The price of safety

The new Health and Safety (Offences) Act, coming into effect in the new year, could mean prison sentences and unlimited fines for flouting health and safety rules. The changes in the law may cost insurers dearly, report Chris Green and Richard Reichman

A new Act means that insurers may wish to review their likely costs exposure on criminal claims arising from workplace accidents in the new year. From January, policyholders may face up to two years in jail and higher fines if they are convicted of health and safety offences.

The Health and Safety (Offences) Act 2008, which received royal assent in October, has raised the importance of criminal claims and prosecutions brought by the Health and Safety Executive. In future, for the majority of safety offences, anyone convicted could be imprisoned - not just fined as they are now. The existing maximum penalty of an unlimited fine remains and could be imposed in addition to imprisonment. It will not impact insurers already handling fatal accident claims or other HSE investigations, as the new legislation, which comes into force on 16 January 2009, applies only to offences committed after this date.

Breaches of duty

Most offences comprise breaches of duty by employers, including those committed under sections 2 to 6 of the Health and Safety at Work etc Act 1974 and will carry possible prison sentences where the employer is a natural person and not a corporate entity. However the 'individual' and 'manager' sections are also affected, and those offences of personal liability can also now lead to imprisonment.

Until now, imprisonment would have only been a realistic prospect where a death had occurred as a result of the breach and where the individual's conduct was so grossly negligent as to represent a crime against the state. Now, neither is required, and for liability to attach, all a prosecutor need show is the creation of a risk and not that any personal injury was caused.

Given the 'reverse burden of proof' in HSE offences, whereby a prosecutor need only show that this state of affairs existed to force a defendant to prove they had done everything reasonably practical, the scope for more policyholders to be facing individual offences and potential imprisonment may look substantially wider. Previously, it might have been more beneficial financially to accept some form of liability and admit an offence. However, it is anticipated that, with more at stake, policyholders may now want to contest far more of these prosecutions than previously, with the associated costs to their insurers.

The cover in many policies will deliberately have been agreed and premiums set perhaps before the new Act, and cover began from renewal dates long before the new Corporate Manslaughter and Homicide Act came into force. Both raise the possibility of long, drawn out and sometimes expensive prosecutions with individual liability - and perhaps even liberty - at stake.

In the process of investigating 'senior management failure' following a death in the workplace, it is probable that the police will uncover failings by individuals that, while stopping short of gross negligence or manslaughter, reveal breaches of sections 7 or 37 of HSWA. If managers knew about risks and did not do enough to address them, deliberately choose to ignore them, or were merely negligent and this led the corporate policy holder to commit an offence, then they too could be held liable under safety laws. Even failing to look after their own safety or that of other employees would suffice and give HSE enough to bring criminal claims against them personally.

Even if offences do not bring the possibility of imprisonment, insurers should be aware that fines will increase. Even sentences for breaches of safety specific regulations made under HSWA (such as the Provision and Use of Work Equipment or the Workplace (Health Safety and Welfare) Regulations) are increased from £5000 to £20,000 - the same level as breaches of section 2 HSWA, supposedly the more serious type of offence. Insurers will know how easily liability can be found for such breaches - even to the criminal standard of proof - and that many do not provide a statutory defence to the employer of having done everything reasonably practical to avoid committing the offence.

Insurance companies will know of the recent sentencing proposal consultation, which suggested that safety fines against policyholders would be linked to turnover, rather than pre-tax profit, and the suggested sentencing range of 5% to 10% of an insured company's turnover. This too would raise the importance of fully defending borderline cases instead of taking an economic decision and pleading guilty.

Important safeguards

Insurers will also recall the impact of the Law Society Guidance on conflicts of interest and how this led in some cases to the need for two or more sets of lawyers making, in part, the same enquiries, all at the insurers' expense, when individuals were prosecuted alongside the company policyholder. Insurers may need to consider as part of their risk enquiries that more individuals may be affected and might need separate representation, at greater cost. Magistrates' courts will be able to impose a sentence of up to 12 months' imprisonment and/or a fine not exceeding £20,000, while Crown courts will have the power to jail offenders for a maximum of two years and/or an unlimited fine.

The HSE has welcomed the new Act and although its chair, Judith Hackitt, has said that: "important safeguards are in place to ensure these new powers will be used sensibly and proportionately", courts may now impose prison sentences, especially where profit has been put before safety.

The guidance note relating to the original Bill states that the new powers are "expected to lead to a minimal increase in the prison population". However, it will be interesting to see the guidance of the Sentencing Advisory Panel in respect of convictions for safety offences.

- Chris Green is a partner and Richard Reichman a solicitor at law firm Weightmans LLP.

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