Read part one of our management liability portfolio insurance guide, or see part two below.

New sentencing guidelines introduced in 2016 for Health and Safety offences resulted in a significant increase in fines imposed on companies and their senior managers. Annual statistics for 2017/18 and published by the Health & Safety Executive compare outcomes against 2014/15, the last full year before the new guidelines took effect. These did not read well for company directors, with headlines including:

• Total fines – up to £72.6 million from £19 million
• 45 cases where fines were above £500,000, against 5 in 2014/15
• Average fines for duty holders increased from £29,000 to £147,000
• There was a 95% prosecution success rate in 2017/18

If prosecuted, there is the risk of a custodial sentence as well as a large fine; 15% of prosecutions in 2017/18 resulted in immediate or suspended custodial sentences. As well as expensive legal defence, there is also the potential for business disruption and reputational harm.

Insurance for investigation, legal representation and other costs

A sound approach to health and safety management will reduce the risk of an event in the first place. However, accidents happen and having the right insurance in place for investigation, legal representation and other costs is important.

HSE investigations should not be the only concern for company directors. Directors still face personal liabilities associated with breach of fiduciary duties. A briefing published by the insurer, AIG, in June 2018 highlights other areas, such as:

Insolvencies – rule changes in 2016 that make directors’ actions much more visible and give the Insolvency Service more time to bring disqualification proceedings.

Unfounded allegations – directors facing claims when they believe they have done nothing wrong. An emotionally fuelled and determined litigant can lead to thousands of pounds in costs, as well as the diversion of management time.

Contract disputes – an increase in claims for defending alleged breach of contract. With global procurement on the rise, there is also an international element to this. The briefing also mentions the increase in MLP defence costs. This increase results from more digital documents and need for specialist eDisclosure experts, and a trend towards use of barristers for legal opinions and drafting documents.

Guidance on competition disqualification orders (CDOs) – 6 February 2019

Revised guidance was issued by the Competition and Markets Authority (CMA) on 6 February 2019. As a result of this the CMA may be looking to impose more sanctions on individuals than has previously been the case.

• On 26 April 2019 the CMA announced the disqualification of two former directors of CPM Group resulting from CPM’s involvement in a cartel concerning the supply of precast concrete drainage products to the construction industry. The CMA secured legally binding CDUs from the former directors, for periods of seven and a half years and six and a half years.
• On 10 May 2019 the CMA announced the disqualification of three directors of various companies in the Jones Lang LaSalle and Fourfront groups. The breaches of competition law in this case concerned cover bidding in relation to office fit outs.
• The increased use of director disqualification powers comes after a long period during which such powers had been virtually unused. Only three directors had been disqualified by the CMA up to the end of 2018, despite the CMA having the ability to seek disqualification since 2003. In other words, there have been five director disqualifications in the three-month period following the revised guidance in February 2019 compared to only three director disqualifications over the previous fifteen-year period.
• The CMA considers that individual consequences are much more powerful in terms of deterrence than fines imposed on corporates.

HSE changes following coronavirus

On 7th April 2020, the HSE made changes to RIDDOR, where the Principal Contractor/Employer now has the legal duty to report the following;

• an unintended incident at work has led to someone’s possible or actual exposure to coronavirus. This must be reported as a dangerous occurrence.
• a worker has been diagnosed as having COVID 19 and there is reasonable evidence that it was caused by exposure at work. This must be reported as a case of disease.
• a worker dies as a result of occupational exposure to coronavirus.

These new requirements, particularly the requirement to report someone’s possible or actual exposure to coronavirus place huge responsibility on employers. Companies will likely want to include a specific section on COVID-19 to ensure compliance with the guidelines and to serve as due diligence in the event of an investigation and/or claims defensibility in the event of an incident.

Failure or alleged failure to meet the above could naturally lead to claims against the company.

Review your insurance needs

For more information or for a full review of your insurance needs, please continue to contact your usual Towergate Insurance Brokers adviser or email TIB@towergate.co.uk.

The information contained in this bulletin is based on sources that we believe are reliable and should be understood as general risk management and insurance information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such. If you wish to discuss your specific requirements, please do not hesitate to contact your usual Towergate Insurance Brokers advisor.