Correspondence and conversations with insurers and brokers that you might think are confidential may be used against you. A recent Crown Court case has demonstrated how insurance buyers need to be very careful about their documentation. Hilary Ross of DWF LLP explains.
In July, Lion Steel Equipment Limited pleaded guilty to corporate manslaughter and was fined £480,000; the charges against the three directors were either dismissed or dropped. The fine is the least interesting aspect of this case.
What is truly remarkable is the role that Lion Steel’s insurers and brokers provided the basis of the prosecution case against the directors and in the conviction of the company.
Facts of the case
Lion Steel is involved in the fabrication of steel cabinets and shelving. It employs just over 140 people across two sites – one in Saltney, the other in Hyde. In May 2008, Steven Berry, a maintenance man at the Hyde site, fell through a roof light whilst trying to repair a leak. The company did not have a written risk assessment for roof work. At Hyde, work was not permitted when the roof was wet and workmen were never allowed to go close to the edge. There was also a designated path to be followed on the roof using the cast iron gulleys. However, the company had not trained Mr Berry in this system nor was the necessary equipment provided to prevent an accident or protect him should one occur.
The prosecution case
The essence of the prosecution case was that, since 2002, the company and its directors had been on notice that its systems for dealing with work on the roof at Hyde were inadequate and Mr Berry had not received adequate training.
To prove that the company and its directors were on notice, the prosecution relied almost exclusively on evidence produced by the company’s brokers and insurers. Representatives from the brokers’ risk management team were called to give evidence and discuss information contained in numerous documents spanning the six-year period before the accident.
These documents included:
A pre-cover survey;
The minutes of a meeting to review the company’s health & safety policy as well as the monthly and quarterly risk management meetings;
The ongoing audits of both sites and recommendations;
The documents prepared for the insurance market to obtain cover, including one monitoring the progress of risk management.
Brokers and insurers – three days of evidence
The brokers gave their evidence over a two-day period, during which every word in the reports and audits was analysed. Each negative comment was highlighted to the jury, including matters in the initial pre-cover survey identifying the needs of each site to review risk assessments as part of the health & safety audit. Much was made of the fact that risk assessments relating to work at height when using ladders and work on mezzanine floors were in force at the Saltney factory but lacking at Hyde.
The risk control surveyor from the insurance company also gave evidence, for an entire day, in relation to the liability survey reports, as well as the Insurance Risk Improvement Plan. These often contained very general advice such as “you must undertake a risk assessment in respect of all activities involving work at heights. Such work is likely to be carried out by your maintenance team including work on roofs. …” Such comments were held up by the prosecution as examples of how the company had failed to heed previous warnings, largely overlooking the improvements and the fact that in 2005 and 2007 the company was given a Category B rating by their insurer.
The prosecution’s reliance on insurance documents raises concerns at many levels.
No regard appears to have been given to the commercial nature of the relationship between the insureds, insurers and brokers, all of which have competing requirements and give rise to tensions; the aim of the insurer is to obtain premiums that exceed the amount of their liability and overheads. The brokers are seeking commission or a brokerage fee, whilst the insured wants the most appropriate insurance cover at the most competitive price.
The commercial nature of the relationship was acknowledged by the brokers, who gave evidence that it is sometimes necessary “to exaggerate issues” to insureds at the same time as presenting the insured in the best light when going to market. Whilst there is nothing reprehensible about this behaviour, it does raise the question about the validity of relying on commercial documents in a criminal prosecution.
It also overlooks the fact that some of the documents had never been communicated to the company, such as the Go To Market document prepared by the broker and the liability survey reports prepared by the insurer. This meant the company was not aware of criticisms in these documents and had no opportunity to address them. From the perspective of the insurer, the creation of documents could ironically actually increase their exposure to liability as they were used as evidence against the accused, ultimately playing a role in the conviction.
The reliance on the documents is also worrying given that they may contain cut and paste sections from other documents, pro forma risks and warnings and may not be written with the benefit of all the facts. These documents are not written in anticipation of being used in court; a good example in this case was the brokers’ audits which referred to “work at Hyde”. In court, considerable time was spent debating whether this was meant to read “work at height”. It therefore appears to be inherently unacceptable that these documents were used to determine the guilt or otherwise of companies and individuals.
Fortunately in this case, the court was not impressed with the prosecution’s approach, criticising it for emphasising “the company’s insurance brokers’ and insurers’ warning of the need for proper risk assessments,” which the judge described as “unrealistic”. He concluded that none of these parties ever said that the system for dealing with the roof at Hyde was inadequate or that it was an obvious source of danger. Therefore, the most that could be argued was that the HSE said there should be additional notices warning of fragile roofs.
Use of documents likely in future prosecutions
However helpful the Judge’s comments were in this particular case, they are unlikely to prevent the reliance upon these documents in future prosecutions. Should this become a trend, and we predict it will, there is little that insurers or brokers can do to stop it. It is imperative that these commercial documents are drafted in future on the basis that they may one day be read and analysed in court. Additional consideration needs to be given to the wisdom of keeping reports that contain recommendations for safety improvements. Finally, insureds must be prepared to read the reports and minutes of meetings closely and be prepared to challenge any inaccuracies.
Hilary Ross is a partner at law firm DWF LLP
"It is imperative that these commercial documents are drafted in future on the basis that they may one day be read and analysed in court"
DWF LLP Partner