25 November 2020 by

R (o.t.a of Aviva & Swiss Re) v. Secretary of State for Work and Pensions [2020] EWHC 3118 (Admin)

At first sight, a quite abstruse dispute, however the 63 web page judgment of Henshaw J provides rise to a number of essential and tough human rights factors. However his central conclusion is {that a} statute which was not challengeable on the time of its enactment turned so, due to the following evolution of the legislation, principally frequent legislation, to the detriment of insurers.

Sounds mildly counter-intuitive? Not, I feel, so, when the story has unfolded.

The statute is the Social Security (Recovery of Benefits) Act 1997. The advantages in query are these paid by the state to injured claimants. In litigation in opposition to, say, a negligent employer, the claimant’s damages are lowered by the quantity of specified advantages acquired. The tortfeasor employer then has to reimburse the state in respect of these advantages. The state right here is the Compensation Restoration Unit or CRU, which is itself a part of the Division of Work and Pensions (DWP). And it was the DWP who was the defendant on this problem.

The claimants on this judicial evaluate are insurers and their re-insurers. Their specific criticism associated to obligations beneath the 1997 Act arising out of employers legal responsibility insurance policies masking asbestos-related ailments. These liabilities are so-called long-tail ones; asbestos-related ailments could not manifest themselves for many years, typically effectively after the claimant staff have retired, however the insurance coverage legal responsibility attaches to the insurer in place when the publicity to asbestos occurred. Take one instance of the size of the tail: Mr Carder, in his mid-80s at trial in 2015 (Carder v. University of Exeter), whose asbestosis got here on because of publicity in varied employments between the 1950s and 1980s.

The insurers didn’t complain concerning the reimbursement system as a complete, simply the duty to reimburse advantages arising in respect of asbestos-related ailments due to the next components.

First, insurers recognized some key modifications within the underlying legislation of tort which have occurred because the 1997 Act was handed: [10] of the judgment. These have been usually beneficial to victims and subsequently detrimental to insurers’ pursuits.

On causation, Fairchild had determined that in mesothelioma instances a claimant solely needed to present {that a} defendant had materially elevated the threat of contracting the illness – not that it had precipitated it in “however for” phrases. Later instances have utilized that ruling to asbestos-related lung most cancers instances.

As well as, any tortfeasor was now answerable for 100% of damages for mesothelioma even when they had been solely chargeable for a small fraction of the publicity to asbestos; this arose out of the passing of the Compensation Act 2006 reversing the frequent legislation choice of Barker.

Distinction asbestosis itself, Mr Carder’s illness, wherein he succeeded in opposition to one employer chargeable for just some 2.3% of his complete profession publicity to asbestos: good consequence for him. However he then solely recovered 2.3% of the worth of his declare. It’s because asbestosis is thought to be a divisible illness (yearly of publicity worsens the lung fibrosis) whereas mesothelioma (a situation which can be brought on by just one asbestos fibre) the legislation regards as indivisible.

Insurers then recognized anomalies in the advantages reimbursement guidelines when measured up in opposition to the legislation of tort: [11]. Hold on to your hat, as these cases recur all through the judgment, and therefore this publish.

11 (i) An insurer needed to repay 100% of the advantages paid to the DWP even when the worker was contributorily negligent, and subsequently solely recovered, say, 50% of his damages;

11 (ii) 100% ditto, even when the worker, like Mr Carder and his 2.3%, solely recovered a tiny proportion of his full declare (£1,552 from £67,500);

11 (iii) An insurer needed to pay the 100% even when there have been different defendants who would have been liable however they and their insurers couldn’t be traced;

11 (iv) An insurer needed to repay advantages even when these advantages didn’t relate to any recognised head of loss; for instance, these advantages could also be earnings-related though the actual claimant introduced no lack of earnings declare in opposition to the tortfeasor, say, as a result of he had retired earlier than his sickness got here on;

11 (v) An insurer needed to repay 100% of the advantages even when the worker’s declare had been compromised at a reduction on legal responsibility.

