Latest Instalment in Insurers’ Challenge to CRU Provisions

In R (on the application of (1) Aviva Insurance Ltd (2) Swiss Reinsurance Company Ltd) v The Secretary of State for Work and Pensions [2021] EWHC 30 (Admin), Henshaw J dealt with certain consequential matters arising from his earlier judgment dated 20 November 2020 which arose from the Claimants’ challenge to the onerous consequences of the Compensation Recovery Unit scheme, particularly in cases involving long-tail asbestos-related diseases. To read Henshaw J’s latest judgment, handed down on 12 January 2021, please click here.

This is the follow-up judgment to R (on the application of (1) Aviva Insurance Ltd (2) Swiss Reinsurance Company Ltd) v The Secretary of State for Work and Pensions [2020] EWHC 3118 (Admin) (‘the earlier judgment’), a summary of which can be found here.

In the earlier judgment, Henshaw J had found that certain CRU provisions were incompatible with the Claimants’ right to peaceful enjoyment of possessions under Article 1 of the First Protocol to the European Convention on Human Rights. 

Scope

The first matter for Henshaw J to consider in this follow-up judgment was the scope of the earlier judgment. In summary, Henshaw J held that:

• the earlier judgment was intended to be limited to insurance policies underwritten before the enactment of the Social Securities (Recovery of Benefits) Act 1997 (“the 1997 Act”) on 19 March 1997 and reinsurances of such policies (see [5]). After all, this was the target of the Claimants’ challenge: ‘legacy policies’ which were priced many years before the 1997 Act came into force (with retroactive effect: Section 22(5) of the 1997 Act) were now required to cover a liability for the repayment of benefits.
• the earlier judgment does not just apply to ‘employees’ (notwithstanding [11] of the earlier judgment). It applies more widely to ‘the person suffering from the disease’; it would be easier to say ‘claimant’ but in fatal cases, these claims will be pursued by personal representatives. The earlier judgment applies to a ‘person suffering from the disease’ in order to cover situations where, for example, insurers are required to pay out under a public liability insurance policy where the defendant is an occupier of premises and exposes a visitor to asbestos (see [8]).
• the earlier judgment only applies to claims resulting from diseases, as opposed to accidents or injuries, as it is only in relation to the long-tail diseases that problems arise: see [9]. After all, by the time accidents were occurring after the 1997 Act came into force, the insurance industry would have had time to factor in the introduction of the CRU scheme into insurance premiums. By contrast, in respect of long-tail diseases, the relevant insurance policy is typically a historic one, long predating the 1997 Act and the CRU scheme.

Timings

The second matter for Henshaw J to consider was the issue of when the three A1P1-incompatible ‘Features’ of the CRU scheme became non-compliant. Taking the same order as set out in [11] of the earlier judgment:

1. When the person suffering from the disease was contributorily negligent but the insurer has to pay 100% of the recoverable benefits: Non-compliance with A1P1 began when the Human Rights Act came into force on 2 October 2000 (see [11]).
2. When the person suffering from the disease has a divisible disease: Non-compliance with A1P1 began when the Human Rights Act came into force (see [15]). Henshaw J accepted the Claimants’ submissions at least since the decision of Bonnington Castings v Wardlaw [1956] AC 613, negligent exposure to dust which caused or materially contributed to pneumoconiosis which the claimant had contracted was sufficient to give rise to liability; the decision of Carder v University of Exeter [2016] EWCA Civ 790 should not be regarded as the starting point for incompatibility with A1P1.
3. When the person suffering from the disease has an indivisible disease: it was not until Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22 that liability for damages arose where the insured party materially increased the risk of the disease-sufferer contracting an indivisible disease. The House of Lords decision in Fairchild was handed down on 20 June 2002. Allowing a reasonable period for the Defendant to adapt its processes of compensation recovery to make due allowance for the change in the law, the starting point for when the CRU scheme became incompatible with A1P1 in respect of indivisible diseases was ‘the end of 2002’ (see [17]).

Could the 1997 Act be read down?

