Corporate manslaughter - Deadly serious: a matter of corporate concern

Next April, nearly 11 years after it was first promised in the Labour party election manifesto of 1997, and despite having been part of numerous Queen's Speeches in the interim, a new law of corporate manslaughter will finally enter the statute books across the United Kingdom after receiving royal assent.

It has been debated, agonised over and bandied about between both houses for over a year in what must surely count as one of the longest sagas ever for the introduction of new legislation. Remember that the bill itself, the Corporate Manslaughter and Corporate Homicide Bill, was first published on 21 July 2006, but was it really worth the wait, and what does all this finally mean for the insurance industry? Is this just going to open up another can of liabilities at a time when the market can ill afford it?

Richard Tovell, head of the health and safety practice at law firm Greenwoods, is well acquainted with this whole area having been involved in the prosecution resulting from the Hatfield rail crash, which alongside other high-profile crashes such as Potters Bar, Paddington and Southall in recent years, has been one of the key drivers for the government wanting to introduce an apparently more stringent legislatory framework.

"The worst thing about the old law was the witch hunt that went on during prosecutions," he said. "We saw ex-British Rail people that were essentially middle managers in the Hatfield case, some of whom were prosecution witness and some of whom were defendants. The difference between the two was between those who kept their counsel when interviewed and were subsequently in the firing line, and those who started pointing the finger at colleagues. This witch hunt was necessary, because under the old law you needed to find one person that personified the company and whose gross negligence was responsible for the incident."

Midway through the trial in 2004, Mr Justice Mackay announced that all charges of manslaughter faced by Balfour Beatty and the five defendants were to be dropped, explaining: "(I am) obliged by the existing law in my judgment to make these rulings". Under the old act, corporate manslaughter could be caused only by an act of gross negligence, and since the judge felt that the defendants could only be found guilty of a "bad error of judgement" at most, the defendants were instead charged with breaching health and safety regulations.

If the new Corporate Manslaughter and Corporate Homicide Act had been active at the time of the trial, the defendants would almost certainly have been charged with corporate manslaughter, though it is not certain as to whether or not they would have been found guilty.

So does this mean that the new law, which places less emphasis on an individual and more emphasis on finding negligence in the management in general, is an improvement? Not necessarily, Tovell suggested: "They will still need to identify guilty people, a team, to say who is culpable, and you will be named as part of the prosecution even though you are not in the dock. Furthermore, the old law of gross negligence by an individual is still there so I don't think that anything really changes.

"It's an unlimited fine, as was section three of the old Act, but it is now branded corporate manslaughter and so you're now branded a corporate killer. What it is really going to do is keep the public happy for a while because somebody has to pay; somebody has to go to jail."

Of course it is difficult at this stage to say exactly what impact the new legislation will have for insurers, and at present the extent of liabilities could be limited unless clients purchase specific cover to ensure any prosecution costs are met. At least when it comes to legal costs in this respect the figures should be more palatable, as under the new law there will be only two teams of defendants in any prosecution. This is in marked contrast to previous high-profile actions, where we have seen as many as eight separate defendants in the dock.

One aspect of the new act is clear, however, and that is that brokers have a vital role to play in the brave new world of corporate manslaughter. According to Mark Shreeve, chief executive officer at Angel Underwriting, a specialist in directors' and officers' insurance, the new law presents an opportunity for brokers to update clients on the changes this new legislation has for them and review the type of protection they should have.

Shreeve commented: "The key issue will be how activities were managed or organised by senior managers and whether these constitute a gross breach," He added that it is not only those at the top that should be concerned: "It is also likely that managers working below the very highest echelons of a business could also be caught up in litigation as a result of the new Act.

"This is because the definition of senior management is quite wide. It states this encompasses people with 'significant roles' in how activities are managed or organised, widening the scope of enforcement for the Act. The prosecutor's challenge will be to show this in practice, but it could mean those in supervisory roles, though not at board level, could come under the Act's spotlight.

"Certainly, brokers may want to remind directors and senior managers that they should review their HR procedures in term of job specifications. If a position is advertised as being more senior and having greater responsibility than it actually entails then serious consequences could follow."

Nonetheless, Shreeve adds it is important that brokers do not convey a sense of panic to their corporate clients when discussing the new Act. It must be emphasised that such breaches must be serious to lead to court proceedings.