So, the nub of the criticism on the info was that insurers had been obliged to pay for advantages which corresponded to losses not brought on by their insured, or for which there had been no declare (as per 11(iv) above).

In legislation, they stated that the 1997 Act was being utilized disproportionately and this amounted to an interference to their Article 1 Protocol 1 rights. The 1997 Act was retroactive, in that it utilized to liabilities pre-dating its coming into drive. The Act, as utilized, didn’t strike a good steadiness between insurers and the rights of the group. Additionally they complained that the DWP had not made laws beneath the 1997 Act which may have mitigated these undue burdens.

It was frequent floor that rights and obligations beneath an insurance coverage coverage had been “possessions” for the needs of A1P1.

The DWP countered: [20]

(i) the problem was to the 1997 Act, major laws handed 23 years in the past;

(ii) the problem was not justiciable, as a result of it associated to conduct earlier than the Human Rights Act got here into drive in 2000;

(iii) the problem was out of time beneath the HRA;

(iv) neither insurers nor re-insurers had been “victims”;

(v) one can not problem a failure to make laws through an HRA declare;

(vi) there was no interference with insurers’ A1P1 rights, and even when there was this might be justified.

The judgment: whistlestop

Briefly, the choose held the anomalies at 11(i) to (iii) (contrib, divisibility, and untraceable defendants) had been incompatible with insurers/re-insurers’ rights. Against this, the reimbursement provisions relevant to 11(iv) (advantages not akin to heads of loss) and 11(v) (compromise) had been appropriate.

He additionally discovered that an HRA declare might be introduced by the use of a problem to the DWP’s failure to make corrective laws, with the identical substantive consequence.

So A1P1 breaches to that extent.

Gentler guided-tour

The choose thought of at some size the genesis of the 1997 Act which constructed on and amended earlier advantages laws. There had been two earlier anomalies. The primary was that there was a threshold (£2,500) under which there was no obligation to reimburse. This led to a variety of claims settling at just below £2,500 – DWP predecessor out of pocket. The second was that the deduction affecting claimants utilized to all damages payable, together with these for ache, struggling and lack of amenity (PSLA), in respect of which no advantages had been paid. So a modest declare consisting solely of PSLA may be eroded or eclipsed by the profit deduction. Claimant out of pocket.

These had been the mischiefs at which the 1997 Act was aimed, he discovered. In a key conclusion ([64]), he added

What Parliament didn’t have in contemplation was that, because of future developments within the legislation as between compensators and victims, compensators or their insurers would turn into answerable for the price of State advantages having no actual relationship to the diploma of harm or threat that these compensators had inflicted on the injured individual.

He defined this additional at [65]

Nonetheless, the key statutory and customary legislation developments referred to in § 10 above, massively extending compensators’ liabilities vis-à-vis injured individuals, nonetheless lay sooner or later.  There isn’t any proof or cause to consider that in 1989, 1992 or 1997 Parliament may or did have in contemplation the imposition on compensators and insurers of commensurately vastly prolonged liabilities to the State, based mostly on such future developments of the legislation in favour of victims. 

These conclusions are the springboard for his rulings on the legislation.

Rejecting the argument that the criticism may solely be restricted to the pre-HRA coming into drive of the 1997 Act, he dominated that the declare was justiciable. The interference arose on an ongoing foundation every time an insurer incurred a particular legal responsibility beneath the Act in respect of a particular declare: [85]

The unusual limitation interval for an HRA declare is one 12 months. The DWP’s reliance on this failed for comparable causes. The related sections of the 1997 Act interfered with insurers’ possession on an ongoing foundation: [91]

The choose defined that it was solely due to subsequent developments that the Act started to infringe insurers’ proper though “it could be tough to outline exactly when that second occurred”: [94]. See additionally [181] to which I flip to later beneath the pinnacle of Treatments.

