Directors Fear Increased Liability

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September 11, 2014
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Directors Fear Increased Liability

Company directors and officers are increasingly worried about regulators holding them personally liable for breaches and issuing hefty penalties, according to Solicitors, Henry Davis York partner Louise Cantrill.

She says changes to work, health and safety laws and the Privacy Act have added to directors’ and officers’ liability, and many in the business community believe regulators are increasingly likely to pursue individuals.

The scope for directors or officers to be held liable has been broadened, while references to the “responsible person” can include workers below director or senior executive level.

Ms Cantrill says insureds are also concerned about the costs of regulatory action even when there is no subsequent allegation of wrongdoing.

“It is quite common for investigation costs not to be covered if a prosecution is not under way”.

The costs can be substantial. “It might look like it will lead to a prosecution, but there is a significant chunk of costs you cannot get cover for.”

Ms Cantrill says the Ferro Con case in SA last year has raised concerns for insurers and clients.

The company and its director Paolo Maione were prosecuted after an employee was killed at work. The SA Industrial Court took exception to the fact Mr Maione’s fine was covered by insurance.

Magistrate Stephen Lieschke said the insurance undermined the court’s sentencing powers and sent a message “that with insurance cover for criminal penalties for [occupational health and safety] offences, there is little need to fear the consequences of very serious offending, even if an offence has fatal consequences”.

Because of the insurance, the magistrate refused to grant any reduction in penalty for Mr Maione’s early guilty plea and statement of remorse.

Ms Cantrill says the size of the fine – $200,000 – on Mr Maione and the company has implications for insurers providing the cover. The case has also fuelled debate about whether insurance for criminal penalties should be outlawed.

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