What impact will this landmark case have on employers' liability and D&O insurers?

A small company with one director and eight employees has been landed with the ignoble distinction of becoming the first to be convicted of an offence under the Corporate Manslaughter and Corporate Homicide Act 2007.

Cotswold Geotechnical Holdings Ltd was fined £385,000, following its conviction for corporate manslaughter at Winchester Crown Court in Hampshire on 16 February.

The case centred around the death of Alex Wright, a 27-years-old geologist working for CGH. He was investigating soil conditions in a deep trench on a development plot in Stroud when it collapsed and killed him on 5 September 2008.

Breaching guidance

The company was charged following his death and the prosecution held that the company's system of work in conducting soil investigation using trial pits was obviously unnecessarily dangerous. According to new standards of safety, supports should be provided for trenches more than 1.2m deep. CGH’s trenches were regularly 2-3 metres deep without supports.

The prosecution argued that the company had breached health and safety legislation and ignored well-recognised industry guidance.

No firm too small

Weightmans partner Chris Green, said: “The corporate manslaughter act was designed primarily to target large multinational companies that hadn’t been touched by previous manslaughter laws but it has been drafted so that it was wide enough to bring smaller companies like Cotswold Geotechnical Holdings Ltd within its remit.”

Green describes the case as a wake-up call to small businesses. “The Act can lead to convictions for virtually any company or corporate body, not just those big names that have previously been seen as ‘escaping’ prosecution.”

Insurers take note

The case was a criminal prosecution led by the Crown Prosecution Service against the company. The fine imposed cannot be insured against and is payable only by the company itself. However, legal experts are warning that insurers need to sit up and take note.

Keoghs partner David Walton explains that while insurers will not have to cover the cost of the fine, many employers' liability and public liability policies do cover criminal defence costs.

He adds that while the exact figures of the legal costs of the CGH case are not known, costs are likely to have run into tens or hundreds of thousands of pounds.

“Therefore, it is in the interests of an insurer who provides this legal expenses cover to do whatever it can to ensure its clients do not fall foul of this legislation by providing risk management training and advice,” he says.

Open floodgates?

Lawyers are warning that insurers will expect to see more cases brought under the Act. “We will see more of these cases go to trial, particularly given that it is new legislation,” Weightman’s Green says. “So I’m afraid that it is a safe assumption that a lot of these cases will go to trial and they are very expensive exercises.”

Meanwhile, Allianz manager Roger Ball, head of commercial motor and motor trade believes that more groundbreaking judgments are waiting in the wings.

“The conviction of Cotswold Geotechnical has provided companies with a useful insight into the first application of the legislation. However, the real test will come when a significantly larger company with a more complex management structure is prosecuted,” he says.

“It is vital that companies maintain a thorough approach to risk management and keep an up-to-date record of all health and safety training received by all staff. This could be vital in mitigating the risk to both employees and the business.”

D&O defence needed

Insurers are also concerned that companies could be laying themselves open to directors’ and officers’ (D&O) claims by failing to bolster their corporate governance policies in response to the Corporate Manslaughter Act.

According to a recent survey by Chartis Insurance UK, only 18% said that they are making changes to their corporate governance processes.

Beachcroft partner Andrew Stokes explains that while CGH was convicted without the need of a conviction of the individual director or senior manager, the CPS is likely try to secure a conviction against directors and senior managers for gross negligence manslaughter in future cases, to help prove senior management failure under the Corporate Manslaughter offence.

“There is likely to be an increasing need for, and call on, D&O defence cover by individuals who become embroiled in these cases,” he says.

He adds that the public will also continue to press for individuals to be made personally accountable in these cases, which will put pressure on the CPS to prosecute individuals.