Director insured against financial penalty for negligence

Posted by Andrew McGiffert |28 Jul 13 | 0 comments

The highest OHS fine in South Australian history was handed down last month following the death of a worker at the Adelaide Desalination plant in 2010. The employer and the director were both fined, however the directors fine will be paid by his insurance company. The judge in the case has warned that officers could similarly dodge penalties under the model WHS Act.

35 year old Ferro Con rigger Brett Fritsch was helping a crane lift a 1.8 tonne steel monorail beam onto the rafters of a building when one of the slings holding the beam snapped causing the beam to fall on Fritsch’s head inflicting fatal injuries.

Ferro Con and its director (Maione) were fined $200,000 each for breaching the now repealed OHSW Act, two thirds on the maximum penalty for a first offence. Ferro Con was in liquidation and its director would pay no more than $10,000 in excess to his insurer, along with $20,000 in compensation to the workers family. Industrial Magistrate Stephen Lieschke noted that Maione could claim some of the $10,000 back in tax.

Ferro Con and Maione were charged with OHSW breaches, and eventually pleaded guilty, after Maione unsuccessfully tried to convince SafeWork SA that his sister – who held a senior administrative role in a related company – was Ferro Con’s “responsible officer” under the Act. Ferro Con was found to have failed to provide and maintain a safe system for lifting beams that didn’t require riggers to work directly beneath them. The employer failed to provide site specific or job specific safety analysis, its JSA for general structural steel erection classified hazards that could result in death as a ‘medium risk’.

In determining penalties, Industrial Magistrate Lieschke rejected Ferro Con and Maione’s applications for a reduction, saying they had “taken positive steps to avoid having to accept most of the legal consequences of their criminal conduct”.

He said that Maione, in seeking indemnity through his general insurance policy “to avoid the vast bulk of the anticipated monetary penalty”, had undermined the Court’s powers in “negating the principles of both specific and general deterrence”.

“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 very serious offending, even if an offence has fatal consequences.”

Industrial Magistrate Lieschke noted that the repealed OHSW Act did not prohibit such insurance, and that s272 of the model WHS Act – which prohibits contracts that purport to transfer a duty to another person – did not specifically prohibit the insurance of penalties.

“Whilst the full scope of s272 is unclear, it will still be possible for an insurer to sell such policies and to grant indemnity for perceived commercial benefit,” he said.

“Whether such indemnities should be outlawed under the [repealed] Act and under the new Act are policy considerations for Parliament.”

According to OHS lawyer Michael Tooma, Maione and similar cases would force OHS regulators to push for sentencing options for directors that couldn’t be insured against, such as imprisonment or publicity orders.

Tooma, a Norton Rose Fulbright partner, also warned that officers who take out statutory liability policies is a “provocative industrial step” that could prove costly for employers with a highly-unionised workforce.

In light of Maione, unions were likely to enquire into whether companies had taken out such a policy, and “may well react adversely” if this was the case, he said.

Tooma added that it was “surprising” such policies were available, saying there was an argument that “merely offering them” was a breach of workplace health and safety laws “in terms of aiding and abetting the commission of an offence”.

A representative for South Australian Attorney-General John Rau reported to Ohs Alert that legal advice was being sought on whether the issues raised in Maione needed to be rectified, and if this should be done through state or federal channels.

Hillman v Ferro Con (SA) Pty Ltd (in liquidation) and Anor [2013] SAIRC 22 (27 June 2013)

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