Employer's Liability and Industrial Diseases (Hawksmere Report)

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EMPLOYERS’ LIABILITY AND INDUSTRIAL DISEASES

Fred Collins

IFC

A Hawksmere Report

EMPLOYERS’ LIABILITY AND INDUSTRIAL DISEASES

Fred Collins

Published by Hawksmere plc

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Public Liability Fred Collins

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Effective Techniques for Managing and Handling Insurance Claims Fred Collins

Evaluating and Monitoring Strategies David Allen

Managing the In-house Legal Function Barry O’Meara

The Internet as a Business Tool Brian Salter and Naomi Langford-Wood

Employment Law Aspects of Mergers and Acquisitions

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About the author F W (Fred) Collins left the Motor Union Insurance Co. (now a member of the Guardian Group) to join Midland Assurance in 1962. He held a number of claims posts with Midland and when Eagle Star rationalised its operations in the early ‘70’s, he became Chief Liability Claims Superintendent for the Group. He moved to London to as Assistant Claims Manager,later becoming Claims Manager,a position from which he retired in 1989. He became an Associate of the Chartered Insurance Institute in 1952 and obtained the Ll,B from London University in 1955. During his career, he was Chairman of the Claims Panel of the ABI, Chairman of or the Rehabilitation Committee (concerned with funding the unit at Edinburgh University) and Chairman of the MIAFTR Committee (concerned with setting up the Anti Fraud and Anti Theft Register). Since retirement, he has engaged in consultancy work including training. He has participated in many seminars and conferences and contributed papers and articles to a number of publications. He is Editor of Kluwers Handbook of Motor Insurance and a contributor to the Handbook of Insurance. He is a former member of the Council of the Insurance Ombudsman Bureau and of the Legal Aid Board.

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Contents Introduction......................................................................................1

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THE DUTIES OF AN EMPLOYER

The safe system of work ...................................................................6 Plant tools and equipment................................................................7 Fellow employees .............................................................................8 Employers’ rights against a negligent employee .............................10 The place of work...........................................................................11 The employers’ own negligence .....................................................12

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THE STATUTORY DUTIES OF AN EMPLOYER

The Factories Act, 1961...................................................................14 Employers Liability (Defective Equipment) Act..............................15 Other safety provisions...................................................................16 Present position ..............................................................................16 Regulations under HSW Act ............................................................16 Control of substances (hazardous to health) regulations, 1988......17 European Union law .......................................................................18

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INDUSTRIAL DISEASES AND THE CAUSES

The industries and chest and lung diseases....................................23 The old scheduled diseases ............................................................24 Cancers – their causation in industry .............................................24 The newer diseases.........................................................................25 Claims for psychiatric injury...........................................................25 Deafness..........................................................................................28 Vibration White Finger (VWF) ........................................................28 Repetitive Strain Injury (RSI) ..........................................................28 Passive smoking ..............................................................................29 The current position.......................................................................29

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THE INVESTIGATION OF DISEASE CLAIMS

Short term diseases.........................................................................32 Long term diseases .........................................................................32 Knowledge......................................................................................33 Warning ..........................................................................................33 Precautions .....................................................................................34 Standards of care.............................................................................35 Difficulties in defence.....................................................................36 Medical investigation ......................................................................37 Cartledge v Jopling, 1962................................................................37 Conclusion......................................................................................38

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LIMITATION IN RELATION TO EMPLOYERS LIABILITY

The Law Reform (Limitation of Actions) Act, 1954 .........................40 Cartledge v Jopling, 1962................................................................41 The Limitation Act, 1963 .................................................................41 Later developments ........................................................................42 The current position and the Limitation Act, 1980.........................42 Section 33 .......................................................................................43 Other considerations ......................................................................44 The effect on insurers.....................................................................45

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EMPLOYERS LIABILITY INSURANCE

The policy.......................................................................................48 What is covered?.............................................................................49 ‘Caused during’...............................................................................50 Extensions.......................................................................................51 Conditions ......................................................................................52 Trade endorsements .......................................................................52 Limits of indemnity.........................................................................53 Capping ..........................................................................................53 Excess of loss cover ........................................................................54

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COMPULSORY INSURANCE PROVISIONS

The employers liability (compulsory insurance) regulations, 1998.............................................................................57 Repugnant conditions.....................................................................59 EL/motor .........................................................................................59 Trade endorsements .......................................................................60 Claims made policies ......................................................................60 Bradley v Eagle Star.........................................................................61 Employers Liability Insurance Bureau (ELIB) .................................61 Penalties..........................................................................................62

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AGREEMENTS AND UNDERSTANDINGS

Market understandings ...................................................................65 An example.....................................................................................65 The results ......................................................................................67 The Newcastle deafness cases ........................................................67 The deafness agreements................................................................67 The VWF agreement .......................................................................68 Latest developments .......................................................................68 Lister v Romford Ice Co. .................................................................69 The market agreement....................................................................69 The common law agreement ..........................................................70

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COMPENSATION AND DAMAGES

The valuation of claims...................................................................72 Damages..........................................................................................72 Loss of earnings ..............................................................................74 Medical expenses............................................................................75 DSS benefits ....................................................................................76 The claw back and its operation.....................................................77 Structured settlements....................................................................79 Interest............................................................................................81 Levels of damages ...........................................................................81

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DEFENCES AND THE HANDLING OF CLAIMS

Defences .........................................................................................84 Denial..............................................................................................84 Inevitable accident .........................................................................84 Volenti non fit injuria......................................................................85 Contributory negligence.................................................................85 Outside the scope of employment .................................................86 Foreseeability..................................................................................87 Other defences ...............................................................................87 Conduct of claims...........................................................................88 Investigation ...................................................................................88 The facts .........................................................................................89 Outsourcing ....................................................................................90 Settlement.......................................................................................91 Litigation cases................................................................................92 The litigation team..........................................................................93

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LITIGATION PROCEDURE

High Court .....................................................................................96 The trial ..........................................................................................97 County Courts.................................................................................98 Interlocutory proceedings ..............................................................99 The paper case................................................................................99 The future .....................................................................................100 Costs .............................................................................................100 Legal Aid........................................................................................102 Conditional fees ............................................................................102 The Woolf report and recommendations on civil procedure .......104 The proposed solutions ................................................................104 Case management .........................................................................105 The courts.....................................................................................105 Procedure .....................................................................................106 Pre-accident protocols ..................................................................107 Conclusions ..................................................................................108

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CLAIMS ESTIMATING

Reserves........................................................................................110 Average cost..................................................................................111 IBNR claims...................................................................................112 The actuary and his function........................................................113 Actuarial methods.........................................................................114 Termination ..................................................................................114 Reinsurance ..................................................................................115 Reinsurance and industrial diseases..............................................116

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CURRENT PROBLEMS IN EL INSURANCE

Increased costs .............................................................................118 Current problems .........................................................................119 The future .....................................................................................121 New forms of liability ...................................................................121 Alternative Dispute Resolution (ADR) ..........................................122 Limitation......................................................................................123 Industrial disease ..........................................................................124 No fault .........................................................................................124 Is EL properly insurable?...............................................................125

