The price of cutting the cost of health and safety
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.