30 November 2020
Certain Compensation Recovery Unit Payments Declared Incompatible with the European Convention on Human Rights
In R (on the application of (1) Aviva Insurance Ltd (2) Swiss Reinsurance Company Ltd) v The Secretary of State for Work and Pensions  EWHC 3118 (Admin), the Claimants challenged the unintended and onerous consequences of the Compensation Recovery Unit scheme, particularly in respect of the Claimants’ liabilities for long-tail asbestos-related diseases. The High Court found that several aspects of the Compensation Recovery Unit scheme were incompatible with the claimant insurers’ right to peaceful enjoyment of possessions under Article 1 of the First Protocol to the European Convention on Human Rights ("ECHR"). To read the full judgment, which was handed down on 20 November 2020, please click here.
Aviva Insurance Ltd and Swiss Reinsurance Company Ltd ("the Claimants") brought this claim for judicial review against the Secretary of State for Work and Pensions, arguing that certain provisions of the Social Security (Recovery of Benefits) Act 1997 ("the 1997 Act" and "the 1997 scheme" in relation to the disputed provisions), as currently applied through the Compensation Recovery Unit ("CRU"), were incompatible with the rights of insurance companies under Article 1 of the First Protocol ("A1P1") to the ECHR.
The Claimants were finding that as a result of their liabilities for long-tail asbestos-related diseases, they were having to make payments to the State under the 1997 scheme for injured employees’ recoverable benefits even where the benefits did not correspond to any injury caused by the insured employers.
When would the 1997 scheme require payments to be made which were not related to damage caused by the insured?
The Claimants argued that there were five situations or five features of the 1997 scheme (see  of the judgment) where liability insurers had to reimburse the State for 100% of the social security benefits even where their insured had not caused all of the damage or even where the benefits do not correspond to any damage caused by their insured (the "Five Features"):
- when the employee was contributorily negligent but the insurer has to pay 100% of the recoverable benefits;
- when the employee has a divisible disease such as asbestosis i.e. a dose-related disease – the insured employer may only be responsible for, say, 2% of the claimant’s total exposure to asbestos dust but is made to pay 100% of the recoverable benefits;
- a situation where other employers would normally be liable in full for an indivisible disease (such as mesothelioma) but the employers or their insurers cannot be traced – this is particularly problematic in asbestos cases;
- when the insurer is required to repay to the CRU benefits which do not correspond to a recognised head of loss in a negligence claim – for example, Universal Credit, which includes housing benefit, is a listed benefit in the 1997 Act; and
- when the insurer has to pay 100% of the recoverable benefits despite the element of compromise present in most settled claims – even claims settled without admission of liability.
The Claimants argued that the Five Features interfered with their A1P1 right.
What is A1P1?
In essence, A1P1 sets out a right to peaceful enjoyment of possessions: no one shall be deprived of their possessions except in the public interest and subject to conditions provided for by the law (see  of the judgment). The State may enforce such laws as it deems necessary to control the use of property. In assessing whether a measure that interferes with A1P1 is proportionate, the Court adopts a four-stage test:
- Is the objective sufficiently important to justify the limitation of a fundamental right?
- Is the measure rationally connected to the objective?
- Could a less intrusive measure have been used?
- Has a fair balance been struck between the rights of the Claimants and the interests of the community?
What did the Secretary of State argue?
The Defendant Secretary of State sought to argue, inter alia, that the Claimants’ challenge was not justiciable; that it was out of time; that the Claimants were not victims for the purposes of the Human Right Act 1998, which incorporated A1P1 in the UK; and that the 1997 Act’s provisions and the 1997 scheme pursued a legitimate aim, the measures were rationally connected to that aim, and a fair balance had been struck between the Claimants’ interest and the public interest.
Henshaw J gave a 183-paragraph judgment which included looking at the legislative background to the 1997 Act, dealing in detail with justiciability and limitation, and analysing the four-stage test cited above.