APPENDICES Appendix A: List of Cases .............................................................128 Appendix B:Table of Statutes .......................................................131 Index.............................................................................................133

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Introduction At Common Law, an employer has always owed a duty to his employees to exercise reasonable care for their safety, during and arising from their employment. This duty is not an absolute one – before an injured employee can recover compensation from his employer, in respect of any injury (a term used here to include disease) he must show a breach of the duty of care and that the breach was causative of his injury. Even should he satisfy these criteria, then if he has contributed to his own misfortune,the compensation he receives may be reduced. In the alternative, he can claim for breach of contract. Probably the most well known of early cases is that of Priestley v Fowler, 1824, where Priestley sued his employer,in respect of an injury;in fact he was unsuccessful and ended up in a debtors prison, because he could not pay his employer’s legal costs. During the early and mid years of the nineteenth century,because of the Industrial Revolution and the increased use of machinery and processes carrying a risk of injury, the number of such cases increased enormously. However, in the early years, there were substantial restrictions on the formation and activities of Trade Unions.Allied to this difficulty were the legal doctrines of maintenance – intermeddling in a legal dispute, in which there was no personal interest and champerty – financing a legal action in exchange for a share of the damages – which created further problems.The sanction of having to pay a successful employer’s costs acted as a deterrent not only to the issue of legal proceedings but also to the actual making of claims in employer/employee situations. In fact it was maintenance and champerty which prevented the development of legal expenses insurances in UK until the law was amended in the 1960’s. From there has developed the post-event concept of legal expenses insurances allied to conditional fees. Some efforts were made to improve industrial safety, and in fact, factory inspectors were appointed,as far back as 1833.Their function was to seek to enforce the legislation passed by Parliament, more or less on an ad hoc basis during the later 19th century. Such acts dealt with matters like the problems of dangerous machinery – the Threshing Machines Act 1832 – health matters as in legislation banning the use of phosphorus in matches – long hours and other conditions of children.A Factories and Workshops Act was passed in 1901 giving more general protection.

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In 1880, the Employers Liability Act was passed giving specific rights to workers and their dependants.However,the process of compensation was still hit and miss, although perusal of early text books shows a number of cases in the l9th century. In 1906, the Government brought into force the Workmen’s Compensation Act: amended in 1925 and 1943;this essentially provided a weekly scheme of payment, where a worker was injured by accident and the accident arose out of and in course of the employment. It was necessary for the worker to ‘elect’ for Workmen’s Compensation and to forego any right to a claim for damages by doing so.This was much resented and the Courts tried to circumvent the provision,finally succeeding only in the latter days of the scheme. Payments by the standards of today,appear very small – at the time,they represented a goodly portion of the average wage. The scheme in UK was funded by employers who could insure themselves against this liability:This contrasted with Continental countries where the State provided similar, if more generous benefits. As a result of the Beveridge report in 1943,which advocated a more comprehensive scheme of social insurance,Workman’s Compensation was substituted by a new scheme of Industrial Injuries payments by the State, in 1948.This was funded by contributions levied upon both employer and employee. Workmen’s Compensation had been designed to be simple – in fact it became complex in the extreme,the last edition of the standard text book on the subject running to over 1,200 closely printed pages. It was confidently thought by Government – and by insurers – that Common Law Claims would wither on the vine, and that Industrial Injuries benefit would in the vast majority of cases be the standard compensation. However, the residual Common Law liability,remained – insurers reduced their rates for this risk to around 10% of the old WCA rate. However,it became clear very quickly that this was not going to happen and within a very short time,the claims industry as it now exists came into being.The reasons are many and varied. Among them may be cited:

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Increased awareness of rights

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Publicity about large sums in damages

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Trade union activity

INTRODUCTION

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The use of ‘green’ labour in new industrial areas

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Toxic hazards from industrial processes

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Increased medical knowledge of the cause of certain diseases.

The insurance industry was prepared to write the business but found themselves too often,in situations where they were faced with retroactive liabilities,following statutory intervention.In other words,the funding of claims from liabilities never envisaged, when risks were written. This has caused the industry to consider its position and to increase rates steadily and sharply especially over the last few years.The object is at very least,to stabilise the business and to show a small modicum of profit if possible. At the end of this report,we shall consider whether EL with its long tail of disease risks, is properly insurable in the private sector at all. Before that, however, there are a number of other matters to be considered.

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The duties of an employer THE SAFE SYSTEM OF WORK PLANT TOOLS AND EQUIPMENT FELLOW EMPLOYEES EMPLOYERS’ RIGHTS AGAINST A NEGLIGENT EMPLOYEE THE PLACE OF WORK THE EMPLOYERS’ OWN NEGLIGENCE

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Chapter 1: The duties of an employer The duty of an employer towards his workers was expressed in Paris v Stepney Borough Council (1951) as being to take reasonable care for his servants’safety, in all the circumstances of the case.This duty is not an absolute one – the employer is not the insurer of his workers: he does not guarantee their safety nor does he guarantee payment of compensation in the event of a worker being killed,injured or contracting a disease.There is however a term implied in the contract of service, that the employer will exercise reasonable care,to protect his workers from harm. This generalised duty of reasonable care has in fact been broken down into component parts: 1

To devise, operate and maintain a safe system of work

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To provide adequate and safe plant, tools and equipment.

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To provide competent and suitable fellow workers, for the employer may be liable vicariously for their negligence. He may also be liable for his own negligence, if he fails to select suitable workers and because of that negligence an injury occurs.

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To provide a safe place of work and safe means of access and egress to that place of work.

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To exercise the necessary degree of care in his own actions.

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To observe properly all the relevant statutory duties.

The safe system of work In Wilson’s and Clyde Coal Company v English (1937),the House of Lords made it quite clear that an employer must exercise reasonable care in devising and operating, a safe system of work. It must be such as to show that, as a reasonable employer,he has had in mind the problems presented by the work,to his employees. The Court said in Wilsons case, that the devising and operation of such a system of work was personal to the employer, and could not be delegated to a senior person even where the employer was a limited company or other corporate body. It must be realised that this personal duty was so defined in Wilsons case, to overcome the doctrine of Common Employment.This provided a complete defence to the employer where one employee was injured by the negligence of another.

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Now, the Courts recognise that delegation must and does occur.The employer will be liable for the acts of the employee, to whom a duty has been delegated, on the basis of vicarious liability (discussed later). The doctrine of common employment was abolished in respect of personal injury claims,by the Law Reform (Personal Injuries)Act, 1948. In any event,the system of work may be regarded as the overall plan of the employer and will relate to general organisation and layout, the co ordination of the tasks of different departments, the consideration of work involving special risks and in these times, the reactions of his employees to situations involving stress. As far back as 1950, in Winter v Cardiff RDC, it was said consideration must be given as to whether adequate provision had been made for the carrying out of the task in hand or whether some special system was needed,to meet the special circumstances of the particular case. The employer must cater for the physical idiosyncrasies of each worker and have regard to the potentially disastrous consequences of an injury, on an already handicapped person – Paris v Stepney Borough Council,1951,where a one eyed man was rendered blind because of the failure to issue protective clothing. He must also have regard to the mental stresses and strains caused to his employers by the exigencies of the job – Walker v Blythe Valley Social Services. He must have the needs of the individual worker as to instruction and supervision but may take into account,the workers experience,in deciding he does not need warning of dangers – Haynes v Qualcast, 1959. He must be aware of the best practice in his industry,but he need not be a pioneer, Stokes v GKN, 1968.

