Michael Selinger says the recent decision in the Ferro Con case highlights a range of work, health and safety issues directors should consider.

    Increasingly, company officers face harsher penalties for breaches of their obligations across a broad range of areas, including work, health and safety (WHS).
    In many cases, directors and officers’ liability insurance will only offer limited protection as it does not generally extend to criminal penalties, such as under safety legislation.
    More recently, insurers have been offering policies that purport to extend the indemnity for officers against criminal penalties.

    The Ferro Con case

    The legitimacy of those policies was questioned this year in a decision handed down by the Magistrates Court of South Australia, Hillman v Ferro Con (SA) Pty Limited (in liquidation) and Anor [2013].

    In that matter, the court considered a plea of guilty by Ferro Con and its director, a Mr Maione, in relation to a prosecution arising from an incident in which a rigger was killed by a falling beam after a defective fabric sling holding the beam snapped.
    In sentencing the offenders, who entered guilty pleas, it came to the court’s attention that Maione was claiming against the general insurance policy Ferro Con had in place, which included indemnification of its directors for fines imposed for criminal conduct, other than in respect of an excess of $10,000.

    In imposing a penalty on Ferro Con and Maione in the amount of $200,000 each, the court was scathing of the use of insurance coverage because:

    • It undermined the court’s sentencing powers by negating the principles of specific and general deterrence.
    • It sent a message to employers and officers that there was little to fear from the consequences of offending safety laws with insurance coverage for criminal penalties.
    • It was so contrary to a genuine acceptance of the legal consequences of criminal offending that it dramatically outweighed the benefits to the justice system of an early guilty plea or a statement of remorse.

    As a result, the court declined to give any discount on the penalty a person would ordinarily receive for entering an early plea of guilty. 
    The court noted it was not in a position to increase the penalty on the basis of insurance being an aggravating feature because under the safety laws there is still no prohibition on obtaining insurance.
    In the wake of this decision though, legislative change is being considered by Safe Work Australia to expressly outlaw such insurance.

    The outcome of the decision

    Officers now need to consider a number of issues related to insurance coverage for WHS penalties.

    It remains valid to obtain insurance coverage for legal costs involved in the investigation and defence of any prosecution relating to a WHS incident.

    However, if a business is to take out insurance covering a WHS penalty, it is likely to be viewed by a court as a reason for a higher penalty to be applied.

    Equally, safety-enforcement agencies may now seek non-pecuniary sentencing sanctions, including adverse publicity orders, good-behaviour bonds, weekend detention or community service orders for individual officers.

    Officers must also consider whether insurance for penalties will promote or detract from the safety culture within their organisations.

    While it will be in the officers’ interests to have the security of insurance, how will this affect their attitude to safety, as well as the attitude of others in the business?

    Of course, there is no guarantee the insurer that offers coverage for criminal penalties will necessarily pay a fine.

    An insurer could still legitimately decline to pay the penalty as most policies will include an exemption that the claim will only be paid “where lawful”.

    Given that the common law provides that an indemnity for criminal penalties is void for a public policy, an insurer may decline coverage in respect of any penalty while still honouring other liabilities under the policy, such as legal costs.

    Steps to take now

    Officers should review their current insurance policies.
    If there is no coverage for WHS penalties, it is critical to ensure that there are proper WHS systems in place so that an officer can comply with his or her duty of care to exercise due diligence.
    That duty requires the officer to take reasonable steps to ensure the business is complying with its WHS obligations which, in turn, means having effective WHS management systems in place.
    Ultimately, taking positive and proactive steps to discharge that duty of care will be the officer’s best protection, as well as that of the organisation.

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