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With Tony Blair having won the grudging support of British voters for a third term of office, the U.K.'s new Labor administration will return to a pledge that it made at the last election in 2001--to make U.K. companies more accountable when their negligence results in fatal accidents.

However, any resulting legislation will not involve the ultimate sanction of a jail sentence for directors, although unions and lobbyists have pushed for such a move over recent years.

"This government is committed to delivering a criminal justice system that commands the confidence of the public," declared Clarke.

"A fundamental part of this is providing offenses that are clear and effective. The current laws on corporate manslaughter are neither, as a number of unsuccessful prosecutions over the years stand testament."

This lack of success reflects the problems of establishing a director as the "directing mind or will" to whom responsibility for a fatal accident can be attached.

The U.K. has seen only a single high-profile case that resulted in a director being jailed for manslaughter. He was the director of a canoeing vacation company and, as virtually a one-man operation, he was easily identified as the individual responsible for management failure.

More recently, the trial began in February of four executives accused of manslaughter in the October 2000 train disaster at Hatfield, which left four dead. Two directors from the group (then) responsible for rail infrastructure and two from engineering contractor Balfour Beatty are defending charges of manslaughter and health and safety breaches relating to a broken rail that led to the crash. The outcome, which may not be known for some months, will prove whether it is possible to "pierce the corporate veil."

However, with an election approaching, the government appeared to have decided to press ahead with legislation that simply avoids the difficulty of establishing an individual director as the controlling mind.

The draft bill instead establishes that liability for corporate manslaughter will lie with the corporation rather than individual directors, except where charges of a gross breach of the duty of care are brought by the Health and Safety Executive.

As a company cannot be jailed, the penalty will instead be financial in the form of an unlimited fine if its "gross" management failings caused the death of employees or persons to whom it was supplying goods or services.

The U.K. government may have looked to Australia in devising the new bill. That country has been something of a pioneer in raising corporate-governance standards, but prosecutions for corporate manslaughter have similarly been rare, despite lobbying from public interest groups for it to be made a criminal offense.

Each state has an Occupational Health and Safety Act, though, imposing a duty on employers to ensure the safety of workers. If this duty is breached, companies can be fined as much as $670,000 (A$825,000).

AN 18-YEAR HISTORY

The draft bill's origins go back more than 18 years, to March 1987, when the ferry Herald of Free Enterprise sank off the Belgian port of Zeebrugge. The disaster, which resulted in 192 deaths, occurred as a result of the vessel's bow doors not being properly secured.

A subsequent inquiry found this to be a common timesaving practice, which triggered a prosecution for manslaughter against the Herald's owner, P&O European Ferries. The action proved unsuccessful. Two subsequent disasters involving fatalities--a fire that killed 31 people at the King's Cross station of London's "Tube" network in November 1987 and a rail crash at Clapham, London in December 1988 that left 35 dead--saw criticisms of failures by the transit operators but no prosecution.

A fatal train crash in Southall, London in 1997 saw a further unsuccessful prosecution of operator Great Western Trains. Then, as now, U.K. law required prosecutors to prove that a single individual in the offending company's senior management is personally guilty of manslaughter for any prosecution to stand a chance of being successful.

The government's apparent decision not to amend this requirement in the draft bill on corporate manslaughter has come as something of a surprise to directors' and officers' liability insurers, admits Martin Firman, senior vice president of financial lines at London-based Ace Insurance.

"It's gone the opposite way to what many of us had imagined," he observes. "A long time ago, D&O insurers added a corporate-manslaughter extension to the policy to provide defense costs where directors and officers were accused.

"The extension is likely to be retained, but it now looks as though this will be less of a prevalent issue in the future."

Firman believes that with an election in the offing, the government is keen to be seen to act, but the new bill appears to have been rushed through.

He is also surprised that the change of tack appears to have sparked little response from unions, which have consistently pressed for directors to face the ultimate sanction of a jail sentence.

Although the Trades Union Congress said it was "disappointed" that this threat had been removed, it otherwise welcomed the proposed legislation, which would "help make the workplace safer by providing a new sanction against those organizations that show scant regard for the health and safety of their employees."

Jacquetta Castle, vice-chair of the British Insurance Law Association and an insurance partner at law firm Charles Russell, agrees that the impact on D&O insurance is likely to be minimal.

"Insofar as a prosecution is against the company (as envisaged under the new legislation), a standard D&O policy will not respond because it is there to cover directors, not the company entity itself.

"Where the prosecution is against the directors," she says, "a D&O policy will not pay for criminal fines or penalties, both as a matter of the express exclusions that are likely to be in the wording and as a matter of public policy.

"The directors' legal costs of defending the prosecution may, however, be covered," Castle adds, "although this will depend on the fine nuances of the exclusions in the policy wording." Where liability is excluded "for" bodily injury, then a prosecution against the director is not strictly a claim "for" bodily injury. An exclusion in respect to claims "arising from" bodily injury is much wider and would probably operate to exclude the type of claim we are talking about.

A "based on" bodily-injury exclusion could mean that the costs of defending the directors are covered, but a claim relating to a fall in share price resulting from the fact there had been a prosecution would not be," she says.

Castle adds that it is difficult to predict whether the draft bill paves the way for more frequent prosecutions for corporate manslaughter.

"Clearly, if there is an accident, the families of those killed will want to see that every possible avenue is taken against those that they see as responsible."

However, those injured and bereaved in a series of rail disasters in the U.K. over recent years have expressed anger and frustration at the seeming impossibility of getting any individual to admit responsibility--or even securing an apology from the company involved. The new bill--up for consultation until June 12 ahead of the new parliament--appears unlikely to assuage their grievances.

GRAHAM BUCK, a London-based writer, covers European risk management issues for Risk & Insurance®.

September 15, 2005

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