Plant tools and equipment The employer has to provide whatever equipment is necessary for the work to be carried out – unless by trade custom the employee is responsible for providing his own hand tools – as does a carpenter. There is now a statutory duty as to equipment under the Employers Liability (Defective Equipment) Act, 1969, but this is considered separately. Employers have been held liable on occasion, if they have not provided equipment at all,but the more common allegation is that the equipment provided was inadequate or insufficient – Mackry v Stewarts and Lloyds,1964.An employer is not negligent if he delegates to an experienced employee the task of selecting

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equipment. If the employee selects wrong or not enough equipment the employer will not be liable – Johnson v Croggan & Co.,1954.The employer must provide equipment which is safe. He is not, at Common Law, strictly liable for defects not discoverable by reasonable examination.Davie v New Merton Board Mills, 1959.A mischief was highlighted by this case. If the manufacturer was not available to be sued then an injured employee would be left without a remedy – The Employers Liability (Defective Equipment) Act is, as we shall see, designed to remedy the position.The system of maintenance must be an efficient one – and in some instances, where there is great danger – routine checks may not be enough – Barkway v South Wales Transport, 1948. If the system is not carried out efficiently then the employer will be liable for the inefficiency and negligence of those employees who fail to carry out the system. As he does not have to be a pioneer,so the employer will not necessarily be liable for failing to have the latest forms of plant and equipment,but he may be required to show that in relation to old plant, the risk of injury has been weighed against the cost of replacement. If he fails to guard dangerous machinery properly and efficiently,he will be liable at Common Law in negligence;more usually the allegation is made under Statute. Where injury is caused by machinery breaking out of its guard and the risk is foreseeable then the employer will be liable, Hindle v Birtwistle,1897.

Fellow employees It is the duty of an employer to engage employees who are competent, and if he fails to do so,and one employee is injured as the result of the negligence of another, the employer will be liable to the injured worker vicariously for the negligence of the employee causing the injury.The employer will be liable even for the acts of collateral negligence of his employee provided that they arise out of and in the course of the employment. These acts may be:

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1

of commission: as where an employee negligently pilots an aircraft, injuring another employee, Smith v BEA., 1951.

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of omission: as where an employee dropping oil on the floor negligently omitted to clean it up.

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of a professional nature: if the negligent employee is a professional man, and either by an act or omission of a professional nature, an

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employee is injured then the employer will be liable for the professional man’s negligence, Stokes v G.K.N., 1968. 4

acts of horseplay: he will be liable for failing to control the conduct of employees where there is a course of horseplay or practical joking and an employee sustains injury, Hudson v Ridge Mfg Co., 1957. But where the act is an isolated piece of folly and there has been no course of conduct of a type to put the employer on his guard – for instance there might have been no injury or risk of injury – the employer will not be liable as the employee will be acting outside the scope of his employment,Smith v Crossley Bros,1951;Coddington v International Harvesters, 1969. The distinction between these two lines of authority is clear. In each case the employee causing the harm is acting outside the scope of his employment, but in the cases like Hudson’s, the employer is, or should have been, on warning because of previous conduct. He is liable for his negligence therefore in failing in his general duty as defined in Paris v Stepney B.C.

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acts of violence:equally an employer will be liable for acts of violence if he knows of a course of conduct, or if one employee has a record of violence,or a violent and ungovernable temper.There has been at least one County Court Judgment on violence, and it was of course established in Lloyd v Grace Smith, l911, that an employer could be liable for unlawful acts committed by an employee. There may however be circumstances where the employer is not liable for acts of dishonesty – he may still be liable for negligence in failure to supervise.

It is appreciated that an employer may be put in difficulty in engaging people with either known criminal records of violence,or mental conditions which might lead them to commit such acts.It is submitted,however,that the employer owes a distinct legal duty to his employees with no such proclivities.His duty to help in rehabilitation is a moral one and may still be discharged if proper warning or other such precautions are considered. It must be emphasised again that the employer in such a case is liable for failing to act upon the warning given by the course of conduct. The Rehabilitation of Offenders Act does enable certain convictions to become spent and not disclosed to an employer after the relevant period has passed. It is highly unlikely that convictions for violence would be spent convictions;the Employers Liability arises because of knowledge of the propensity to violence. In respect of the single isolated act the employer will again have the defence that the employee was acting outside the scope of his employment.

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Employers’ rights against a negligent employee The old case of Hamer v Cornelius, 1858, confirmed the ancient Common Law principle that an employer through the legal maxim respondeat superior, has a right to recover from the negligent employee any damages he has paid through that negligence. This was affirmed in Lister v Romford Ice Co., 1957, where the driver of a lorry injured his father who worked for the same employer.The employers claimed against the son and succeeded.The dispute, in truth, was one between EL and motor insurers who gave a personal indemnity to the driver.This case and the somewhat later case of Semtex v Gladstone,emphasised the fact that the employee could be made personally liable for the damages awarded consequent upon his negligence. Representations were made by Trade Unions and others to the Government of the day, that legislation be introduced. However, the industry ‘voluntarily’ agreed to introduce a market agreement and by its terms,EL insurers agree they will not, save in cases of fraud or collusion,proceed against a negligent employee to recover monies paid as the result of his negligence.A reference will be made to the ABI in any case,not solely limited to EL cases,where they are considering taking steps which would expose an employee to the risk of being held personally liable. The agreement does not: 1

Prevent an injured person commencing proceedings, against both his employer and a negligent fellow employee.

2

Constitute an undertaking to provide a personal indemnity to the negligent employee. In practice the area where most disputes arose – EL and Motor policies – now ease the situation by providing a personal indemnity to employees at the request of the employer.

The Third Non-Motor Directive of the EU has made it compulsory for the risk of employees being injured as the result of the use of a motor vehicle in circumstances where compulsory motor insurance is necessary, to be a motor rather than an EL risk. The Employers Liability (Compulsory Insurance) Exemption Amendment Regulations 1994,required claims by employees to be treated as motor claims and are mirror-imaged by the Motor Vehicles (Compulsory Insurance) Regulations 1992. The regulations were poorly drafted and it was at first considered that even driver injury would need to be treated as a motor claim. However, the High Court has decided otherwise and the position now appears to be clear.

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Where vehicles are being used in circumstances where compulsory motor insurance is not required, then such claims revert to being EL claims. The question of the employees liability to his employer does not stop there. In Morris v Ford Motor Co, a claim for indemnity from a negligent employee failed for technical reasons.Denning M R said the principle was outdated and required regulations or legislation.None was passed and in Janata Bank v Ali,1983,a bank successfully sued a manager who negligently made some loans,clearly indicating the principle was still in force.In the Gooda Walker case,underwriters were held to be negligent and their employers liable to compensate Lloyds names. If the Janata case were to be applied,then the managing agents clearly have a case against the underwriters. There have been a number of cases,where allegedly firms of solicitors employing young newly qualified lawyers,sued them for negligence personally,where mistakes have been made and the firm has been liable vicariously.The personal liability is in fact covered by the Solicitors Indemnity Fund which provides compulsory first layer insurance for all solicitors.

