Liability for life

The forthcoming Corporate Manslaughter Bill could have a significant impact on insurers and their insureds. Ed Vinales reports from a recent round table, where the implications of the draft Bill were discussed in full

With the police and enforcement agencies taking a harder line on health and safety breaches, coupled with incoming corporate manslaughter legislation, there is a clear movement towards using the full force of criminal law against companies and organisations.

Until recently, fines for health and safety breaches have been relatively low, with the record amount being £2m. However, in the last few months there has been a radical change. Utility firm Transco was fined £15m for failing to maintain a leaking gas main, which resulted in a fatal explosion, while Balfour Beatty Rail Maintenance was fined £10m for health and safety breaches, in relation to the Hatfield train crash.

March also saw the long-awaited publication of the draft Corporate Manslaughter Bill, introducing a new statutory offence, and speculation about its potential impact has been rife. There have been suggestions that companies could face excessive legal defence costs, and a higher number of successful prosecutions. Post Magazine, in conjunction with law firm Kennedys, gathered experts from a range of perspectives to debate the real issues that insureds and insurers need to be aware of and address.

Richard Crockford, director of health and safety litigation at Kennedys, kicked off with what he believes the likely ramifications of various changes on the health and safety front will be.

"The Bill is obviously going to be used for the gravest of offences, as the emphasis is on grossness of negligence. In other respects it doesn't hold huge differences to current health and safety legislation. And with the recent increase in fines, one has to ask what will be the value of going for a corporate manslaughter charge?"

Oliver Campbell, a barrister for Henderson Chambers, added that - according to the draft Bill - a jury, in deciding whether a breach is gross or not, must have regard to how serious the breach was, and whether senior managers knew, or ought to have known, that the company was failing to provide the due standard of care.

Mr Crockford said there would need to be further discussion as to what constitutes gross misconduct, while Mr Campbell pointed out that it is initially up to the Health and Safety Executive to decide if something is negligent and that a jury will then decide if it is grossly negligent.

"The HSE will have to decide that a jury could find something to be grossly negligent but I suspect they will be reluctant to say it is themselves. As to whether a jury will have the expertise to judge for themselves, I doubt it."

Mr Campbell went on to discuss what implications a corporate manslaughter law might have on the insured. "If it becomes law, the result will be a higher number of companies being convicted, where previously they have been convicted for offences under the Health and Safety at Work Act. There is public concern that there haven't been sufficient convictions for corporate manslaughter.

"What is not clear is what impact it is going to have on the level of fines. We have already seen courts impose higher fines in relation to health and safety at work offences, so what is going to happen if a company is convicted for corporate manslaughter? Will there be a further increase in fines?"

He added: "With the Hatfield case, the court realised those companies could not be convicted under a corporate manslaughter law. So the health and safety offence, under which they were convicted, was therefore deemed to be a serious offence. This attitude will change if companies can be convicted of corporate manslaughter but will this make what they have done any more grave - arguably not. Therefore, the fine shouldn't be higher. This is a definite area of uncertainty and risk for insureds."

Phil Wright, chief engineer at Allianz Cornhill Engineering and specialist in risk management, then raised the possibility that firms may face charges on two fronts. "Prosecutions will attempt to get firms on Health and Safety at Work breaches and corporate manslaughter. As a result, prosecution rates are bound to rise."

Peter Berring, director of group risk at De La Rue and current chairman of the Association of Insurance and Risk Managers, added: "The obvious difference between the two charges is that if you are convicted under the corporate manslaughter bill you become a criminal. If you are a director you may be banned from running a business. These are the fears that will hang over a board of directors."

Knock-on effects

Daniel McShee, partner at Kennedys, added that these concerns, and the knock-on effect of the introduction of the Corporate Manslaughter Bill, will undoubtedly lead to increased legal defence costs: "Currently, the HSE has a 90% success rate against companies for breaches of the HSWA. Due to the reverse burden of proof, which applies to health and safety offences but not corporate manslaughter, individuals will want to defend themselves more than at present."

He added: "If the gravest offences become corporate manslaughter cases, companies are certain to make sure they have a solid legal defence in place, and that means higher costs. The Hatfield case lasted seven months and cost a lot of money in legal defence."

Alfred Bodimeade, director in the claims division of Heath Lambert, responded: "Companies will need to think carefully about their legal budget for the future. A corporate manslaughter law will particularly affect companies involved in manufacturing. Costs are going to rise and firms need to think carefully about that."

Mr Campbell then addressed the issues arising from companies defending charges against them. "It will be interesting to see whether the increasing level of fines results in more people fighting trial and pleading not guilty or more people actually pleading guilty at an early stage."

This, he explained, relates to the ability to secure a reduction in fine: "If you know you are going to get a 25% discount by pleading guilty, then that is proportionately more valuable if the fine is higher. However, if the fine is going to be that much more anyway, and you think you could get away with it, would you plead not guilty?"