Henshaw J also considered the Supreme Court’s observations in the Welsh Bill case to be apposite in the present case (see ). The Welsh Bill case (In re Recovery of Medical Costs for Asbestos Diseases (Wales) Bill  AC 1016) was concerned with proposed legislation in Wales which would require compensators to pay for the cost of NHS treatment for any asbestos-related disease in a similar way to the 1997 scheme (see ). The proposed legislation was found to be incompatible with A1P1 as it failed to strike a fair balance between the interests of the community and the interests of the insurers (see ).
Going back to the present case, in short, Henshaw J found that the Claimants’ claim succeeded in part: three out of the Five Features were found to be incompatible with the Claimants’ rights under A1P1.
Henshaw J’s in-depth analysis of the four-stage test is best appreciated by reading the judgment in full. With that caveat in mind, Henshaw J’s reasoning is briefly outlined below, taking each of the Five Features in turn:
- When the employee was contributorily negligent but the insurer has to pay 100% of the recoverable benefits: this was held to be incompatible with the Claimants’ rights under A1P1. Henshaw J said "I am not persuaded that a scheme taking account of contributory negligence would be incapable of achieving the scheme’s objective". He held that "The evidence and submissions before me do not indicate that it would in fact be impracticable to take account of contributory negligence in the scheme, insofar as it applies as between compensators/insurers and the State (as opposed to its application vis-à-vis injured persons)" (see ). This Feature was held to have been A1P1-incompatible from the date when the Human Rights Act came into force (see ).
- When the employee has a divisible disease. Henshaw J considered that this situation was not rationally connected to the aim of recovering full compensation from tortfeasors for the loss caused (see ). I cannot do better than to quote Henshaw J: "Recovery from wrongdoers of the costs occasioned by their wrongdoing would be rationally connected with recovering State benefits in proportion to the extent of the wrongdoing in question, but not with recovering all State benefits without regard to the extent of the wrongdoing". This Feature was held to be incompatible with A1P1 from the time of the decision of Carder v University of Exeter  EWCA Civ 790 (which concerned divisible asbestosis and in which the Defendant employer had only been responsible for 2.3% of the Claimant’s total exposure to asbestos dust) and the passage of the Compensation Act 2006 (see ).
- A situation where other employers would normally be liable in full for an indivisible disease (such as mesothelioma) but the employers or their insurers cannot be traced. Henshaw J treated this third situation in the same way as the second Feature: there was no rational connection between this effect of the 1997 scheme and the aim of recovering full compensation from tortfeasors. 100% liability for benefits despite only partial responsibility for the wrongdoing was therefore incompatible with A1P1 (see ). This Feature, like the second Feature, was held to be incompatible with A1P1 since the decision of Carder and the passage of the Compensation Act 2006 (see ).
- When the insurer is required to repay to the CRU benefits which do not correspond to a recognised head of loss in a negligence claim (e.g. Universal Credit which includes housing benefit). Henshaw J considered that this situation did not fall foul of A1P1: "The fact that certain benefits do not correspond to heads of compensation that would be payable by way of damages following a successful negligence claim does not prevent them from having been caused in a practical sense by the insured’s wrongdoing" (see ). Henshaw J also reasoned that no less intrusive means would be possible to achieve the objective of recovering the costs of benefits arising out of the damage caused by the employer (see ).
- When the insurer has to pay 100% of the recoverable benefits despite the element of compromise present in most settled claims – even claims settled without admission of liability. Henshaw J considered that this situation also did not fall foul of A1P1: the Claimants accepted that it would not be practicable to operate a 1997 scheme that distinguished between cases where liability had been admitted or not admitted. As such, no less intrusive means of achieving the legitimate aim were available (see  and ).
Henshaw J’s judgment ended on something of a cliff-hanger: his Lordship accepted that further submissions from both sides were necessary, given the complexity of the matter, before the question of remedy could be addressed (see ). Indeed, the Claimants (and other insurers) will have suffered significant financial loss from payments made to the 1997 scheme in circumstances which were incompatible with A1P1. A complex assessment of the Claimants’ losses is likely to follow (see ). Watch this space.
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