The third issue for Henshaw J’s consideration was whether the 1997 Act could be read down and given effect in a way which is compatible with ECHR rights pursuant to Section 3(1) of the Human Rights Act: the Claimants sought declarations as to the correct interpretation of the challenged 1997 Act provisions (see [11] of the earlier judgment). Henshaw J considered that the 1997 Act (and in particular Section 6) could and should be read down to allow for a proportionate reduction in an insurer’s liability to repay benefits under a policy of insurance issued before 19 March 1997, in cases involving contributory negligence or divisible or indivisible diseases: see [31], [35] to [36] and [42]. Notwithstanding that Section 22(5) of the 1997 Act provides that insurers are liable to repay benefits even in respect of insurance policies issued before the 1997 Act came into force, Henshaw J found that the reading down of the 1997 Act was not inconsistent with the fundamental features of the CRU scheme but merely created a ‘discrete carve-out relating to a particular set of historic insurance policies, in respect of diseases only, relating only to cases where the insured was only partly responsible for the disease, and in respect of only part of the liabilities that would otherwise arise’ (see [36]). All other (A1P1-compliant) situations would still be caught by the retrospective effect of the 1997 Act.

Did the Defendant act unlawfully?

The fourth issue in Henshaw J’s judgment was whether the Defendant had acted ‘unlawfully’. For the reasons set out at [38] onwards, Henshaw J concluded that the Defendant had indeed acted unlawfully in that (1) the Defendant had failed to make the CRU scheme A1P1-compliant by exercising its powers under Section 22(4) of the 1997 Act to make regulations to limit the amount of liability imposed on insurers; and (2) the Defendant had exacted sums from the Claimants over and above what was lawfully due under the read-down version of the 1997 Act.

Remedies

The fifth issue in Henshaw J’s judgment was whether the certificate of recoverable benefits, in the case of Mr Bainbridge (cited as an example of an indivisible disease case – see [11] of the earlier judgment), should be quashed and replaced by the Defendant with a lawful certificate (see [43]). Henshaw J decided not to quash the ‘Bainbridge certificate’ but to give the Claimants liberty to apply, at any stage, for an order that it should be quashed (and for fuller argument at that stage). Further remedy issues were dealt with at [45] onwards. In short, further submissions were needed on the remedy issues.

Finally, Henshaw J gave both parties permission to appeal with little elaboration on the reasons (see [54]) and noting that the wider importance of the case provided a compelling reason for an appeal to be heard.

Commentary

Henshaw J’s judgment is the latest instalment in an ongoing saga which helpfully clarifies the scope of the earlier judgment.

What is clear from Henshaw J’s judgment is his emphasis on confining its impact to ‘a particular set of historic insurance policies, in respect of diseases only, relating only to cases where the insured was only partly responsible for the disease, and in respect of only part of the liabilities that would otherwise arise’ (at [36]). The Claimants were not complaining about the CRU scheme as a whole, after all: it was only in relation to long-tail diseases (such as mesothelioma) that the Claimant insurers were finding themselves liable, under pre-1997 Act insurance policies, for CRU payments that could not have been anticipated when the insurance policies were made and priced.

Henshaw J reiterated his view (at [56(iv)]) that Parliament, in drafting the 1997 Act, had never consciously directed its focus to the issue of recovering from employers or their insurers in respect of injuries caused by others such as non-traceable employers/ insurers: ‘Rather, the legislators’ focus was to deal with the problems arising from the small claims limit and the unfairness of deducting from general damages the cost of State benefits relating to other heads of claim’ (at [118] of the earlier judgment). If you were wondering about how much deference should be afforded to Parliament, as the democratically elected decision-maker, Henshaw J noted that the present case ‘is significantly removed from cases about, for example, general allocation of State resources or social policy’ (see [56]) – perhaps foreshadowing the robustness of the Court of Appeal in deciding, in future, whether the 1997 CRU scheme was A1P1-compliant.

Notwithstanding the narrow scope of Henshaw J’s judgment, the starting dates for A1P1 non-compliance have now been found as dating back to between October 2000 and the end of 2002 at the latest. It is hard to fathom just how many CRU over-payments have been made in cases involving contributory negligence, divisible or indivisible diseases since then. Furthermore, although at [3] of the earlier judgment, the Claimants were expressly challenging ‘long-tail asbestos-related diseases’, there does not appear to be any reason why, on a plain reading of Henshaw J’s earlier and present judgments, CRU payments in other long-tail disease cases (including silicosis, noise-induced hearing loss, vibration-related injuries, occupational cancers) would not also be deemed A1P1 non-compliant.

We will have to wait for a future instalment to discover precisely how much the Claimants are claiming by way of financial losses, how the remedy issues will be resolved and what the Court of Appeal will have to say on Henshaw J’s judgments.

Update – The Court of Appeal handed down judgment in this case on 14 January 2022. Read about the Court of Appeal’s judgment here.