He continued: "There are companies that will plead guilty to health and safety offences but not corporate manslaughter charges because of the stigma attached to it."

So, with the likelihood that there will be more focus on the early part of investigations, what advice should brokers and insurers be giving their clients in terms of risk management and mitigation?

Mr Crockford said that, due to the escalation in the amount of documentation involved in recent health and safety cases, there will be a clear advantage in having legal representation at a much earlier stage to facilitate documentation management.

Mr Wright added: "The proposed implementation of the more severe offence of corporate manslaughter has come at a time when there is a drive in many companies for better health and safety management, and when the number of deaths is down to a record low.

"How much more effort is required to save those extra lives? It is about the law of diminishing returns. There will always be things that go wrong. To get below the current fatality figure, costs are going to increase dramatically on organisations."

Mr Berring agreed that, generally, companies' health and safety records are improving. However, he stressed that there are two areas that need to be focused on. "Firstly, we need to continue looking at the physical aspect of risk, such as inspecting machines and their protective guards, to identify potential dangers. Secondly, there is a need for cultural change. We have to teach people to look at a guard and actively ask themselves why that guard is there. What is the danger behind it? What does the guard represent?

"There are less incidents nowadays but that also leads to complacency factor. People naturally think it won't happen to them. That is a difficult attitude to manage," he concluded.

Having inspected and examined hundreds of commercial premises, Mr Wright relayed his first hand experience of how companies approach risk management. "The managing director will point out his risk policy statement, which is hanging on his office wall and will say how well the messages flow down the various management levels. However, at the very bottom there is a gap - where it really matters - between operating procedures and the guys on the shop floor. The thing you hear down there is: 'risk assessment, what's that?'"

In defence of the top-down approach to risk management, Mr Berring replied that the process develops through evolution and, therefore, has to start at the top. "Employees need to realise it is their duty to take precautions and adopt an attitude of pointing out colleagues' mistakes. This will only happen with continued support cascading down from the top."

Returning to the issue of criminal investigation and the possibility that companies may have to deal with an attack on two fronts, what are the implications of potentially tougher investigations on post-accident analysis?

Mr Campbell explained that the police already investigate health and safety offences on the basis of criminal activity. They will continue to investigate until they decide they are not going to prosecute for a serious criminal offence. They then pass primacy of investigation to the HSE.

Warning that the Bill's move away from trying to find a directing mind behind a failure does not mean individuals will escape scrutiny, Mr Crockford added: "A corporate manslaughter investigation will focus on individuals, because if the authorities are intent on investigating corporate manslaughter then they will also look at the component parts of companies. Therefore, individuals under scrutiny will be looking over their shoulder, and that's going to give rise to additional representation - which increases legal costs."

Mr Campbell agreed, saying that this is especially true if the investigation focuses on admitted failings, which could be used in evidence against a company in a court. "Even internal memos admitting culpability will have to be handed to the authorities. Companies will have to be increasingly careful about what is written down following an incident. Investigation processes will have to be done more carefully and with proper legal advice."

Mr Berring expressed his concerns over what this could lead to: "Health and safety management systems will have to be updated and near-miss reporting will be more important. However, if companies adopt a tight-lipped attitude when it comes to addressing mistakes, risk managers are going to find it very difficult to get to the root causes and psychological issues behind what went wrong."

Surely, lawyers would be concerned if the spectre of corporate manslaughter affects the proper documentation of post-accident analysis?

Post-accident reporting

Mr Campbell agreed, adding that rather than be scared away from documenting in case it comes back to haunt them, companies will just need to be clever about how they go about producing their post-accident report.

"The HSE will certainly ask for one and, if you can't produce it, they will enquire as to whether or not the company in question is serious about internal investigations," he said.

Mr Bodimeade added that companies are bound to now take extra care in their accident reporting, and would probably not go beyond what they perceived would be deemed sufficient: "However, if a company has a similar accident between the first one and its subsequent hearing then they will be in serious trouble - especially if it is due to a lack of proper reporting."

Mr Berring reiterated his concerns that fear of criminal investigation for health and safety failures could undermine the progress companies have been making on realising the incident prevention benefit of effective risk management. "We need to find a way to promote a process of proper evaluation and assessment of an incident, to prevent occurrence and, if the legal system gets to a point where we can't do that, we will have destroyed everything achieved to date."

He concluded: "We want the emotive response that come out of people at the time of an incident, not six months later. That would make it much easier to implement the proper preventative processes going forward."

GUEST LIST

Chair: Lynn Rouse, deputy editor, Post Magazine

Peter Berring, director of group risk, De La Rue, and chairman, Association of Insurance and Risk Managers

Alfred Bodimeade, claims director, Heath Lambert

Oliver Campbell, barrister, Henderson Chambers

Richard Crockford, director of health and safety litigation, Kennedys

Daniel McShee, partner, Kennedys

Phil Wright, chief engineer, Allianz Cornhill Engineering.

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