The Scottish case of Campbell v Gordon highlights a peculiar gap in the otherwise wide range of sanctions directors face for failure to obtain adequate employers’ liability insurance.
An apprentice joiner suffered an injury whilst working with an electric circular saw and brought a claim against his employer. The company had employers' liability insurance but the policy excluded claims arising from the use of “woodworking machinery” powered by electricity. The company thus did not have appropriate insurance in place, and was a breach of its obligations under the Employers’ Liability (Compulsory Insurance) Act 1969 (the Act). The company subsequently went into liquidation, and the claimant recovered nothing for his injury. He then pursued a personal claim against the company’s sole director, maintaining that his failure to ensure that the company was adequately insured had caused him loss.
The Supreme Court held that the claim should be dismissed on the basis that breach of sections 1 and 5 of the Act imposes criminal liability on the company and directors, but not civil liability on the directors.
It was without question that the director had failed to obtain adequate employers’ liability insurance as required by the Act, and he was therefore subject to criminal penalty, under the Act, for his default. Additionally, his failure could have rendered him subject to a fine by the Health and Safety Executive (up to £2,500 for any day a company is without suitable insurance and a fine up to £1,000 for a failure to display the certificate of insurance or refusing to make it available for inspection). The Act does not, however, impose a personal civil liability on a director who has failed to ensure that the corporate entity is adequately insured.
Whilst not extending the potential exposure of individual directors, this case is a reminder that there are nevertheless significant penalties for directors who fail to ensure adequate insurance is in place and, therefore, of the importance of checking the scope of the employer's liability insurance a company has in place.
Campbell v Gordon (Scotland)  UKSC 38