The place of work The employer has a duty to take reasonable care that the place where his employees are to work, is safe and he must also provide safe means of access and egress. There is a statutory duty in respect of this obligation, which to some extent has overtaken the duty at Common Law – this will be considered in the next chapter. If there are defects and they are known,or ought to be known,then the employer must take remedial action. If he fails to do so, he will be liable. If, however, as in Latimer v AEC, 1953, the view he takes is that it is not necessary to stop work, he will not necessarily be liable. It is a question of fact in each case. The same considerations apply with plant and machinery – where necessary they must be guarded.There must be an adequate system of maintenance and inspection. As we have already seen, where parts of machinery break out and this is a foreseeable danger, the employer may be liable. Because the employee is working on someone else’s premises,the employers duty does not end. He does not, however, have to carry out a detailed inspection of every premises on which the employee is to work, if the work is not unduly hazardous and not being carried out in a hazardous place, Cilia v H.M. James & Sons, 1954.

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If no inspection is necessary, then another system to deal with danger may be needed, as in General Cleaning Contractors v Christmas, 1953. If there is an element of risk, then a prudent employer will visit the Third Party premises, to try and ensure the safety of his employees. McDowell v FMC, 1968.Where the occupier has a special skill and judgement the employer may rely upon this, Szumckk v Associated Tunnelling. Arrangements must be made for adequate equipment to be available on the Third Party premises.The employee must not be left to forage whilst working away,nor indeed on the employer’s own premises. In recent times the question of passive smoking has been raised.Whilst the question of causation of ill health has not been decided authoritatively,employers are wise to have a proper policy relating to smoking – especially if complaints are made. There have been a small number of cases where a settlement has been reached by employers where employees have suffered chest or lung disease allegedly as a result of being in a smoky atmosphere alleged to be an unsafe place of work. Employers and their insurers are unwise to concede such cases at present.Passive smoking is not yet a clinically proven cause of respiratory troubles – more research is being undertaken.

The employers’ own negligence An employer must not, by his own conduct injure an employee. Whilst, in the main, such a duty can be applicable only to a private individual, or a partnership as employers, the concept of corporate negligence which has been canvassed widely in relation to some of the recent disaster cases,in the criminal sense,may have some application in civil law.However,because a corporate body can ordinarily act only through employees, or agents, a plaintiff is probably still best advised to rely upon vicarious liability.

Statutory obligations Various duties have been imposed upon employers through statutes,regulations and codes of conduct. Not all of these obligations impose a civil duty upon the employer,and a breach may not,of itself,give a right of action.However,an employer has the duty of carrying out these obligations, and thus to comply with their requirements as to safety.

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The statutory duties of an employer T H E F A C T O R I E S A C T, 1 9 6 1 EMPLOYERS LIABILITY (DEFECTIVE EQUIPMENT) ACT OTHER SAFETY PROVISIONS PRESENT POSITION R E G U L AT I O N S U N D E R H S W A C T C O N T R O L O F S U B S T A N C E S ( H A Z A R D O U S T O H E A LT H ) R E G U L AT I O N S , 1 9 8 8 EUROPEAN UNION LAW

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Chapter 2: The statutory duties of an employer The philosophy behind Industrial Safety in the UK,for many years,was to set out a framework of law,by primary legislation and regulations made thereunder.These laid down things employers could or could not do and enforced the prohibitions by criminal penalties. However, employees were, in most cases of such legislation, given civil rights of action.We have already seen that employees were given certain rights of action at Common Law, but in addition, were also given rights in respect of breaches of statutory duty. However,in 1974,this type of approach was changed extensively and a new general act, the Health and Safety at Work Act, was introduced. It laid down broad general duties applicable to all places of work. Unlike previous provisions, the Act was not restricted to particular trades, or industries like the Coal Mines Act, nor to particular types of workplace (the Factories Act), but the broad brush approach envisaged the making of special regulations,applicable to particular classes of work. However, unlike the Factories Act, 1961, the Health and Safety at Work Act, 1974, does not provide a right of civil action in respect of injury to employees.However, breach of any duty contained in health and safety regulations made under the HSWA will give rise to civil liability, unless the regulations state otherwise.

The Factories Act, 1961 The Factories Act, 1961, was a consolidating and revising act to bring up to date the Factories Act, 1937, and incorporate certain new provisions. Many of its provisions have already been repealed and those that remain will be withdrawn over a fairly short period being replaced by certain regulations mentioned below. There was much litigation over the meaning of various of the sections of the Act, and decisions of the Courts in many instances, clarified the wording.Thus: Frost v John Summers & Co.,1955,held even though a grinding wheel had necessarily a part exposed,it was still a dangerous part,even though it was the grinding edge and could not be guarded satisfactorily.Davies v Thomas Owen,l919,had already held that if to guard the machine efficiently made it commercially valueless was irrelevant and an employer used it at his own risk.A machine which moved, was not necessarily in motion or use as when an uncovenanted stroke occurs, the

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motion was being the ordinary working behaviour of the machine. So far as obstructions are concerned,in Levesley v Thomas Firth and John Brown,1953, it was held an employer was not liable for a transient obstruction.

Employers Liability (Defective Equipment) Act This Act was passed into law to amend the position in cases similar to Davie v New Merton Board Mills, 1959 (see Chapter 1). The main provisions of the Act are: 1

Where an employee is injured as a result of a defect in equipment provided by the employer, the employer is liable if such defect is attributable to the fault of a Third Party.

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Such liability is without prejudice to the employer’s right to take proceedings against any person he considers responsible for the defect.

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If such Third Party cannot be identified then the employer is liable to compensate the employee – previously of course,he would escape under the rule in Davie’s case.

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Equipment includes any plant and machinery vehicle, aircraft and clothing, so that the term is very wide in scope.

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It applies only where there is a contract of service – a contract for services is not sufficient.

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The defence of contributory negligence can still be used.

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It is not clear whether the Act applies to latent defects – the better opinion seems to infer that it does not but there is a dearth of authority at the moment.

It is of great importance in relation to those cases where a manufacturer cannot be identified and an employer would otherwise have a complete defence.However, in some respects, there will be overlap and possible redundancy of the Act, in part as a result of the Provision and Use of Work Equipment Regulations, 1992, which came into full effect from 1 January 1997 or 1 January 1993 in relation to equipment used for the first time. The general aim of the regulations is to protect workers against dangerous parts of machinery.

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Other safety provisions Specialist trades and industries, had their own statutes;The Mines and Quarries Act,Offices Shops and Railway Premises Act are two examples,or in the alternative, detailed regulations in respect of particular activities, like the Construction Regulations.Again where processes were dangerous, regulations were made as the Asbestos Regulations or the Electricity Regulations.All of these gave civil rights to workers, injured, in circumstances where they applied.

