Insurers are the unintended victims of this law

In May of this year the House of Lords upheld the decision in Majrowski v Guy's & St Thomas NHS Trust that an employer could be held to be vicariously liable for harassment committed by an employee in the course of his (or her) employment, in breach of the Protection from Harassment Act 1997.

When this Act was introduced, its main aims were to deal with disruptive neighbours, stalking and racial abuse - not to extend the civil liability of employers for the actions of their employees.

However, the majority of their Lordships found that, as a section in the Act requiring its application in Scotland did make reference to employers, parliament must have intended vicarious liability to be included within the ambit of the Act more generally.

Nonetheless, the Law Lords did have grave misgivings. In his summary of the unanimous judgment, Lord Brown of Eaton-under-Heywood stated: "I agree ... with Lord Hope that there seemed indeed powerful reasons for thinking that parliament intended that liability and damages should be personal to the perpetrator of the harassment and I agree equally with Baroness Hales who suggested policy reasons as to why that should be so."

So he felt obliged to concur that the reference to "the employer or principal" of someone who had engaged in harassment in Section 10 of the 1997 Act (relating only to Scotland) provided a clinching argument in support of the principle of vicarious liability in such cases.

This case provides another illustration of the unsatisfactory state of the law in relation to liability in general - and damages arising out of psychiatric illness attributable to behaviour or conditions of the workplace in particular.

In common law, for a claim to succeed in negligence, the courts have consistently ruled that any psychiatric illness must be reasonably foreseeable before a liability can attach.

In a claim pursued at an employment tribunal, however, for instance under the Race Relations Act or the Sexual Discrimination Act, or a claim pursued under the Protection from Harassment Act, the foreseeability test is not applicable.

So the question of whether damages are recoverable may depend principally on whether a claim can be brought in the tribunals; or on whether claimants can establish that harassment took place during the course of employment.

Meanwhile, the courts are extending the definition of "in the course of the employment" by reference to the cases of Lister v Hesley Hall and Mattis v Pollock and there is also pressure for victims of crime at work to be compensated by employers rather than the Criminal Injuries Compensation Scheme.

If employers are indeed to be made liable in this way for criminal acts and their consequences, there is a danger we shall create a two-tier process: a civil claims process where fault must be proven, and a criminal claims process that is not fault-based.

Now the Lords have examined liability for psychiatric illness and in effect queried whether the true intentions of parliament have been effectively enacted, perhaps the time is right for a further re-examination by parliament or the Law Commission?

Otherwise margins will further tighten and premiums will continue to rise - entirely as an apparently unforeseen and unintended consequence of sloppily drafted legislation. IT

' Lord Hunt is chairman of the financial services division of Beachcroft