There have been reports that firms, exasperated by rising costs, have been operating without either public liability insurance (which is optional) or employer’s liability insurance (which is compulsory).

To its credit, the Government has acknowledged the seriousness of the situation and has taken some steps to address business concerns. It has encouraged insurers to take clients’ health and safety records into account when assessing the cost of cover. And, with effect from April 2005, small companies which have no employees apart from the owner/director, do not have to carry employers liability insurance. This change affected some 300,000 single member companies.

So some progress has been made, it would appear. But at the same time that the compulsory insurance rule is being scrapped for some, along comes a new development which risks reversing any gains which have been achieved up till now.

NHS provisions
As from January 29, 2007, a long-dormant provision in the Health and Social Care (Community Health and Standards) Act 2003 has been activated. The provision in question allows the NHS in England and Wales to recover the costs of treating persons who have incurred any sort of injury and who have successfully sued a negligent party for compensation. Equivalent steps are also being taken in Scotland.

For many years the NHS has been able to recover from insurers the costs of treating those injured in road traffic accidents who have gone on to make a successful claim for compensation. But this long-standing situation is now to be rolled out to cover things like accidents in the workplace, as long as some party (most obviously the employer) is held to have acted negligently and found liable to pay compensation to the injured party.

Take an injury incurred in the workplace by a member of the employer’s staff. If the injury can be attributed to some form of negligence on the part of the employer, and the employee successfully sues his employer for compensation, any resulting NHS treatment costs can be claimed back by the NHS from the employer.

Similarly if a client, customer or member of the public suffers an injury in or around the employer’s premises, which is held subsequently to be the responsibility of the employer, again the NHS will be entitled to recover the treatment costs. Charities and voluntary organisations will be affected in the same way as commercial businesses.

Insurance policies
In both cases, the costs will be met by the employer’s insurance policies. The one caveat to this is that where the employer’s policy has an upper limit on the amount of cover provided in a personal injury case (as opposed to a lower limit or excess figure), the insured party – the employer – will be liable for the remainder. So if, for example, the NHS claim is for £30,000 and the employer’s cover is only worth £25,000, the employer will be responsible for the remaining £5,000 of the claim.

The effect of the change is that businesses stand to pay whether they have insurance or not. Research carried out last year by Lloyds TSB suggests that over one million SMEs are operating at serious risk because they do not have proper business insurance cover; even in respect of those firms that do have cover, only half are fully covered by the right insurance.

Where an employer decides not to take out either employers or public liability insurance, for whatever reason, it will of course not be able to look to any such policy to fund the compensation and any consequent claim from the NHS. If the employer does not have appropriate insurance cover, then the employer will have to meet any treatment claim from his own resources.

The cost of injury
The NHS’ claim will be capped at £37,100. So the most serious cases, such as long-term treatment for fractures or stress-related conditions, will not lead to an indeterminate liability. Not only this but any contributory negligence on the part of the injured employee or customer will be taken into account in attributing liability to the employer.

Accordingly, any business facing a claim is entitled to press for full acknowledgement of, for example, any failure by an injured worker to wear any protective equipment he had been directed to use.

But given that the cost of calling an ambulance is put by the government at £150 and the cost of daily hospital treatment at nearly £600, the costs will soon mount up. And what it means overall is that some employers will face not only the cost of paying compensation to the injured party but the cost of treating that party for their physical and possibly psychological injuries.

The only real answer for businesses is to ensure that they take their health and safety responsibilities as seriously as they possibly can and do all they can to mitigate the risk of their staff or customers incurring injuries which may give rise to compensation claims and subsequent medical treatment.

The insurance industry is making an effort to engage with the business community on these lines and companies are prepared to reflect responsible business practices in their rates. To try to minimise their exposure to the inevitable general rises in premiums, businesses should be prepared, before their next renewal date, to conduct an audit of their health and safety procedures.

They should also review the proper functioning of all mechanical equipment and re-assess their operations for any possible weaknesses in materials, fabrics, training needs and premises maintenance. Time and expense incurred in doing this, and documenting any improvements made, may prove worthwhile in the long run. For more information see www.dh.gov.uk

John Davies is head of business law at the Association of Chartered Certified Accountants.