Present position The H.S.W.Act as already indicated, is a general act allowing the issue of specific regulations and Codes of Practice. Codes of Practice and their related documents, guidance notes, are issued or approved by the Health and Safety Executive.They are not statutory standards. They explain what is in the view of the regulator ‘reasonably practicable’.If there is a failure to observe the Code however, there is a presumption of the breach of a statutory duty. That presumption applies only in relation to criminal proceedings. In civil cases, evidence can be given of the existence of the Code of Practice and the breach of its provisions.

Regulations under HSW Act As already seen, breach of such regulations can bring a civil right of action. It is the intention to bring about simplification and modernisation, of the statutory provisions relating to health and safety at work. Modernisation is certainly long overdue since certain provisions have been little changed for many years.Therefore some 400 acts of regulations and seven pieces of primary legislation will be repealed and replaced by regulations made under HSWA. It is intended that the Health & Safety at Work provisions of the HSW Act will be substituted by the so called Six Pack Regulations.Most of these in fact come from Directives of the EU.

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These changes are to be phased in gradually.Whilst some sections of the Factories Act have already been repealed and substituted by regulation, in some instances the regulations did not take effect until 1997: Thus, Sections 12-19 of the Factories Act, 1961, deal with the fencing of machinery.They have been the subject of much litigation,which has brought a degree of clarity and certainty into this area of the law.The sections remained in force until 1 January 1997 (except in respect of equipment used for the first time from 1 January 1993 when the new law applied).This new law is the Provision and Use of Work Equipment Regulations,1992.The purpose of these regulations is to protect workers against dangerous parts of machinery. Unlike previous fencing and guarding provisions, these regulations apply to all workplaces, all employees including self employed persons,and members of the public using work equipment in public places, and to all activities including work equipment. Thus, the Workplace(Health Safety and Welfare) Regulations 1992,apply to most workplaces which must have conformed to certain minimum standards, by 1 January 1996 in respect of maintenance, objects falling on the head, safety underfoot, and various other circumstances relating to the safety of the workplace. Until such time as the regulations became completely operational, relevant provisions of the Factories Act, 1961 like Sections 28/29 relating to the safety – so far as reasonably practicable – of the workplace remained in force. These regulations will be enforced by HSW inspectors,who will by enforcement notices, prohibitions and prosecutions, seek to ensure compliance. As already indicated, the civil law in relation to the Factories Act, 1961, has been explored in depth over a lengthy period.It has to be assumed that as with all new legislative provisions,some Court decisions will be necessary to establish the interpretation of the provisions and the extent of the duties.

Control of Substances (Hazardous to Health) Regulations, 1988 These regulations were made under HSW as almost a reversal of the previous safety policy which was to seek control,by regulation after a hazard had manifested itself.The new regulations and regime ought to reduce the potential danger by regulations including codes of practice,which required employers to assess health risks to workers and implement preventive strategies.

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A whole series of regulations dealing with dangerous substances of various sorts, has been made.These substances include some which are new and others where the risks have been known for many years – asbestos for example.

European Union law It is one of the obligations of the United Kingdom under its treaty obligations, to the European Union, to implement European Directives, a number of which have been concerned with Health and Safety at Work. At one stage of its development, it was necessary for directives to be accepted by all members, but changes in voting procedures have meant the introduction of a system of Qualified Majority Voting. It is important to remember that if there is a conflict between EU law, and the national law of the UK, then EU law prevails even if the local law is later in time, R v Secretary of State for Transport, 1990. Directives as to Health and Safety, are the source of a great deal of UK law on these subjects. By Article 189 of the Treaty of Rome, such directives are binding on member states, although they can choose how they are to be given effect. Usually in the UK they are given effect by Statutory Instrument, in the form of regulations, although from time to time, primary legislation in the shape of an Act of Parliament may be deemed necessary. The most important directives are key ones which really lay down a framework of controls, rather like primary legislation in the UK and then further directives can be annexed to these in the same way that statutes are put into operation by detailed regulations. Most changes in the law relating to health and safety in the workplace, are now the result of EU directives – examples relate to noise, the transport of dangerous goods and many others. The policy of the Health and Safety Commission is to have minimum change to the framework set up by the 1974 Act.The directives however,give opportunities to update our law, in the fields of health and safety and fall in with the declared policy of the Commission, to relate controls to the nature and extent of the risk. Allied to this is the policy of the Commission, to revoke outdated legislation and that of Government, to deregulate wherever possible, having regard to the overriding requirement of safety.

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Whilst we are likely to be affected by future directives, because of the principle of Qualified Majority Voting, the national veto cannot be used on matters of this sort. Designed to harmonise working conditions, it has to be remembered that in some fields of industrial legislation, we were in advance of our Continental neighbours.

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Industrial diseases and the causes THE INDUSTRIES AND CHEST AND LUNG DISEASES THE OLD SCHEDULED DISEASES C A N C E R S – T H E I R C A U S AT I O N I N I N D U S T RY THE NEWER DISEASES C L A I M S F O R P S Y C H I AT R I C I N J U RY DEAFNESS V I B R AT I O N W H I T E F I N G E R ( V W F ) REPETITIVE STRAIN INJURY (RSI) PA S S I V E S M O K I N G THE CURRENT POSITION

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Chapter 3: Industrial diseases and the causes Although as noted,from an insurance,and indeed a legal,point of view the subject of industrial disease is sometimes regarded as new,this is a misconception as some of the diseases of industry which still befall workers in particular occupations, were known to doctors and the scientists of antiquity.Lead and mercury poisoning were both known to and described in detail by Roman physicians. To start at the beginning however, it is necessary to be reminded that there are two basic types of industrial disease.There are those which develop in the short term. Quite quickly, usually after some exposure which can be traced possibly to a particular incident or change in procedure, some cases of industrial disease may arise. Diseases such as these,the causes of which can be traced,normally,fairly readily, to one source, again happily and usually do not leave severe residual effects, and can be handled in the same way as any other Employers’Liability claim involving traumatic injury. The problems of industrial disease claims arise from the very nature of the slow and insidiously developing physical conditions,which are caused by some industrial exposures. Why therefore with a subject so old are industrial diseases now causing problems for insurers and lawyers.To answer this and other like questions it is necessary to consider the history of industrial disease claims in the United Kingdom. Prior to 1948,compensation for injury or disease caused as the result of occupation was covered by the Workmens Compensation Acts.As well as providing payment of weekly benefit for injury arising out of, and in the course of, the employment, a number of diseases identified as being caused in industry were scheduled – listed in the Acts – and a sufferer from a scheduled disease was entitled to be compensated in the same way as the victim of a traumatic injury. In 1948,Workmens Compensation as a system was abolished and replaced by a comprehensive system of Social Security benefits which included industrial injuries benefit. Like its predecessor, this provided payment not only to the victims of traumatic injury, but also to those who suffered from a scheduled disease – the disease schedule having been adapted from previous legislation. It was confidently assumed that the advent of the welfare state would mean that claims for compensation at Common Law would become few and far between.

