Insurance: Check the small print (it could cost you millions)

20/02/2020

Highways and infrastructure companies have been advised to check their insurance policies for a small print clause that could leave them liable for the cost of legal advice.

Paul Verrico, a partner at leading global law firm Eversheds Sutherland, revealed that he was only recently made aware of a clause in one insurance policy that meant the policy was unlikely ever to have paid out.

Speaking to the Road Safety Markings Association conference, he described a policy which stated: ‘We will indemnify the insured for compensation for bodily injury sustained by an employee, arising out of the cause of employment and costs and expenses. This extends to cover the insured against the legal fees and expenses incurred in respect of a prosecution under the Health and Safety at Work etc Act 1974.’

The small print and the case for the prosecution

However, a further clause added that ‘the insurer shall not be responsible for any legal fees or expenses incurred following receipt of counsel’s opinion advising that there is no reasonable defence to the prosecution’.

Mr Verrico outlined the dangers of such a clause, pointing out that the Health and Safety Executive’s conviction rate for safety offences is 94%. ‘They are one of the most successful prosecuting authorities in the country.’

The reason for this is that the Health and Safety at Work etc. Act 1974 states an employer must do all that is reasonably practicable to protect the health, safety and welfare of employees at work; there is a reverse burden of proof meaning the employer must demonstrate it has done all that is possible when something bad happens.

Given this high bar for proving innocence, due to the reversed burden of proof, and the emotive nature of criminal trials against a tragic backdrop of loss of limb or life, Mr Verrico noted it is rare to see a jury find in favour of an organisation when a serious incident has occurred – particularly where any defence could effectively be interpreted as the duty holder blaming the victim for their life-changing injury or even their death.

‘The people charged with determining if you’ve fulfilled your duty are jurors who can struggle to look beyond the real individual tragedies which form the heart of these cases. Juries, generally, quite rightly believe that employers are responsible for getting people home safely.

‘What are reasonable prospects of defending? There is no definition in the [insurance] policy – but it must, logically, be more than 50%. It would take a very brave defence lawyer to say that prospects of defending a criminal case in court with a reverse burden of proof are over 50% - remember, only serious cases end up being prosecuted and only in situations where there are clear and obvious breaches. This is a policy which it is extremely unlikely that the insurer will ever pay out on.’

Mr Verrico stressed: ‘Make it a point of principle to make sure you pay a little extra to ensure your legal insurance costs don’t just cover the point from being prosecuted but the point from which you are being investigated. If your insurance is in that same terms as that of our client, you will end up being responsible for your own legal fees in negotiating a basis of plea and being represented in court if you plead guilty. It’s really important to understand exactly what is covered in your legal expenses policy.’

Costs – human and financial

The cost for non-compliance has risen by a staggering amount in the last 10 years, based on a new sentencing guideline for health and safety offences, issued in 2016.

‘The fines are based primarily on turnover and the sanctions are much higher than we’ve ever seen before. Even for small or micro organisations the numbers are terrifying,’ Mr Verrico said.

This is on top of the legal fees, which can range between £200 to £400 an hour. Mr Verrico closed: ‘The costs of success is far less than the price of failure. Effective safety management, embedded policies, procedures and appropriate systems are a far better use of precious resources than incurring legal costs and enormous fines.’

Paul Verrico can be contacted at paulverrico@eversheds-sutherland.com

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