This does not mean people can afford to ignore the change in the law though, and when reviewing insurance a broker should look at existing liability provision and, where gaps appear, seek to provide enhanced coverage, according to Shreeve. In particular, companies and individual directors will benefit from legal fees cover in defending a case that may not be included in a standard employers' liability policy. Also, as directors' and officers' cover is focused on the provision of defence costs, a good defence should go a long way to alleviate the reputational damage aspects that, beyond a fine, can force a company out of trading.

He explained: "For many firms this insurance is affordable and, traditionally, the biggest hurdle to directors purchasing D&O is quite simply a lack of knowledge. This new law may well prompt some discussion as to why such insurance is necessary."

Such discussion may become more frequent once the new act comes into force. Initial suggestions from the Home Office that the offence is likely to be used rarely - fewer than 10 times a year - are regarded widely as an underestimation, according to Ian Tucker, an associate at law firm Burges Salmon. He said that once the Act is in force it is likely that a number of test cases will be brought to establish the scope of liability for successful prosecution.

Tucker said: "It is likely that, from now on, any work related death would at least be considered to form the basis of a corporate manslaughter charge. How many of these charges are brought and how many are successful remains to be seen. However, in our estimation it is likely to become usual for large organisations to face such charges following fatal safety incidents." So, despite the long gestation period, it seems that businesses without the right procedures in place and the right cover could face a very sticky 2008.

THE SMALL PRINT

- According to broker Marsh, most liability insurers provide defence costs following prosecution arising from an alleged breach of health and safety legislation. As the prosecutions for corporate manslaughter or homicide will invariably arise from a breach of health and safety legislation, it follows that prosecution defence costs provided by liability insurers should also apply to manslaughter charges. However, few liability policies will have manslaughter defence costs included automatically and the extension must be requested. Organisations should therefore check their employers' and public and products liability policies - or, if purchased separately, the legal fees insurance policy - to ensure that the defence and appeal costs are included following any manslaughter, culpable homicide, corporate manslaughter, corporate homicide or similar offence allegations or charges. This should include defence costs provided for individuals as well as for the organisation.

- Should the insurer provide the cover but impose an inner limit for these costs, it should be negotiated to as high a level as is available. Defending these cases through the courts and any possible appeals will be very expensive, so any declinature by an insurer to provide this legal expenses cover, or to impose a low inner limit, will be a competitive consideration with insurers that are prepared to offer adequate insurance.

HE NEW ACT IN DETAIL

- The Corporate Manslaughter and Corporate Homicide Act (2007) will come into force across the UK on 6 April 2008. The Act sets out a new offence for convicting an organisation where a gross failure in the way activities were managed or organised results in a person's death, and it will apply to a wide range of organisations across the public and private sectors. In England, Wales and Northern Ireland, the new offence will be called corporate manslaughter, whereas it will be known as corporate homicide in Scotland.

- An organisation will be guilty of the new offence if the way its activities are managed or organised causes a death and amounts to a gross breach in a duty of care to the deceased.

- Juries will consider how the fatal activity was managed or organised throughout the organisation, including any systems and processes for managing safety and how these were operated in practice. A substantial part of the failure within the organisation must have been at a senior level, meaning the people that make significant decisions about the organisation or substantial parts of it. This includes both those in centralised head office functions and those in operational management roles.

- The organisation's conduct must have fallen far below what could have been reasonably expected. Juries will have to take into account any health and safety breaches alleged to have been made by the organisation, as well as how serious and dangerous those failures were.

Penalties

- Organisations guilty of the offence will be liable to unlimited fines. The Act also provides for courts to impose publicity orders requiring the organisation to publicise details of its conviction and fine. This will commence at a later date when sentencing guidelines are available, though it is expected in autumn 2008. Courts may also require organisations to take steps known as a remedial order to address the failures behind the death.

Exemptions

- The offence does not apply to certain public and government functions where the management is already subject to other forms of accountability. For example, it does not apply to strategic decisions about the spending of public money or military operations. Other functions such as policing, the response of the emergency services, child protection and statutory inspection are also exempt, other than where organisations owe responsibilities to employees or for the premises they occupy.

- After much wrangling between the Lords and the Commons, the new offence will apply to the management of people in custody, but this will come into force some three years down the line.

This article is from a Zurich supplement entitled ‘Corporate Risk’ which was distributed with the November edition of Professional Broking.