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It had always been open to employees to elect to sue their employers at common law for compensation because of injury, and if they so elected, their entitlement to weekly workmens compensation payment ceased. Claims at common law for industrial disease were very rare,except for some diseases like dermatitis,which in general terms does not take a long time to develop and manifest itself. The reason for this absence of industrial disease claims was to be found in the law of limitation.The problems of this branch of the law and the way in which they were overcome are discussed later in this report.The increased incidence of claims to insurers has been caused in part by the changes in limitation legislation, and also, more sophisticated means of diagnosis available to the medical profession, has given rise to a more positive identification of a condition which is giving rise to symptoms.Thus in Victorian times, many people were said to be suffering from what was then called galloping consumption and there is no doubt, but at the present time,such cases would be identified as cancer of the lung.Equally, the more sophisticated means of diagnosis referred to above and areas of research into industrial disease, have meant that some conditions which were regarded as possibly reversible,particularly industrial deafness,now are recognised as causing permanent damage.

The industries and chest and lung diseases The first wave of diseases really to cause concern to employers and insurers,because of the new limitation situation, were the chest and lung diseases principally pneumoconiosis and asbestosis. The first was in some respects a generic term used to describe silicosis and other diseases, caused by exposure to silica and other mineral dust. The industries concerned were principally mining, quarrying, and the potteries. Asbestosis was to be found in many trades and industries,wherever asbestos dust was discovered,because that dust really consisted of small asbestos fibres,which lodged in and injured the lungs. Insurers tried after the ending of Workmens Compensation to exclude chest and lung diseases caused by dust, unless additional premium was paid. Unhappily, the wording used in the endorsement was too specific, in that it referred specifically to diseases involving fibrosis of the lung. Byssinosis claims started to arise in the early 1970’s from the cotton industry. It was caused by cotton dust or the impurities therein. It did not cause fibrosis of the lung,being vegetable dust,unlike the other causative agents already discussed. The endorsement wording, therefore, did not exclude these claims which have caused insurers a very high expenditure.

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The old scheduled diseases The diseases scheduled first in the Workmens Compensation Acts and then in the Factories Act, arose from the older industries. Mining, quarrying, pottery making, and agriculture were among these.The diseases included as already indicated,chest and lung diseases, and such conditions as miners nystagmus – an affection of the eyes.These older industries are no longer of the prime importance they used to be, and the numbers employed have reduced enormously. However, despite the decline of the industries, disease claims continue to arise because of exposures sometimes many years before, and as will be discussed in a later section,the employers liability policy wording gives an indemnity in respect of disease ‘caused during’the currency of the policy,even if that ‘caused’was many years before and the policy is now cancelled.

Cancers – their causation in industry The Office of Health and Safety (OHSA) in the United States,made the statement some years ago that 40% of cancers in US, were caused by industrial exposures. That figure has since been revised and certainly experience in UK,does not appear to support anything like that percentage. However, even the scheduled diseases in the Workmens Compensation Acts recognised epithelioma of the scrotum – a malignant condition caused by contact with cutting oil – principally in cotton spinning. Medical research has certainly identified some industrial exposures as being the cause of some specified cancers. Certain anti oxidants were identified in the 1930’s and 1940’s as being the cause of cancer of the bladder in rubber workers. In the cases of Cassidy and Wright v Dunlop and ICI, 1968, the manufacturers, ICI, were in fact held responsible rather than the employers, who were held only minimally responsible. In the late 1950’s a research programme identified a particular type of cancer, mesothelioma,as being related to asbestos.It is now accepted that this particular cancer is caused only rarely, without contact with asbestos. The period from exposure to presentation can be as long as 40 years and whilst the use of asbestos, especially the more virulent blue asbestos has declined,the claims for mesothelioma now being received, are in respect of the period when the substance was in common use. There is no doubt that research will identify other cancers linked specifically to industry.The cost of each such claim is very heavy.

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The newer diseases Whilst many industrial diseases are of great age, some arise in unusual and novel circumstances.Others can be regarded as modern diseases,in the sense that they are now concerning lawyers and medical practitioners whereas they have never before been the subject of claims.Stress is a fashionable word – as is counselling. It has been said for many years that there will be a wave of claims for stress related conditions.This has already been experienced in US. However,stress and anxiety can arise from many causes not all employment related. Home life,monetary or health worries,marital troubles can all cause stress which cannot be supported by a particular claimant.

Claims for psychiatric injury Claims for psychiatric injury are by no means new in injuries law.It was established that where shock affects an injured person following an injury and hampers or indeed prevents his recovery, there is an entitlement to damages if the evidence shows that the shock and/or supervening condition can be directly related to the injury. In other words what has to be proven as the injury and the causation. This is comparatively simple and it is where no direct physical injury at all has taken place and shock caused incapacity that there has been debate upon the circumstances in which damages may be recovered.The first of the well known cases is that of Dulieu v White,1901,when a women in a public house was shocked when a horse and cart was driven through a room where she was drinking. She was pregnant and miscarried and she recovered damages because it was said of fear for her own safety.In Bourhill v Young,1943 this rule was followed and because there was no physical proximity between plaintiff and defendant and no likelihood of physical injury,the claim failed;this was followed in King v Phillips, 1953 where a woman saw a motor vehicle slowly reverse into her sons tricycle which he was riding at the time. A different view was taken in the case of Hambrook v Stokes Brothers, 1925, when a mother was shocked by the news that her child had been killed in an accident having seen the vehicle running away.The child was in fact not involved but the claim succeeded, the Court of Appeal applying a limitation to people in the vicinity of the accident and thus in the contemplation of the wrong doer. In Owens v Liverpool CC, 1939, a tram car collided with a hearse and the coffin was thrown from the vehicle causing shock to the mourners. Damages were recovered although there was no likelihood of physical injury to the mourners.

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It is likely that the circumstances of the accident influenced the judgement of the Court. In Schneider v Eisovitch,1960,a woman injured in an accident was shocked further when news of her husbands death was broken to her. She recovered damages for that shock but the case was overlooked by insurers until McLoughlin v O’Brian, 1983, when the plaintiffs husband and children were involved in a car accident and one of the plaintiffs children was killed,the others being injured.The plaintiff was informed that an accident had occurred and saw her family and the extent of the injuries, as a result of which she suffered psychiatric injury. In this case, the suggestion was made that recovery would ordinarily be allowed in respect of injury to close members of the family but not to ordinary by-standers. But in a rescue case it seems likely that damages may be recovered by somebody who suffers shock as a result of his activities. The case of Dooley v Cammell Laird, 1951 is important because a crane driver was shocked and developed what was then called neurasthenia when his crane failed and a load descended into the hold of a ship. He was not injured nor were any members of the gang in the hold, although the crane driver thought people might have been. He recovered damages because he was unable to work. The rules appear to be that there must be some recognisable psychiatric illness and it is not sufficient merely to refer to post traumatic stress disorder.In the case of Alcock v CC of South Yorkshire, 1992, the House of Lords said there must be a relationship or proximity between the plaintiff and defendant and indicated that the category of plaintiffs eligible to claim, was based upon ties of love and affection and where it could be demonstrated that the love and affection for the victim is comparable to that of normal parent,spouse or child,then damages would be recoverable, even if the relationship was a more remote one. However, in McFarlane v EE Caledonia, 1994, it was held that a bystander to a horrific accident could not recover damages where the ties of love and affection mentioned in the above case were not present. These cases have been those where there has been a single event which brought about the condition. Claims for stress in industry arise, like any other industrial disease over a long period of time,as in the case of Walker v Blythe Valley Social Services, 1994, where the employers were found liable for stress where extra support was not provided for a worker with psychological problems which were known to them. In the case of Page v Smith, 1995, the House of Lords upheld the rule that if the risk of injury is foreseeable then it does not matter whether the injury is physical or psychological. If the person suffering the psychological injury was the victim

