Laying the blame

Jessica Pothering examines the effect of the Corporate Manslaughter Act on the insurance industry

In April of this year, the Crown Prosecution Service filed a suit against Cotswold Geotechnical under the Corporate Manslaughter Act.

In this case the prosecution alleges that because of the gross negligence of the company and its director Peter Eaton, 27-year-old geologist Charles Kings was killed taking soil samples on one of the company's development sites. If charged, the cost of the fine to the company could be unlimited and Mr Eaton could face life in prison. Beyond uncovering the truth and establishing justice, the case is the first to test the new legislation. And the outcome could have significant impact on the insurance industry.

The Corporate Manslaughter Act, passed only in 2007, was enacted to provide prosecution with a conceivable chance at successfully trying a large company in court for a work-related death. Previously, common law required prosecutors to demonstrate that a particular member of a company's leadership was directly responsible - either by negligence or provable decision making - for the resulting death of an employee. There was not a provision allowing for the company itself to be held responsible and, as a result, cases brought against large companies failed, full stop. This is because it was too difficult to prove direct responsibility in an organisation with numerous tiers, levels and divisions that intersect and interact in multiple places.

Determining fault

According to Charles Arrand, a partner in the regulatory and government affairs practice at DLA Piper: "The way it stood under the old common law, the only successful cases were those brought against small companies, where the line of command was short and very often, direct. It's called the identification principle, and could only be proven, effectively, where fault could be traced to a direct decision at the board level."

The only other option for prosecutors was to file a claim on the grounds of a health and safety violation, but Mr Arrand adds that most victims' families did not feel that businesses were appropriately punished under this legislation because it did not carry the stigma of corporate manslaughter charge.

"The Government was probably quite rightly under significant pressure to encourage legislators to change the law but it took a long time to pass through the political process, largely because government officials wanted an exemption from it - but they weren't successful," he explains.

Now, however, the Act makes room for an organisation itself to be found guilty of corporate manslaughter if it can be proved that its activities amounted to someone's death. One of the main potential effects this Act could have relates to company culture; by scrutinising businesses in this respect, it will determine whether the rules a business has in place are actually enforced and valued at its lower levels or whether its precautions are simply written as a formality.

"It's one of the very intelligent things about this new Act. It can look at an organisation's culture and determine if there's an underlying pattern of cutting corners," explains Phil Wright, chief engineer with Allianz Engineering. "It will no longer be about what one writes down in terms of procedures, rather it will depend on whether the company culture lines up."

Therefore, should prosecutors start successfully trying cases against companies - particularly large ones - the insurance industry will have a new list of considerations for its policies.

At Heath Lambert, for example, the main focus has been on bringing commercial fleet policies into line with the Act's potential implications. The company has been advising clients particularly in regards the employees who use their own vehicles for work, says managing director Graham Barr.

"Grey fleet", as it is called, could pose a major problem for businesses should the employee not have the correct permit and the company not have clear management and monitoring processes in place. In such cases, insurers could deny liability for any accident that may occur.

Surprisingly, however, most voices seem to think that the most significant impact will fall on legal expenses insurers.

David Leckie, partner with Maclay Murray & Spens' health and safety division, says: "These sorts of cases will certainly be contested by way of trials. Whereas under the previous law most of these big fatality cases ended up in guilty pleas and could be resolved quickly, less straightforward and more complex matters can take a long time in court and if you lose you will have to pay the full legal costs along with the fines.

"For insurers, the main concern will be whether their policies are updated to cover Corporate Manslaughter Act charges because the Act is new and their wording will need to be quickly brought up to date."

Keeping up to date

From the broker perspective, they will not only need to ensure their clients have the right cover for their businesses - directors' and officers', legal defence cover, indemnity - but also that the cover has been reviewed and reworded in light of the Act.

Andrew Stokes, head of health & safety and environment at Beechcroft warns: "Generally, insurers are providing cover for prosecution under the new Act; but defence bills will be large, especially for a bigger company that may be up against a more complex prosecution, and brokers need to determine that this cover is written into the policy."

However, there is near unanimous agreement across both the legal and insurance worlds, that this case is not the one that will prove the significance of the legislation - Cotswold Geotechnical is too small, too much like the other small companies that were tried and charged under the old common law.

Mr Stokes explains: "The prosecution will clearly want to succeed on its first case under the Act and this one seemed like a good prospect for success. It would set a negative precedent for them if they brought the first case against a larger organisation and it failed. But under the old law it was possible to get successful conviction of a smaller organisation, so this case doesn't demonstrate anything new that couldn't be achieved under previous legislation. Everyone agrees it will be fairly insignificant." n