Legal Liability: Health warning for unprotected firms - The danger of being caught up in a client’s costly and damaging legal battle is a threat against which most UK consultancies are not sufficiently protected

Tobacco may be bad for you, but it doesn’t seem too healthy for PR agencies either. News that Hill and Knowlton has been implicated in some US states’ prosecution of tobacco firms (PR Week, 18 July) holds serious consequences for agencies across the world.

Tobacco may be bad for you, but it doesn’t seem too healthy for PR

agencies either. News that Hill and Knowlton has been implicated in some

US states’ prosecution of tobacco firms (PR Week, 18 July) holds serious

consequences for agencies across the world.



H&K was dismissed from liability in the Florida case, but it is

understood that top executives are steeling themselves for possible

appearances on the witness stands in other US states.



The issue goes right to the heart of the relationship between a PR

agency - or any sort of marketing service agency - and its client. Is it

possible for an agency to be held legally responsible for promoting a

client’s product or service that is subsequently found to be

harmful?



The answer is - like the judgment on H&K - a qualified one. Yes, it

certainly is legally possible to be held responsible, but in the UK, at

least, the concept is a relatively untried one.



H&K’s involvement in the US tobacco case sets a precedent, say legal

experts, that could make its way across the Atlantic.



’In America, people are that much more creative with their litigation,’

says UK media law firm Edge and Ellison associate Robert Wegenek. ’It

gives us a few years’ leeway to look, learn and prepare ourselves for

the effects of it over here.’



The key legal point involved would be that of duty of care. If a

prosecutor could show, firstly, that an agency had a duty of care

towards the public, or whoever had been harmed by a product, and,

secondly, that the duty had been breached by the agency’s actions then

negligence could be proved.



But the natural conservatism of the British legal system, compared with

the US, has prevented any firms getting embroiled in such cases in

Britain.



UK courts are also hesitant of ’opening the floodgates’ by widening

liability, which could lead to the courts being deluged by people suing

a multitude of parties.



Welbeck Golin/Harris Communications has worked for Gallaher in this

country for over 20 years. Managing director Alison Clarke points out

that an opening of the floodgates that may follow the H&K case could end

up with a range of marketing services agencies being held liable.

’Advertising, public relations, and sales promotion agencies are

probably in the front line for these kinds of actions, but what about

designers or the people who sell the product? Where would the line be

drawn?’



In reality, it is likely only to be those who were directly involved in

promoting the product who would be brought into an action, but it

remains for this to be tested in UK courts.



Likewise, it remains to be seen to what extent the exact nature of the

relationship between client and agency may have a bearing on how lightly

or harshly an agency would be treated legally. Healthcare agencies, for

example, have to be so scrupulous about checking with their clients on

the detail of the work they carry out that they may be able to argue

that anything that they did was simply obeying direct orders.



Clarke believes it is, in general, ’unfair and unreasonable’ for an

agency to be held liable for work carried out in good faith on a product

which was legal and perfectly acceptable at the time. ’The issue is the

mutual trust that should exist between agency and client. You generally

assume that you can rely on a client to give you accurate information -

and a legally and morally sound brief.’



But Scope Ketchum chief executive James Maxwell argues that it is

incumbent on an agency to look after itself. ’You have to go into these

things with your eyes open. If you take on a client and you are aware

that their product could be construed as harming people, you must look

at the risks and protect yourself’.



The most important legal way an agency can limit its liability is by

having a comprehensive indemnity clause inserted in the contract between

it and the client. This would have the effect of making the client

accept all liability for anything that the agency carries out on its

behalf.



Great if you can get one - and virtually all of the UK public relations

agencies still working with tobacco clients have secured one. But the

reality is that PR is still a buyer’s market, and many clients would

sooner pick another agency than accept an indemnity clause.



Very few agencies which are not working for a tobacco client have

managed to get proper indemnity clauses, say industry sources.



’Third-party claims clauses in contracts are not being addressed as much

as they need to be,’ says Wegenek.



’Most are protected for general muck-ups, some have even secured

indemnity for negative publicity generated as a result of working for a

client, but very few have the kind of indemnity clause which would get

them out of the kind of stick that H&K is in.’



It all takes the famous line about not ’shooting the messenger’ on to a

new dimension, and one which agencies will soon be addressing with their

lawyers.



INSURING AGAINST DISASTER



What if the worst happens and you are implicated in an action with a

client? Being properly insured is vital. Most PR agencies have insurance

that covers them for two main areas:



- Public liability - if you accidentally injure someone during a public

event, for example;



- Employee liability - which covers you if, say, a PR executive is hurt

falling downstairs under the weight of press releases.



But the clause that you need to insert in contracts, and which is widely

misunderstood by most agencies, is the professional indemnity clause.

This part of a policy is widely misunderstood, according to Kerry

Falcon, managing director of specialist insurer Anthony K Falcon.

Professional indemnity insures you against errors and omissions and

negligence - crucial in the event of a third-party action.



Falcon advises against the kind of disclaimers inserted into many

contracts, which state :’Our liability is restricted to, for example,

pounds 500,000’.



’They rarely stand up in court,’ he says.



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