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of the accident and was not merely indirectly involved,he is entitled to damages. Other considerations might apply if he were not the direct victim of the accident – this is merely applying the rule in Dooley v Cammel Laird (as above). There does seem to be some brake being applied by the House of Lords in cases of claims for mental distress,PTSD and stress generally.The House of Lords decided in the case of Frost & Others v CC of South Yorkshire, 1998 that police officers not exposed in areas of physical risk could not recover from their employers for negligence causing them psychiatric damage.The House of Lords held that public servants such as the police, by the very nature of their employment should be able to cope with the stress and the strain.This rather more rigorous approach has helped employers who could have been faced with substantial claims in circumstances where fellow employees had witnessed unpleasant accidents or the like. Damages in these cases can be extremely substantial as in the case of Vernon v Bosley, 1995, where a parent recovered the sum in the court of first instance of £1.1M damages. His children were in a car which plunged into the river. He and his wife saw the recovery of the car containing the children and it was alleged that he developed PTSD and pathological grief.He became a recluse,lost his business and his marriage broke up, but all this took place over a long period of time and three other children of the marriage were conceived during this period.The Court of Appeal reduced the sum to £700,000 saying that whilst grief is not ordinarily compensated the Court would not be too astute to separate mental conditions of shock or grief if the event had bought both about. But that was not the end of the matter,the case went back to the Court of Appeal because the medical ‘experts’gave evidence in separate matrimonial proceedings, and said there had been a substantial recovery.In the Court of Appeal it was made clear that the duty of Counsel was to ensure that such evidence came before the court even if the client were unwilling for this to be done.The damages were further reduced. Claims for mental distress, PTSD and stress generally will increase. Fortunately there does now appear to be some brake being put upon the proceedings by the highest court in the land.However,it becomes a matter of routine for a claim for mental stress or disturbance of some sort,to be tacked on to a claim for physical injury and this is bound to continue because solicitors must have regard to their position in professional negligence. Such cases must be examined rigorously and the surrounding circumstances also investigated lest evidence such as that in the case of Vernon v Bosley (above) be unveiled.

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Deafness Industrial deafness was first mentioned in the mid l9th century in relation to shipyard workers. Reports by the Chief Inspector of Factories referred to the condition on a number of occasions. It was not,however until after the Robinson report of 1963 which briefly identified industry as being a cause of deafness, that claims started to arise – the report did coincide with the change in limitation law.The numbers of claims made has been enormous,because unlike other diseases of industry,deafness covered the whole spectrum of occupations. The Code of Practice promulgated by the Health and Safety Executive set certain sound limits, noise in excess of those limits being prima facie evidence of fault on the part of the employer.

Vibration White Finger (VWF) This condition is more cosmetic than disabling and involves blanching of the fingers. Whilst it has been suggested that because it is a circulatory condition it might lead to gangrene, no such cases have been identified medically. The condition is caused by the use of vibratory tools and the risk groups were thought to be limited.However,many more cases than were first anticipated have arisen. For example, a multi party action, funded by Legal Aid is in existence. Indeed a very large group of miners has now succeeded in recovering substantial compensation in respect of the condition. It is likely that the publicity resulting from such claims will in fact cause more claims to arise.

Repetitive Strain Injury (RSI) Much publicity was generated in 1994 when Judge Prosser made the remark that there was no such condition as RSI.What he meant, was that yet again, a generic term was being used to describe a number of conditions.There have been many cases involving RSI heard in the Courts.Whilst some have resulted in substantial payments to claimants, defendant employers have been successful in an equal number.

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Thus, whilst some poultry workers have succeeded because of the twisting movement used in eviscerating poultry,typists and other keyboard operators have failed in cases they have brought so far.

Passive smoking Two cases have resulted in settlement, where the claimants alleged a bronchial condition was caused by the cigarette smoking of fellow workers.The evidence is to say the least tenuous – if claims are made in volume,insurers will face substantial problems.

The current position The current list of prescribed occupational diseases is contained in the Social Security (Industrial Injuries) (Prescribed Diseases) Regulations 1985 and various amending regulations thereunder. Diseases in the schedule are classified as to cause: •

Conditions due to physical agents

•

Conditions due to biological agents

•

Conditions due to chemical agents

•

Miscellaneous conditions.

Whether a person is subject to a disease is a matter for medical diagnosis.The fact that a disease is not contained in the schedule does not mean that it was not caused by the patients’work.It can still be proved,possibly,that it was so contracted. The list is not exclusive.

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The investigation of disease claims SHORT TERM DISEASES LONG TERM DISEASES KNOWLEDGE WARNING PRECAUTIONS S TA N D A R D S O F C A R E D I F F I C U LT I E S I N D E F E N C E M E D I C A L I N V E S T I G AT I O N CARTLEDGE V JOPLING, 1962 CONCLUSION

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Chapter 4: The investigation of disease claims The investigation of industrial disease claims has problems peculiar to this type of claim.In the previous chapter,the question of the length of time involved between contraction of and presentation as, a case of industrial disease was discussed.

Short term diseases The problems already discussed do not arise in connection with what can be regarded as short term diseases.Among these can be listed: •

Dermatitis – a condition of the skin caused by exposure to various toxic substances which bring about sensitisation.

•

Chrome ulceration – a condition caused by exposure to chrome.

With diseases of these types, exposure can take place over a long period but it is usually found that with cutting oil for instances – a frequent cause of dermatitis – a change of manufacturer or of the formulation has taken place and this is causative of the condition. Again with dermatitis,there is also found a part of the male menopausal symptom, where men in middle age tend to have skin changes which make them more prone to sensitisation.However,that of itself does not necessarily help a defendant because of the principle that a plaintiff must be taken as he is, Paris v Stepney Borough Council, 1951: Page v Smith, 1995.

Long term diseases The questions which arise in relation to the insidious diseases which take a very long time to manifest themselves are different.The question of liability – as distinct from medical causation, depends really upon three cardinal principles.

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Warning

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Knowledge We have already seen that many diseases have been known for a very long time. Some of the harmful properties of asbestos were known to the Romans and lead poisoning as a disease was described by Pliny. That being so,it becomes difficult in the extreme to argue that exposure to particular substances,was not a foreseeable cause of disease.Unhappily,detailed investigation into the causes of most industrial diseases, shows the disease as being known, although possibly arising in novel circumstances.Thus,when bladder cancer was found to occur often in workers in the rubber industry,investigation showed the cause to be some constituents of an anti oxidant, alpha and beta napthalamine. The substances were barred in 1948, but it became clear that the risks had first come to light in the 1930’s. Probably,the only true new disease,is angio sarcoma of the liver,which has been linked specifically to exposure of the fumes of PVC. Whilst the standard of knowledge of a large employer is regarded in law, as necessarily being greater than that of the small employer, in many cases, the knowledge was actually in the public domain.

