Insured or not? Directors face increasing defence costs and bigger fines.
New sentencing guidelines introduced in 2016 for Health and Safety offences have 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 at the end of October this year compare outcomes against 2014/15, the last full year before the new guidelines took effect.
As you would expect, these do not read well for company directors, with highlights 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.
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 management liability 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.
We live in an increasingly regulated and litigious business environment. Make a mistake and the financial costs can be ruinous both for individual directors, managers and their companies. The need for insurance against these costs is more important than ever. However, beware that insurance covers provided by insurers vary and it is important to understand what is and is not insured.
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About the author
Mark Brannon Cert CII is a respected industry leader with over 17 years’ industry experience in a variety of roles within the business insurance sector. He works across a wide spectrum of insurance product and policy development, delivery and optimisation for clients, including claims, insurer relationships, marketing and communications, and risk management.
The information contained in this communication 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 adviser.