Are YOU ready for Murphy’s law?

Murphy’s law applies. If it can happen it will, and probably to you. The Corporate Manslaughter and Corporate Homicide Act, in law from next April, is ‘a Murphy’. Leave it unattended in the pending tray at risk of company peril – and your own.

That can occur so easily to busy executives because the new law’s approaching significance is being brushed aside as minimal in some infl uential quarters and, of course, it has not yet arrived. But in effect it has.

For employer liability insurance being renewed now can, and many will argue should, include cover for legal representation in respect of corporate manslaughter. And ‘the degree of cover required is vital’, warns a specialist lawyer.

Executive alert

Hence, from several quarters senior management is facing an executive alert questioning: “Is your employer liability insurance and associated risk management adequate for your business in 2008?”

‘No’ is the most likely answer.

Significantly, evidence suggests, City finance operations are already fully prepared for corporate manslaughter legislation. Their inhouse risk managers have seen fit to act ahead of the game leaving nothing to chance or last minute slip-up.

Inevitably, and certainly for finance company risk managers, corporate manslaughter embraces occupational road risk because a workplace death is most likely to occur on the road.

So does your company’s occupational road risk protection require review to satisfy your insurer?

Experts say: “Fresh thought, precaution and preparation, encompassing corporate manslaughter and occupational road risk to minimise or eliminate risk are necessary now.”

Shaun Randall at City-based Amlin Insurance Services, a major underwriter of employer liability and health and safety-related related cover, says of corporate manslaughter: “Small and medium businesses must be sure they have adequate legal insurance. It is important they discuss their needs with their broker or lawyer or both because they do not have corporate legal guidance.

“Big business, with in-house lawyers, needs to ensure that their health and safety regime is sufficient protection against corporate manslaughter and its whole risk management is structured and operating in the right way.

“Employer liability cover is normally from the time of incident providing legal representation through to a prosecution in court.

“From next April a corporate manslaughter charge could follow any workplace death proved to be the result of a company’s gross negligence in, say, a failure in vehicle maintenance or even lack of adequate training in health and safety processes.”

Naivety

Geoffrey Bray, chairman of Chippenhambased Fleet Support Group (FSG) creator of RiskMaster, the comprehensive employer permit to drive occupational road risk protection programme chosen by many finance and City blue chip companies for their working drivers, said: “There is a disturbing naivety around that corporate manslaughter won’t really apply and therefore it’s nothing to be concerned about. I believe that is wrong, negative, irresponsible, and dangerous. It’s like saying your chance of an accident is small so you don’t bother insuring your car.

“Logically, corporate manslaughter prevention has to include occupational road risk prevention. Wide ranging risk identification is essential commensurate with the business involved.

“Employers need to demonstrate that they are caring for their people and those with whom their people come in contact. Avoiding risk is recognising and accepting one’s executive responsibilities.

“Economically the benefits of risk management are so great and well established that there cannot be doubt about the course to take. Risk prevention is so profitable in such well proved ways that it should never be in doubt.”

FSG is a member of the Fleet Safety Association and Mr Bray added: “Complacency is a danger. Corporate manslaughter is a reminder to responsible directors not to take anything for granted.

“Ignoring (even by not knowing) something hazardous beneath the surface, like a cracked pipe being out of sight, out of mind, is a danger in so many businesses because it’s the one thing most likely to trap you. The devil is in the detail.”

Hurdle of senior management failure still to be overcome

The Health and Safety Executive has estimated that the new legislation will add between 10 and 12 prosecutions to 271 fatal accidents in 2006/07. So overall impact is likely to be small.

But, says, Norwich Union insurance casualty risk manager Phil Grace: “Although commentators are saying it will become easier to prosecute companies following workplace deaths and occupational road risk deaths, there is still a significant hurdle to overcome – of senior management failure.

“It is almost certain that prosecutions for corporate manslaughter will be accompanied by corresponding prosecutions for breaches of health and safety legislation, as happens now.”

