The UK corporate manslaughter act and insurance

New Corporate Manslaughter Legislation Highlights Risks for All Directors & Officers

Directors and officers of UK businesses are sitting up and taking note of a new piece of legislation that came into force on 6th April 2008.

The ominous sounding offence of Corporate Manslaughter made it into the statute books with the recent passing of the Corporate Manslaughter and Corporate Homicide Act.

Brought in following various high profile cases of management failings such as the Zeebrugge disaster and various rail crashes, the new law requires the courts to look at the way a company managed and organised its activities in cases where a death has occurred.

The legislation specifically concentrates on instances where there have been failures by senior management to provide a proper duty of care. Any business involved in a serious incident will come under particular scrutiny in terms of company processes relating to health & safety, training or supervision as well as the standard of maintenance on equipment or buildings.

Colin Davies, MD of Carvel Insurance Brokers who provide commercial only risk and insurance advice commented
“The weight of legislation on companies and their management is immense, especially in the area of health & safety. In my opinion the full force of the new Corporate Manslaughter law will probably not be seen for a number of years though. We expect most early cases to be long drawn out prosecutions mainly affecting larger companies as it is the company that is prosecuted rather than the employee. While individuals can’t be prosecuted for the new offence, they can still be taken to court under existing laws relating to gross negligence manslaughter/culpable homicide for health and safety offences.”

Perhaps a more immediate concern to local businesses managers will be this ever present risk of personal prosecution relating to decisions made at work. The responsibilities and duties of a director have been long established through a mixture of statute, regulations and case law. Whereas a limited company is limited in its liability, an individual director is not so can be held personally liable for breaches of duty. To be personally liable for ‘unlimited’ awards and legal costs is an unsettling thought for most directors and senior decision makers.

The personal risks faced by directors and officers of companies are many and varied. An everyday example might be the company secretary of a building firm who was prosecuted personally, as the company’s labourers breached a tree preservation order whilst working on job.

Colin Davies adds “The extent of personal risk in running a business is something that many company directors and officers don’t always fully comprehend; the personal exposure can be huge. As well following good practice and minimising risks there is another solution that the company it’s self can provide to protect individual employees. Taking out something called Directors & Officers Insurance is always worth assessing based on the risks each officer faces. It is estimated that over 75% of small and medium sized businesses are not aware of the personal risks their senior people run and how to address them. It’s frightening to think of the extent that employees and directors are personally liable for business decisions that they make or responsibilities that they hold in the work place.”

The new corporate manslaughter law is essentially aimed at large corporations to make them fully accountable for serious incidents, perhaps where in the past they may have ‘passed the buck’. Most small and medium sized businesses will not be concerned with the legislation – especially if there is good control in following Health & Safety directives and laws.

It is more likely that companies will carefully consider the risks that are posed by having key individuals with high levels of personal exposure even in the smallest business.

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