The price of cutting the cost of health and safety
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The Corporate Manslaughter Act and the
Health and Safety (Offences) Act 2008 have
potential implications for employers looking to cut costs in the
current economic climate. Risks also extend to brokers when
their customers face the legal costs of defending prosecution.
Many organisations are being forced to seek
out cost reductions. This carries a risk that standards of
Health and Safety may fall. However, there are hidden dangers for
employers in cutting corners on matters of risk management.
In 2007/08 34 million days were lost with a
cost to the economy of between £20-32 billion. Fines for health and
safety offences have steadily increased, especially where there has
been a fatality.
The Sentencing Advisory Panel has made
recommendations in relation to fatal health and safety cases which
provide that the fine should be 2.5% of average turnover for the
preceding three years. Corus UK was fined £100,000 in August 2007
but under the SAP proposals the fine would have been £252.5m.
Furthermore, the Health and Safety
(Offences) Act 2008 came into force last month allowing
magistrates to impose an increased maximum fine of £20,000 for a
wider range of offences and introducing imprisonment as a new
option in certain cases.
Liability insurance exists in respect of
claims for damages but these policies do not cover the time taken
to investigate incidents, downtime or fines and costs orders. Even
legal costs in relation to criminal cases are often only covered on
a discretionary basis.
Employers should be keenly aware of the
potential false economy of cutting cost at the expense of health of
safety.
Brokers should also be aware of their possible
exposure when advising commercial clients. Whilst some insurers
have started to offer specific endorsements to liability insurance
to cover the legal costs of prosecution, this remains discretionary
in many policies.
Furthermore, the target of the investigation
under the CMA is the company and not the individual. Standard
liability insurance endorsements and bespoke D&O policies may
provide cover to directors and officers, but not the company
itself.
Brokers should be careful to enquire whether
indemnity to cover the legal costs of defending prosecutions is
required. The absence of such cover has already led to conflict
where customers believed that such indemnity was in place as part
of their standard liability or D&O policy.
Commercial legal expenses insurance has the
potential to offer comprehensive cover. However, brokers must be
mindful to advise their customers of any restrictions to the cover
provided and limits of indemnity. Before contemplating separate
cover it would be prudent for a broker to enquire whether a more
favourable endorsement may already be available to the standard
employer’s or public liability policy.
When considering the available options brokers
will also need to ensure that the cover includes the potential
costs of Remedial and
Publicity Orders.
The pitfalls of cutting risk management costs
for employers include increased absences, greater fines and the
threat of imprisonment. For brokers it is the risk of claims
for recompense by customers left without cover for the legal costs
of defending criminal prosecution.
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