Last month the UK government overruled the House of Lords by rewriting the law on asbestos payouts. Mairi Mallon reports on this unusual behaviour and its implications for insurers.
The U-turn which resulted in the UK's Compensation Act 2006 for sufferers of asbestos related cancer was a "knee-jerk" reaction from the government, according to the Association of British Insurers (ABI). The outcry over potential delays and lower payments for asbestos cancer victims, in the wake of a House of Lords ruling on the Barker v Corus and other similar court cases, meant that the government was under pressure to change the law quickly.
In May, the House of Lords had ruled that defendants in cases of liability put forward by victims of mesothelioma, an asbestos cancer, would only be liable for the part of the claim for which they were on risk. The Lords' decision meant victims and their families in cases involving several employers, none of which could be blamed specifically for the onset of the fatal illness, would have had to seek compensation from each employer and its insurers, and so risk not receiving a full payment.
In an unusual move, the government intervened and in July the House of Commons passed the Compensation Act, which reversed the Lords decision. "We felt it was a bit of a knee-jerk reaction to legislate straightaway to reverse it," says Justin Jacobs, head of liability at the ABI. "There would have been merit in having a review of the way the process is working for mesothelioma, so it is a slightly missed opportunity."
There are around 1,800 people currently diagnosed with mesothelioma each year and as many as 2,400 people could die from it annually by 2013. While the disease has a long latency period, people typically die within 12 to 18 months of diagnosis and it was seen as a priority that those seeking compensation should receive it quickly.
There has been controversy surrounding compensation payouts since the case of Fairchild v Glenhaven Funeral Services Ltd, heard back in 2002, left loopholes in the system. In the Fairchild case, it was decided that a person who contracted mesothelioma after wrongful exposure to asbestos at different times by more than one employer or occupier of premises could sue any of them - even if he or she could not prove which exposure actually caused the disease. That created an exception to the normal rule of law, which requires "proof of cause".
Barker v Corus and two other similar cases (both brought by the UK government) were put forward to stop one company being liable for damage which could have been caused by many exposures in different employment circumstances. "Basically there were three cases that were heard, Barker and two that were heard in parallel," says Jacobs. "Two were brought by the government, and one by Corus, so none were brought by insurers. The government actually won their argument in the case which was that employers should only be liable for the time that they exposed the claimant."
Change of heart
The fact that the government was keen to get the law changed over single company liability and then in such haste went on to pass a law reversing the court's decision has not gone unnoticed. "I think that we felt it was rather odd behaviour from the government to argue one thing in the court and argue the opposite afterwards," says Jacobs. "But we understand they were under pressure to act very quickly because they were worried claimants might not be able to get full compensation."
Because of the liability implications, the three court cases had been scrutinised by insurers, anticipating that finally there was going to be a change in the system. The original decision had far reaching implications for the claims and insurance industries. Claimants would need to identify and consider adding each and every employer to such claims to ensure 100% recovery. Insurers for each company needed to be identified and notified, but as there was no readily available reliable database, significant costs could be expected in this part of the process.
Insurers were in the process of revisiting their reserves on these cases and assessing the likely impact of this judgment. But they were also aware that there was an outcry from advocacy groups, the public who said it was unfair and that government was facing pressure to change the rules once again.
Tony Boyes, litigation executive of the insurance law department at Langleys, says that Barker had redressed the balance, but the improvement in the law was short-lived. "(The Compensation Act) has put everything back to square one, as it was prior to the bill, which essentially means if the claimant can find one defendant with one insurer for any period, then they have to pay the lot, irrespective of exposure elsewhere."
Boyes, who often acts for a liability adjuster working for Equitas, says that although the Barker case has been politicised as unfair to claimants, the reality was that the vast majority of claimants would have got the majority, if not all, of their damages. "There may have been the odd case, and there were examples quoted of widows only getting 10% - obviously that situation would not be too happy," he admits. "So really, the Compensation Act has reversed all of that back to where we were prior to Barker."
On the face of it, the House of Commons judgment was welcomed by insurers, but as it returns matters to the status quo it is hard to see how anyone can really be happy with the situation. The reality is that there is tremendous sensitivity by insurers when it comes to asbestos-related claims and being seen as cold-hearted or shirking their responsibility and only interested in making money. But now that the Bill has overturned the court ruling, there is no way there can be any appeal and insurers will be glad they did not get rid of their reserves.
Boyes says, "Anybody that was wise would have left their reserves as they were. We only had a short period between Barker and the Compensation Act coming into play. But yes, it increases the potential for any insurer who can be identified and so their reserves would have to be quite significant. It leaves them with the problem of identifying other potential defendants and bringing them in what is called Part 20 proceedings, for their contribution. So in that respect, reserves will be higher for any insurers identified."
There is a small silver lining for insurers, however. Government has ruled that a solvent insurer can be reimbursed for the compensation amount from an insolvent insurer. There are also various improvements to the compensation process, which will speed up that process and make it more efficient, including a standard claims letter which includes information needed by insurance companies.
- Mairi Mallon is a freelance journalist.
BARKER V CORUS
The House of Lords decision was based on three test cases, including one involving Sylvia Barker from Holywell, whose husband died in 1996. Mrs Barker, 58, was awarded £152,000 in 2003, although she did not receive any compensation because there were appeals pending. The court heard that her husband, Vernon, had worked for several different companies and none could be blamed specifically for his illness. Because of the House of Lords ruling the final payout was likely to be a fraction of the original figure. She was said to be distressed by the ruling.
Barker had worked for John Summers and Sons at Shotton steelworks on Deeside (Corus' predecessor) and died ten years ago aged 57. He died from mesothelioma, a cancer of the lining of the lungs, after "heavy" exposure to asbestos over the years.
He was first exposed to asbestos for six weeks in 1958 while working for a company that subsequently became insolvent without any identified insurer and was also exposed for at least three short periods during 20 years as a self-employed plasterer between 1968 and 1975.
Barker's first employer was insolvent so his widow sued Corus alone. At first instance, Corus was held liable for the whole of the claim, subject to a deduction of 20% for contributory negligence because of the period of self-exposure by Barker.
Corus appealed on the basis that an employer should only be required to pay damages according to the extent of its contribution to the risk. The House of Lords agreed. They ruled that employers should not be liable for more than the damage they caused. Compensation should be apportioned pro-rata to reflect the contributions of each culpable party, they said.
But following the intervention by the House of Commons through the new Compensation Act, Mrs Barker is expected to receive the full amount of £152,000.