Insurance may diminish a director’s commitment to their positive OHS duty

Neil Foster of the University of Newcastle is known to SafetyAtWorkBlog for his work looking at the legal liabilities of company directors and officers.  Recently Foster released a paper called “You can’t do that! Directors insuring against criminal WHS penalties” which provides an additional legal context to an earlier blog article.

Foster acknowledges that

“…provisions of the criminal law imposing personal liability for company breach of workplace health and safety provisions provide one of the strongest ‘drivers’ for company officers to use due diligence to see to the implementation of company safety policies.”

and asks

“… what if the officer knows all along that, should they be subject to such a penalty, the company, or an insurance policy, will come to the rescue?”

This is a concern that relates to insurance policies or indemnities that are being offered in some industrial sectors.  Insurance could dilute the diligence of officers and directors on a range of matters including workplace safety.

After considerable discussion, Foster says:

“…if the true impact of personal liability provisions is to be felt, it seems that some action must be taken to make clear what has been the policy of the law for many years, that a criminal penalty must be paid by the person on whom it has been imposed. Only then will the law ‘bite’ sufficiently for a real difference to be made.”

Michael Tooma, in his recent book “Due Diligence: Duty of Officers” states clearly that Directors’ and Officers’ liability insurance does not cover liability for work health and safety offences because these offences “are criminal in nature”. (page 11)  Tooma says that insuring against legal costs is the best that can be done.  This reality is important to remember and to impart to anyone who may feel that their corporation OHS obligations can be insured.

It is also useful to mention Tooma’s points when considering any insurance product that may be linked to a safety management system.  In both situations, insurance products may diminish the motivation of executives to manage and improve workplace safety due to the reduced financial consequences.

Perhaps this adds strength to the argument for effective but non-financial OHS penalties, such as enforceable undertakings, as mentioned in the book Tooma wrote with Barry Sherriff in 2010 “Understanding the Model Work Health and Safety Act“.  Costs may be avoided through insurance but demonstrable safety improvements may not.

It is very depressing for safety professionals to see corporate executives looking for ways out of safety obligations instead of looking for ways in, being engaged and becoming an agent of change.

Kevin Jones

reservoir, victoria, australia

4 thoughts on “Insurance may diminish a director’s commitment to their positive OHS duty”

  1. I am not sure that we can be overly surprised by the movement towards trying to insure aginst these types of obligations. When regulators turn to heavy legal penalties as a deterent, they can hardly complain when those subject to penalties turn to \”legal\” responses.

    In fact, it seems that the strong penalties and in particular the personal due diligence obligations are being used to promote legal responses. I recall seeing a summary of a presentation given by one of the \’architects\’ of harmonisation, advsing that businesses should be undertaking an audit and gap analysis of their safety mangagement systems in preparation for harmonisation, but that those audits should be conducted under legal proffessional privilege. I am not sure that this is an approach consistent with modern safety managment theory.

    Although I think it does illistrate the extent to which harmonisation has become (and I suspect always was) a debate about legal risk managment, as opposed to safety risk managment.

    I am also interested in the observations that personal penalties are a strong driver of senior managment response to safety and health. I am a greatadmirere of Neil Fosters work in this area but am corious about what the resposne to those drivers is? I will need to research the issue further myself, by my experience and annectodatlly speaking with collegues is that the response does not necessarily lead to better safety managmet strategies, but again, better legal risk managment strategies -many of which run counter to modern safety managmet ideas.

    One of the earliest lessons I recall receiving about human factors analysis and changing behaviour was that the best approach was positive, immediate and certain. In other words, we reward good safety behaviour quickly and consistently. The worst approach was negative, delayed and uncertain – we punish bad behaviour at some point in the future, … maybe.

    Harmonisation, like most safety legislation clearly embraces the second approach, and the fact that harmonisation has simply rolled over existing models in the name of administrative expediency is to me one of the great opportunities lost in moving safety and health managment forward.

    By the way, I should add as a disclaimer that I am a lawyer.

  2. What I find depressing is not that executives will find an out from their obligations through insurance, as this is expected of them, but that Governments are equally aware of such perfidious behavior and will do nothing to stop it.
    When there is no longer trust at any level, when there is no longer any real means of holding individuals and collectives responsible and liable for their actions (or inaction), then all you have left is anarchy, dog eats dog, and only the fittest and most feral survive.

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