Could new terrorism law proposals impact D&O insurance?

The Proposals

The UK government has recently concluded and released the results of a public consultation into proposed new terrorism legislation aimed at imposing new duties on companies to formally assess terrorism risks to the public.

The Protect Duty Legislation, also known as “Martyn’s Law” was first proposed by campaigners in the wake of the Manchester Arena attack (including the relatives of Martyn Hett, a victim of the bombing and for who the proposed legislation is named). At the time of writing, the proposed legislation seeks to require businesses to:

• Use government and police information and guidance to consider the threat of terrorism at spaces they own or operate

• Formally assess such threats

• Consider and implement “reasonably practical” security measures, and

• Develop and maintain a robust terrorism plan.

Currently, it is anticipated this legislation could impact 1000s of UK businesses, and would apply to:

• Entertainment and sports venues, tourist attractions and similar with a capacity of 100 persons or more

• Retail or entertainment chains employing 250 staff or more that operate at publicly accessible locations; and

• Public parks, beaches, town squares and pedestrianised areas (including event organisers using these spaces)

Smaller organisations are also expected to have lesser duties imposed, but some obligations will be introduced none-the-less.

How Might This Impact D&O?

Immediately, the potential impact on D&O insurance should be obvious. In fact, I might go so far as to say D&O is one of the most significantly impacted lines of insurance under these new proposals. If a company fails to carry out these checks, or directors do not see them implemented or actioned properly and the worst happens, well, there’s really no escaping that – a claim will come in, and, on the face of it, this is very clearly a D&O issue.

However, we must think carefully whether D&O policies as they currently are understood would cover this. One immediate issue I think of is the Bodily Injury / Property Damage exclusion. One market leader uses the following (slightly paraphrased) wording:

Bodily Injury / Property Damage

arising out of, based upon or attributable to bodily injury, sickness, disease, death, emotional distress, or mental anguish of any natural person; or damage to, or destruction, impairment or loss of use of any property. This Exclusion shall not apply to:

1. any Claim against an Insured Person for emotional distress or mental anguish with respect to an Employment Practices Violation;

2. Defence Costs of any Insured Person including with respect to any Claim brought against an Insured Person for any alleged breach of occupational health and safety law;

3. Loss of an Insured Person where and to the extent personal liability is established against an Insured Person, but only in circumstances where the Company has neither indemnified, nor is permitted or required to indemnify, the Insured Person pursuant to law or contract or the Articles of Association, charter, bylaws, operating agreement, indemnity deeds or similar documents of the Company;

4. Corporate Manslaughter Defence Costs

Immediately, you can see that commonly the BI/PD exclusion only writes back Health and Safety/Corporate Manslaughter claims, or one’s where a company cannot indemnify a director. Certainly I have found no mention about barring indemnity from companies to their directors, and clearly nor is this a health and safety claim.

Corporate Manslaughter presents an interesting element, as this offence could, conceivably, follow such a failure to carry out the required checks and implement safety measures as required under this new law. As a refresher, Corporate Manslaughter legislation states:

1. An organisation to which this section applies is guilty of an offence if the way in which its activities are managed or organised

• causes a person's death, and

• amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.

The “relevant duty of care” may conceivably include this new legislation, although I confess I am not a lawyer, and I am sure legal arguments could be made both for and against. However, it is interesting to note that an increase in corporate manslaughter claims may follow in the event the proposed legislation is introduced, and insurer’s must be alive to this.

Additionally, it raises complex coverage claims with insureds – is, for example, the corporate manslaughter covered, but any separate action for failing in their duty (negligence claims, reputational claims, shareholder claims etc) barred under the BI/PD exclusion? Will insureds be happy with the same event being only half-covered? Would full coverage be allowed? Is it the intent of D&O to respond to terrorism threats of this nature, or will the terrorism market itself need to adapt to incorporate this new legislation under its own liability umbrella?

The legislation remains in consultation and drafting stage for now, but now initial public consultations are complete, and with the threat of terrorism once again on the rise, we can reasonably expect this to pick up pace on its way through parliament. Ultimately, time will tell how this law takes shape and the response underwriters will need to take – but it’s definitely one to keep an eye on.

Sources/Further Reading:

• https://www.gov.uk/government/consultations/protect-duty/outcome/government-response-document#introduction

• https://www.poolre.co.uk/protect-duty/

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This insight piece is intended and published for information purposes only. It does not represent legal advice of any form, and although every reasonable effort has been taken to ensure the information is correct at the time of publication, the author does not accept liability for reliance on any errors or omissions contained within.