The term ‘cover for corporate manslaughter’ can be interpreted in different ways – for liability arising from a civil claim or cover for costs and expenses in defending a criminal prosecution, according to Mr Grace. Under employers’ liability policies there is cover for:

Damages awarded as a result of the claimant proving negligence on the part of the employer

Costs, expenses and similar involved in the defence of prosecution for breaches of health and safety and related legislation (this cover operates whether or not circumstances have given rise to a civil claim)

But employers’ liability policy wording is specifi c and a charge of manslaughter is not a charge under health and safety and related legislation.

Generally insurers would ‘voluntarily’ provide cover for costs in defending a charge of manslaughter since it is in their own interest to be present. The circumstances are those that will have almost certainly have resulted in prosecutions under health and safety legislation and might give rise to a civil claim for damages.

Current practice

So, for example, under current practice:

An accident occurs and an employee dies

The employer is charged with breaches of health and safety legislation. Cover for costs/ expenses in force

Employer charged with manslaughter: Insurer very likely to provide cover for defence costs on the basis that the prosecution involves the same circumstances as now.

If an employer receives a civil claim for damages, cover is in place under employers’ liability policy.

The situation will be little different in the future with one exception, as far as Norwich Union is concerned. It is to amend/alter its policy wording to expressly grant cover for costs involved in defending a corporate manslaughter prosecution.

Health and safety specialist lawyer Michael Appleby, of FisherScoggins LLP, says in ‘A Guide to Corporate Manslaughter…and ORR’ commissioned by FSG to have expert legal opinion available to its client companies: “Mistakenly people believe the new law means there will be no prosecutions of directors or senior managers. The Act does not make provision for an offence of aiding, abetting, counselling or procuring the commission of the offence of corporate manslaughter.

“However senior individuals can still be prosecuted under the existing law for manslaughter, which is not altered by the Act, and section 37 of the Health and Safety at Work Act if the health and safety failure is caused by the consent connivance or neglect of a director.

“An individual convicted of work-related manslaughter is likely to receive a custodial sentence of around two to three years. Last year a managing director was fined £75,000 and ordered to pay costs of £103,500 for a breach of section 37 of the Health and Safety at Work Act.

“The Court of Appeal has ruled in a recent case that a director can be guilty of breaching section 37 of the Health and Safety at Work Act through neglect even if they did not have direct knowledge of the relevant failures that led to the incident but ought to have done so.”

Mr Appleby added: “Directors must know precisely how and for what their businesses and they themselves are insured for if there is a criminal investigation.

“Will their legal costs be covered only if there is a prosecution or will their policy cover the costs of representation during investigation as well?

“It is so important also to know that they will have access to lawyers who have experience of defending criminal proceedings.

“An insurer may offer to provide a solicitor of its choice but that cannot be imposed under regulation six of the Insurance Companies (legal Expenses Insurance) Regulations 1990, which applies to any policy that provides legal expenses cover. The issue is best made clear in advance. Avoid risking insurance surprises or shocks.”

David Dilkes, operational risk manager at West Bromwich Building Society, is one of the companies that has adopted FSG’s RiskMaster occupational road risk protection system (RoadSafe: spring 2007).

Installed

“We feel we have installed all preparations we need to make in regard to corporate manslaughter. That was considered in detailed studies before implementing RiskMaster.

“We believe we are 99% covered against risk of corporate manslaughter because we have taken all reasonable steps to ensure the safety of our drivers and road users. We are doing all that we can in our situation.

“The Society’s lawyers think that corporate manslaughter will be difficult to prove and therefore that prosecutions are unlikely, which also is reason for feeling we have done all we can to prevent it from happening.”

David Combes, managing director of Lawgistics, the motor trade legal specialist, says simply: “Corporate manslaughter cannot be ignored. I think some high profile prosecutions will harden the new legislation with case law.”

You’ve got four months!