At [95] onwards, the choose addressed the “not HRA victims” argument. The DWP identified that Aviva had reinsured the related dangers to Swiss Re in 2015, and Swiss Re had insured them within the full information of the circumstances which gave rise to the alleged infringements – and subsequently may have factored this into the premia payable.

At [102], the choose dismisses this argument for 3 causes:

(1) Aviva remained primarily liable to its policyholders, regardless of the reinsurance, because it was contingently uncovered within the occasion that Swiss Re refused or was unable to satisfy its reinsurance obligations.

(2) The reinsurance was not limitless and comprises exclusions.

(3) Aviva would have paid extra by the use of premia to Swiss Re due to the dangers arising from the Act.

The A1P1 substantive arguments

18 pages (from [111] onwards] set out the choose’s conclusion on interference, respectable purpose, rational connection, not more than is critical, and truthful steadiness – the mandatory construction of any A1P1 argument.

(1) There was an interference as a result of the advantages to be repaid didn’t match the credit score given by the worker.

(2) There was no respectable purpose in such ill-matched restoration.

(3) There was a rational purpose within the influence on contributory negligence instances, the mismatched heads of loss instances, and the compromise instances, however not within the Carder-type case or the indivisible mesothelioma-type case.

(4) Not more than vital: another scheme couldn’t sensibly be discovered for the heads of loss downside or the compromise downside, nevertheless it may for the Carder case and mesothelioma case. However apparently the choose, regardless of having discovered a rational purpose within the contrib. occasion, thought that this “no much less intrusive means ” take a look at could function extra strictly, and that another scheme may have been devised in respect of the contrib. downside ([137(i)].

(5) A good steadiness had not been struck in respect of contrib, Carder instances, and mesothelioma-type instances. As he put it at [142],

They’ve the impact of imposing substantial liabilities to the State pursuant to historic insurance coverage insurance policies, upon insurers who couldn’t have priced any such dangers into the premiums obtained on the time, in respect of State advantages bearing no proportionate relationship to the wrongdoing by the related insureds.  The social coverage aims which, exceptionally, have led the courts and Parliament to take a novel and significantly beneficiant method to causation vis-à-vis the victims of asbestos-related ailments don’t moderately justify imposing on the insurers extra liabilities to the State.”

Elsewhere at [164], the choose describes these developments within the legislation of tort as “extremely vital and unpredictable”.

Nor was there justification for the retroactive nature of the 1997 Act, making use of to all claims within the pipeline on the time of enactment: [151].

There was a good steadiness in respect of heads of loss instances.

As I’ve indicated above, the choose additionally discovered that the DWP had didn’t treatment issues by making laws to deal with these anomalies. For brevity’s sake, I direct aficionados of s.6(6) HRA and its ramifications to [173]-[174] of the judgment for the removed from easy query as to why the declare didn’t fall foul of this provision.

Treatments

The judicial evaluate was not the trial of the insurers’ claims for damages, although its conclusions clearly pave the way in which for such claims. Certainly the exact nature of the declaratory treatments to be granted by this choose had been additionally to be the topic of additional argument. The choose nevertheless was inclined to the view [181] that the contrib. instances had been non-compliant from the approaching into drive of the HRA in 2000, the Carder instances solely turned non-compliant from the choice in Carder, and the indivisible mesothelioma instances turned non-compliant from the enactment of the Compensation Act 2006. Such points will considerably have an effect on the extent of recoverability in damages from the DWP, as damages will solely run from the date of the precise interferences.

Conclusion

A Business Court docket choose, attuned to the realities of the insurance coverage market, sitting within the Administrative Court docket, thought of that, by the drift or shift of the frequent legislation since 1997, a scheme which was not A1P1 unfair initially, had turn into so by some years down the observe. I hope now you can see why.

It’s a good instance of a completely justifiable declare which can disappear if the HRA is tampered with or repealed. There isn’t any comparable treatment usually public legislation – even assuming that isn’t tampered with itself.