Should insurance cover directors for criminal offences?

For the first time in Australia’s Occupational Health and Safety (OHS) history, a court has examined a general insurance indemnity for a director charged with a criminal offence under OHS law. The insurance policy, subject to the payment of a $10,000 excess, covered all penalties imposed upon the director.

In the case of Hillman v Ferro Con and Paolo Maione, Industrial Magistrate Lieschke expressed his frustration at Maione’s insurance policy that effectively paid for $190,000 out of a $200,000 fine imposed upon him by the magistrate. The magistrate found that Maione cultivated a “tick and flick” culture but failed to take reasonable steps to discharge his responsibility personally, or by effectively supervised delegation.

Maione was the responsible officer of Ferro Con (which at the time of the court case was in liquidation). The deceased, Mr Brett Fritsch, was a rigger who was adjusting a large monorail beam when it fell and killed him. Ferro Con had policies and procedures of a generic nature with some Job Safety Analysis documents.

However, at no time was the job properly analysed for risk, the specific risks managed or in fact undertaken in a way that prevented workers from being directly underneath the beam when it was being lowered. As such, there was not a safe working environment or system for the manoeuvring of the monorail beam. The beam itself weighed 1.8 tonne.

The magistrate accepted that Maione had expressed regret and remorse over what had occurred. However, in the sentencing process undertaken by the magistrate, the magistrate was clearly frustrated by the indemnification of the fine granted by the insurer. Paragraph 80 of the Magistrate’s decision stated:

“In my opinion Mr Maione’s actions have also undermined the court’s sentencing powers by negating the principles of both specific and general deterrents. The message his actions send to employers and responsible officers is that with insurance cover for criminal penalties for OHS offences there is little need to fear the consequences of various serious offending, even if the offence has fatal consequences. As specific deterrents Mr Maione has not said he no longer has such insurance for his current businesses.”

What the decision shows is that until Parliament intervenes, or a more aggressive court reviews directors’ insurance for criminal penalties, directors can fearlessly neglect safety!

Yes, there is a risk of jail, but no director has been sentenced to any jail time (either suspended or actual) for breaching their obligations under any OHS Act in Australia or the harmonised Work Health and Safety Act (WHS Act).

The provision under which Maione was prosecuted is similar but not as serious as the due diligence provisions under the new WHS Act. Under the WHS Act, officers (that is anybody who has control or substantial control over the business such as directors, CEOs, CFOs and senior operational managers) have significant financial penalties and the risk of up to five years in jail. There is no insurance for incarceration.

This decision has wide ramifications for businesses and officers of businesses.  Although there has been academic comment suggesting that the insurance policies are illegal under the new WHS Act, neither the insurers nor the magistrate in the above case appear to think so. The decision helps officers whose businesses are located in WHS jurisdictions understand what the expectations are of officers around safety performance.

The old South Australian legislation is a softer form of the WHS obligations and yet the magistrate was clear that the role of Maione was one of actively ensuring a strong safety system within a business. Although the decision is only at a magistrate’s level it will be influential in other decisions we see under the new legislation.

Andrew Douglas is director and principal of workplace relations at M+K Lawyers, Melbourne