Last reviewed 8 December 2016

Employers are required to take out liability insurance to ensure that they are covered against any compensation ordered by the courts should an employee be injured at work through the fault of the employer. But could a director be held liable if a company goes into liquidation before the compensation is paid? Barrister Robert Spicer reports on relevant cases.

The law

The Employers’ Liability (Compulsory Insurance) Act 1969 states, in outline, that employers may not legally operate their businesses without employers’ liability insurance. The aim of this insurance is to ensure that if employees who are injured or made ill at work make a civil claim against their employer, there is sufficient insurance cover to pay any compensation awarded by the court.

A copy of the insurance certificate must be posted in the workplace. The certificate must be displayed in such a position as to be easily seen and read by employees. It should contain the following information.

  • The name of the policyholder.

  • Commencement and expiry dates.

  • A statement certifying that the policy satisfies relevant law and the minimum amount of cover provided and the specified range of claims covered.

  • The insurer’s name and authorised signature.

The Act is administered and enforced by the Health and Safety Executive (HSE). HSE inspectors are empowered to enter premises and demand to inspect the policy document.

Insurance premiums are generally calculated according to:

  • the level of risk associated with the work

  • the number of employees

  • the past history of personal injury or ill health claims against the employer

  • evidence of effective and operational health and safety management systems.

The following are excluded from the scope of the Act.

  • Most public organisations.

  • Health service bodies.

  • Some small family businesses.

  • Independent contractors.

It is important to note that the existence of the policy does not, in itself, give an employee an automatic right to compensation. The aim of the Act is to ensure that employers can meet successful claims for compensation.

Can a director be liable?

The recent landmark decision of the Supreme Court in the case of Campbell v Peter Gordon Joiners Ltd (In Liquidation) and Another (2016) has highlighted a number of issues concerning liability for breaches of the Act.

The facts, in summary, were that C was employed by PGJ Ltd as an apprentice joiner. He suffered an injury while working with an electrical circular saw. PGJ Ltd had employers’ liability insurance but it excluded claims arising from the use of woodworking machinery powered by electricity. It therefore excluded any claims arising from C’s accident.

This was a breach of the 1969 Act. The company went into liquidation. C sought to hold G, as sole director of the company, liable in damages for the company’s failure to provide adequate insurance cover.

At first instance, the claim was dismissed. The matter was eventually heard by the Supreme Court, which dismissed the appeal.

Section 5 of the 1969 Act made it an offence for an employer not to be insured. It also stated that where an offence was committed by a company with the consent, connivance, or facilitated by neglect on the part of a director, that director shall be deemed to be guilty of that offence. However, the 1969 Act imposed criminal liability and the general rule was that there was no civil liability.

Also, there was no suggestion that a person could be made indirectly liable for breach of an obligation imposed by statute on someone else. It was no different where the obligation was imposed on a company.

The 1969 Act imposed direct responsibility only on the employer. Parliament had recognised that a director might bear some responsibility for the failure to insure, but had dealt with the responsibility of a director by imposing a specific and closely defined criminal penalty.

This case illustrates the relationship between health and safety and company law. In English law, a company has a legal personality separate from its directors, and this may give rise to considerable difficulties for employees of companies who suffer injuries when the company then goes into liquidation.

Failure to take out insurance

This follows the decision of the Court of Appeal in the case of Richardson v Pitt-Stanley and Others (1994) where an employee who was injured in the course of his employment claimed compensation from the directors of his employing company on the basis that they had failed to take out insurance against liability.

The key issue in the case was whether the Act of 1969 created civil liability as well as criminal. The Court of Appeal dismissed the case. It stated that the Act did not expressly provide that employers or directors should be civilly liable. The Act was intended to be a criminal statute. Employees had a remedy for negligence or breach of statutory duty. They did not have an extra cause of action under the 1969 Act.

Another example is the Scottish case of Cameron v Fraser (1990). C was injured in 1977 while working with a firm of roofing contractors. He sued the firm and was awarded £30,000 compensation. He was unable to enforce the compensation award because the firm had ceased to trade. He sought to enforce the award under the Third Parties (Rights against Insurers) Act 1930 but discovered that the firm had no insurance cover. He then raised an action against the managing director of the firm at the time when he sustained his injury. The basis for this was the director’s alleged civil liability for a breach of s.5 of the 1969 Act. The Scottish court dismissed the action.

In relation to criminal liability, examples of recent prosecutions for breaches of the Act include the following.

  • In May 2015, Merlin Mouldings (Hednesford) Ltd, a Staffordshire plastics company, was fined for failing to have liability insurance in place, despite repeated warnings by the HSE. The company was fined £2500 plus £3000 costs.

  • In October 2015, Hasret Sasmaz, a restaurant owner trading as Starburger in Woolwich, was fined £500 for each of three offences under the 1969 Act, for failing to provide liability insurance. An HSE inspector commented after the case that breaches of the Act would be pursued by the HSE.

  • In January 2016, Gumus Takeaway Ltd, a takeaway premises in Gloucester, was fined £2000 plus £2000 costs for breaches of the Act. The fire protection service had alerted the HSE to the fact that the business had no liability insurance. The company failed to respond to correspondence from the HSE.