The April 6, 2008 introduction of the Act should finally convince all employers to take action to reduce their exposure to occupational road risk. Addressing the issue of work-related road safety is neither financially or time demanding – it merely requires the company to face up to its corporate responsibility and follow the Health and Safety Executive’s work management regulations and guidelines contained in their document ‘Driving at work - Managing Work-related Road Safety’.

There are proven cost benefits in implementing best practice measures. Reducing insurance excesses and premiums, eliminating the human cost of downtime through injury and wasted administration time are among those benefits that underpin the implementation of work-related road safety initiatives. What better reason does a business need? However, experience shows that the majority of companies have still to wake up to such facts.

It is unlikely that from April next year there will be a fl ood of corporate manslaughter prosecutions (RoadSafe: summer 2007).

However, I do believe that for employers of work-related drivers involved in fatal accidents, the new legislation will become the prosecution of choice, with the prospect of the managing director standing in the witness box alongside the driver.

For those of us involved in work-related risk management, we have in the last few years had to contend with the findings of the Richard Dykes Task Group, which led to the publication of the HSE guidelines, and the addition of a fleet section to the Association of Chief Police Officers’ investigation of road death manual.

These actions were designed to educate and encourage managers to effect a change in their organisation’s management culture by embracing health and safety in the driving activity.

In reality, the new law does nothing that existing health and safety legislation, such as the Health and Safety at Work Act 1974 and the Management of Health and Safety at Work Regulations 1999, already does. The new Act merely reinforces the obligation on a company to comply with existing health and safety legislation, by introducing a viable alternative to a health and safety prosecution – the current method of tackling employers whose drivers are involved in fatal accidents on the road.

One of the problems with a health and safety prosecution is that it has been seen as a ‘fallback’ and not carrying the appropriate gravitas of a finding that the organisation unlawfully killed someone by the actions of their employee. In future a successful prosecution of corporate manslaughter will carry a great deal more stigma.

The reality is that a jury hearing a corporate manslaughter case will still have to find that there has been a gross breach of duty by the company or a senior manager, or gross negligence manslaughter as it is defined, for failing to embed a health and safety culture within its management process. The jury will hear evidence of how the company health and safety culture measures up against the Health and Safety at Work Act 1974 and its subsequent management regulations.

The Act does refer to the liability of managers as well as company directors but in both cases neither will be at risk of imprisonment. It is the company that will be subjected to the prosecution. There is still potential under the old common law of manslaughter for individuals to be prosecuted, but since the unsuccessful prosecution of managers connected to the Hatfield rail crash, it is unlikely that this will occur.

So what should a company do to protect itself from the risk of prosecution? Firstly it must follow the guidelines of the HSE in assessing the risk. This, in my view, requires the company to carry out a formal risk assessment, which must be recorded in writing.

Thereafter measures must be put in place to manage and minimise the risk. This will require a management change whereby responsibility for health and safety will have to be demonstrated from the managing director down. Finally an audit trail must be capable of scrutiny to demonstrate that the company is actually implementing health and safety rather than paying lip service to it.

The main provisions of the Act

THE OFFENCE:

Will focus on senior management failures either individually or collectively

Will require the organisation to owe a duty of care to the victim which is obvious in a driving scenario

Will require evidence that the management failure amounts to a gross breach of duty to take reasonable care

WHEN WILL A DUTY BE OWED?

As an employer to employees, i.e. fleet operator to its drivers

As an employer to the victims of their employees, i.e. passengers, other drivers or pedestrians

As occupiers of land such for example an employee’s place of work or somewhere the public has access

When supplying goods or when engaged in a commercial activity

MANAGEMENT FAILURE CRITERIA

The test is the way in which a particular activity is being managed or in reality mismanaged

Responsibility will fall on senior directors and managers

If middle managers are undertaking a senior role then their actions will be relevant

Responsibility of individuals who have a `significant role` – where management responsibilities bear on the organisation as a whole or a substantial part of it – this will include health and safety or fleet managers

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