy of their insurance cover in light of the new legislation, ensuring that they have effective occupational health and safety management systems in place, both in work buildings and work-related vehicles”
Accidental road deaths are now cause for concern as employees driving company cars or running business-related errands could also present a risk. An estimated 3,000 people a year die on the road of which a third are people driving company cars, according to statistics from Lloyd’s broker Marsh. Issues that need to be taken into consideration are inappropriate working hours that could lead to fatigue, relevant insurance cover, correct licensing papers and the general maintenance of the vehicle.
Most insurers provide a manslaughter defence, but the wording of certain policies may need to be reconsidered. James Pryke, Casualty Broker for Heath Lambert, says: “Essentially, I don’t feel that the insurance industry will turn around and say that they won’t be able to provide cover for the Corporate Manslaughter Act. What needs to be established is what insurers can and can’t do. Will there be a new policy altogether from April 2008 or will they just add additional clauses?”
The policies that companies should be reviewing, according to Pryke, are Employers’ Liability, Public/Product Liability and Motor cover. Most Employers’ and Public/Products Liability insurers are providing an extension of their existing criminal defence cover.
Some Directors and Officers (D&O) policies provide an element of cover for defence, but this is aimed at individuals faced with health and safety-related charges. Insurers should be aware that D&O is not regarded as the best, or even the main insurance protection against defence of a corporate manslaughter charge.
A separate Commercial Legal Expenses insurance policy, covering the insured’s costs of legal representation for defence or pursuit of various types of legal actions is also available. Spurling, says:
“The government expects that cases of corporate manslaughter or homicide following a death at work will be rare, as the new offence is intended to cover only the worst instances of failure across an organisation.”
He underlines that when successful prosecution does occur, the repercussions will be serious:
“While the Sentencing Advisory Panel has intimated that the starting point for setting fines is 5% of an organisation’s average annual turnover, fines are unlimited and if the Court considers that the organisation was particularly culpable, the level of fine could be much higher.”
As part of Lloyd’s 360 risk project, the Lloyd’s Chairman is hosting a half day conference at Lloyd’s on the morning of 20 May, chaired by Clive Anderson. Topics for discussion will include the Corporate Manslaughter Act and its implications for business leaders. For further information on the Lloyd’s conference, please email 360@lloyds.com.
