Employer Liability/Public Liability insurance: Are you sufficiently covered?

If the HSE/Regulator investigates and/or prosecutes you or your company, what cover does your insurance policy provide? 

There is a substantial difference between cover for Employer Liability/Public Liability policies. Does your policy provide sufficient legal cover for your needs if you or your company is investigated or prosecuted for a criminal regulatory breach? 

Background 

Business owners and employers have a legal responsibility to their employees, customers and members of the public. As such, they can be held legally liable and potentially be sued if an individual who they employ or a member of the public is injured as a result of their alleged negligence or breach of duty. Liability insurance works by paying out compensation and legal costs if an employer/duty holder is found to be at fault for an accident. The premium that the company pays is based on three issues:

i) The type of business and what level of risk is associated with it;
ii) The company’s safety record which includes their claims history and previous dealings with the HSE/local authority; and 
iii) Their approach to risk management, i.e. whether the company has extensively considered all risk associated with their business and adequately controlled those risks. Evidence of this will be taken into consideration when setting the premium.

Legal Defence Costs 

Legal defence costs are the legal costs incurred when a solicitor and for more serious matters, a barrister, represents you and/or your company at the investigation and prosecution following a breach. 

Generally speaking, most employer liability/public liability (EL/PL) policies will have some form of legal representation cover. However, this cover can be limited to panel personal injury solicitors who do not specialize in health and safety. So it is worth checking with the broker or insurance representative when taking out or renewing your EL/PL policy exactly which solicitors are on the panel and doing your own research in this regard. Check whether there is discretion in the policy so you can go “off panel” if you want to instruct your own health and safety solicitor of choice.

Also, it is worth checking if there is a limit to the cover for legal defence costs as policies are often capped at £50,000. Given the increased likelihood that under the new sentencing regime, matters will be dealt with by counsel and a solicitor rather than just a solicitor, it is likely that this cap will be insufficient. Also, if there is a key issue in dispute which results in a contested Newton Hearing (a trial of issue) which means the court will hear evidence from witnesses. 

Prosecution Costs 

Defence legal costs are not the only substantial costs associated with a health and safety prosecution. It is essential to also ensure that prosecution costs are covered under the EL/PL policy before taking the policy out. 

Prosecution Costs are costs incurred by the prosecution from the time that the HSE/local authority decide to prosecute the company/directors or mangers. At the sentencing hearing, the court can order a convicted defendant to pay what it considered to be “just and reasonable” costs to the prosecutor. The HSE’s policy is to recover the full costs of any prosecution. Prosecution costs can run into tens of thousands of pounds, particularly if a specialist inspector and a barrister and/or solicitor agent has been instructed to represent the HSE/local authority.

We have noticed an increase in the instruction of external health and safety specialist solicitors and barristers for the HSE since the introduction of the new sentencing regime in February 2016 as fine levels have substantially increased. This makes the need for prosecution costs to be included in defence legal costs all the more important. Not all policies cover prosecution costs, even some of the main EL/PL insurers do not offer cover for prosecution costs, so it is essential to check this is included in the policy before finalizing your insurer.

Fine 

This is what the court sentences the company to pay at the sentencing hearing. 

Not all clients appreciate that their insurance policy cannot indemnify them for a fine. They have to pay that themselves from the company’s accounts or their own pockets if they are prosecuted as individual directors or managers. 

From the statistics released by the HSE for 2014/2015, prosecutions led to fines totaling £16.5 million, an average penalty of £27,177 which will have to be paid out by the company and in a substantial number of cases, a significantly larger amount depending on the severity of the breach.

Fees For Intervention 

Fees for Intervention (FFI) became effective from 1st October 2012 and these regulations put a duty on the HSE to recover its costs for carrying out its regulatory duties for those considered to be in “material breach” of health and safety law. In reality, this means that the HSE can now charge companies and organisations for costs incurred in its enforcement role prior to a decision being made to prosecute the company or organization. FFI is an HSE costs recovery scheme and applies to all organisations inspected by the HSE. The cost is now £129 an hour. 

So far, we have not seen a policy which indemnifies the company for any fees for intervention. However, we are aware that there is at least one insurer in the market who has recently started to provide cover which includes cover for FFI.

To summarise, if there is a “material breach” of health and safety legislation or associated regulations, then the HSE can charge the company to investigate the breach and then invoice the company for those services, but the vast majority of insurance policies will not cover these costs.

Individuals Under Investigation 

If managers or directors are being investigated by the regulator, then only certain policies will also cover representation of such individuals. As the prosecution of individuals is on the increase in recent years, it would perhaps be prudent to ensure that a policy covers individuals in addition to the company. Some brokers sell clients a separate package of cover known as a Directors’ and Officers’ Policy in addition to a more basic EL/PL Policy. 

Summary of Advice 

• Check what cover is provided by your EL/PL policy.
• Court fines are NOT covered in a policy as they cannot be indemnified. Companies sometimes consider it prudent to set aside certain monies if they are investigated and prosecuted for regulatory breaches. 
• Prosecution costs are substantial and are often not an anticipated cost. Therefore, it is essential to ensure that your policy indemnifies you in this regard. 
• As Fees for Intervention are used to partially self finance the HSE, it is perhaps unsurprising that revenue from the scheme is year on year on the increase. Therefore, we would suggest that duty holders at least consider the cost of indemnifying to cover FFI, particularly in higher risk industries, or risk getting stung with a stream of expensive invoices from the HSE which are in the current regime hard to dispute to challenge.