As MSHA ratchets up enforcement, re-examine personal liability coverage for your management team.

by Avi Meyerstein

With all that Congress and the Mine Safety and Health Administration (MSHA) have done to ratchet up safety enforcement and penalties, you’ve probably thought about one of the worst-case legal scenarios: that MSHA will decide to go after you or other individuals in management, personally, for safety violations. After all, under the Mine Act, MSHA can refer individual corporate agents for criminal prosecution resulting in penalties of up to $250,000 and/or one year in prison for the first offense. In addition, MSHA has the authority to issue personal, civil fines against individual corporate agents for alleged knowing or willful violations.

These penalties can apply to a broad range of management personnel defined as corporate agents, beginning with frontline foremen and rising all the way to the CEO. With so much on the line, it makes sense to consider strategies to reduce the impact of MSHA cases on management employees who act in good faith, but get caught up in an MSHA action. Every company should consider a policy permitting lawful defense and indemnification of its agents. Companies with such policies in place should review the policies from the perspective of potential MSHA cases and related investigations and litigation.

Indemnification is a clumsy word that simply means protection from loss or damage, such as when a mine operator agrees to reimburse its management employees for legal liabilities and expenses the employee incurs on the job (within certain limitations). Covering an employee’s costs of defending an MSHA investigation by “advancing” legal fees and paying resulting civil penalties is a perfect example of how indemnification can work.

Even without MSHA fines and prosecution referrals, management personnel at all levels are faced with incurring legal fees simply if they must defend themselves from MSHA allegations or they need independent advice during an MSHA investigation when management counsel has a potential conflict of interest. While management counsel can often provide advice to corporate agents when no conflicts exist, aggressive MSHA enforcement can lead to potential conflict considerations that require separate counsel for management agents. Similarly, even though workers’ compensation laws generally prevent management agents from being held liable for workplace injuries or fatalities, some states permit such lawsuits, and management agents often fear these risks even beyond their realistic potential for liability.

Someone in management, acting in the best interests of employee safety and the company, could wind up with crippling expenses for investigation or defense counsel. From a company perspective, telling a management agent who was acting in good faith to “fend for yourself,” during the middle of an MSHA investigation, could eliminate company loyalty and invite retribution by an angry agent. A far better approach is to adopt a policy that demonstrates loyalty and permits the company to pay reasonable, independent counsel costs for management agents who were acting in good faith, but who can not be represented by company counsel (e.g., because of a potential conflict of interest). In such a setting, company counsel and independent management agent counsel can enter into “joint defense agreements” to further their common interests, protect privileges, and avoid duplication of work, thereby achieving common goals while protecting against conflicts of interest.

Creating — and training — employees about these indemnification and defense policies is often in an employer’s best interest. The best time to tell employees about these policies is ahead of time, even when no MSHA action is pending against them. In fact, whenever possible, incorporate your company’s indemnification and defense policy while training management agents about MSHA liability prevention. Moreover, in a tight employment market, where skilled mining personnel are scarce, current and prospective employees will view an indemnification and defense policy as a benefit provided by a loyal employer. An indemnification policy not only protects valued employees and ensures them representation and a fair hearing if needed, but it can also help an employer’s attorneys defend the employer. If the employee has an experienced attorney, it is all the better for establishing a successful joint defense.

Yet, there has been concern among policymakers that there should be limits to indemnification and defense by companies of its management employees. They fear that if “bad” conduct is defended and indemnified, some people will lose their incentive to follow the law since they will no longer face the costs of their actions. As a result, each state has an indemnification statute that may even require indemnification and/or advancement in some situations, allow them in other circumstances, and prohibit such agreements under other conditions.