Warning Once an employer knows,or indeed ought to have known,of the risk of a particular disease being caused by working conditions, he is under an obligation to warn his employees of the risks involved. In Stokes v GKN,1968,a works doctor of vast experience,considered panic might ensue if a warning of the risk of cancer of the scrotum were given to the work force at a particular plant. It was held this was a wrong decision, warning should have been given. Indeed, the then Ministry of Labour produced a pamphlet for general issue where exposure to the risk from cutting oil was involved. If warning is given, then employees can decide whether they wish to continue to run a risk of exposure to substances, with which they may have come into contact.Warning in itself is seldom sufficient action for an employer to take.

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Precautions Knowing of a risk and having given his warning, the employer must take steps to protect his employees.If precautions cannot be taken,without ceasing to operate the offending process, then the employer continues to operate at his own risk, and that of his luckless employees, Davis v Thos. Owen and Co., 1918. The ideal is to remove the risk altogether.One problem to manifest itself has been that a substitution process can give risk to its own risk, although sometimes a risk of different degree.The ideal is,however,often difficult to achieve.Therefore, the next stage is to take steps to remove the operator from the risk.Thus,in plants using radio active materials, the risk and worker are completely isolated. If complete isolation is impossible then so far as practicable the risk and the employee should be separated.Steps may be taken to reduce the risk:to take the first stages of reduction can usually be achieved at reasonable cost.Thus, a noise risk may be reduced to 90 dba in most cases fairly readily, and thus, compliance with the Code of Practice achieved. However, the next step to get below 85 dba can be costly, and to get down to 80 dba prohibitively expensive. The final step,when all else has failed,should be to provide proper and adequate protective clothing.The best practice must always be to remove or minimise a risk: unfortunately because it is the cheapest and easiest method, it is the one chosen by many employers. Protective clothing may be required in addition to any other steps which are taken to remove or lessen risk. If protective clothing is provided, in one respect an employer is overtly admitting the existence of a risk.The protective clothing must be suitable and effective for the risk involved. The employer must have an effective system to ensure the use of the equipment and a disciplinary system in respect of failure.The employer may be liable for failure to enforce the system. By statutory instrument,Personal Protective Equipment at Work Regulations,1992, a statutory duty in relation to the supply of personal protective equipment (PPE) was created. Employers,and self employed persons,must formally assess provision and suitability of PPE. Inter alia, such equipment must be provided to employees exposed to health and safety risks at work except where the risk has been adequately controlled by other equally or more effective means. He must ensure its proper use. Employees must use such equipment in accordance with training and instructions and paraphrasing take care of it. Further regulations, the Personal Protective Equipment (EC) Directive Regulations, 1992 as amended require most types of PPE, other than very basic items, to satisfy special certification procedures and pass EU types of examination before being put into circulation. It is not yet

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compulsory for certification as a condition of sale – however,the British Standard Institution has adopted a British version of a common European standard.Employers who fail to provide suitable PPE commit a criminal offence.There is also a civil liability for breach if as the result of failing to supply PPE and injury or disease which is foreseeable occurs,the employer will be liable.Conversely,if the employee fails to use PPE after proper training and instruction, he will be in breach of his statutory duty and lose at least part of his damages.

Standards of care The standards of care to be observed, are those of reasonable care at Common Law, and in accord with statutory requirements in accordance with the level of knowledge at the time.The level of knowledge is that prevailing in industry and medicine at the time.The employer as already indicated must act in accordance with the standards and practices prevailing in the industry at the time. He does not necessarily have to follow the best practices – he does not have to be a pioneer. A difficulty arises in considering at the time: is it the time of causation; is it the time of presentation as a case of disease,is it the whole time of exposure,as over the lengthy period involved in most insidious disease cases,knowledge and practice will change. The situation was clarified somewhat by the case of Bryce v Swan Hunter Group, 1987, where a painter employed in ship building over a long period, contracted mesothelioma. Whilst it was held there was liability under the Asbestos Regulations,there was no liability at Common Law since at the time of first exposure, 1947,prevention of all exposure to asbestos dust was not reasonably practicable. Because it is difficult medically to say whether early,middle or late years of exposure are the most important in causative terms, insurers agreed to treat all periods of exposure as equally relevant, to assist in the handling of disease cases generally (see Chapter 8).

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Difficulties in defence Because with most cases of disease, employers do not have a complete medical and social history of their employee, it is difficult to defend a case, where an employee seemingly in good health at the commencement of his employment, with exposure to noxious conditions and no other cause readily apparent,presents as a case of industrial disease scheduled and known in the industry. As we have already seen, if an employer has been in possession of knowledge of the disease, then it is necessary to establish that he has taken the necessary precautions, to protect his employees – and the best precaution is to withdraw the employee from proximity of the hazard if that be possible, and to give the necessary warnings.So very often,it is found that after very detailed investigation, the employer will fall down in relation to some aspect of either one or the other heads of defence.It is fair to say that in the vast majority of industrial disease cases, which have been tried in this country,in the last fifteen years,that the successful defences have been where the causation has been shown not to be industrial exposure at all.Whether the exposure has been industrial or environmental becomes extremely important, particularly when looking at cases of industrial deafness. Now that the issue of protective clothing has become more general,it is extremely important to determine that the protective clothing has been issued and more importantly has been worn by the employee. He may himself be in breach of his duties under the Health & Safety at Work Act and thus guilty of contributory negligence.It is extremely unlikely that in such a case a defence of volenti would be successful. It is highly likely that in years to come,we shall find that a large part of the working population suffers more or less from impairment of hearing,caused by exposure to the loud levels of noise now generated by pop music in discos and similar establishments.Tests have shown that the level of sound emanating from such groups can sometimes be as high as 130 dba. Having regard to the fact that the recognised standard in the Code of Practice for exposure in industry is 90 dba for eight hours,and each five dba doubles the intensity of noise,it can be appreciated that those who do expose themselves to loud levels of noise at pop concerts, are subjecting their hearing to an insult in one or more aspects of the meaning of the word.

Medical investigation It becomes of extreme importance therefore to establish the medical evidence properly.The medical evidence normally,will consist of a specialist in a particular

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field who has made a special study of the disease which is the subject of review. It has never been the object of insurance to deprive a claimant of a legitimate entitlement to damages. On the other hand for the sake of the particular policyholder, industry at large, and policyholders generally, insurers do have to be satisfied that there is indeed liability resting upon their insured in relation to the particular case under review. Because if medical evidence is to be produced in Court, it has to be given to the other side,it is important that the correct specialist be chosen to examine a claimant – or in the case of a fatal claim, to review what medical and other evidence as to exposure and lifestyle is available. It has to be borne in mind that the claimant’s advisers,of necessity,know when a medical examination of their client has taken place. If they do not receive a copy of the report, it can be assumed to be unfavourable and there is then the risk,that the medical expert will be sub poenaed by the plaintiff.This becomes even more important with the restrictions of expert evidence which are being advocated by the Woolf Report. To avoid that happening,it is often sensible to ask an expert,in the field,to review what medical evidence has been submitted by the claimant with the Statement of Claim, as now required in proceedings cases, or in cases being discussed.This at least keeps enquiries within the defendants control.The claimant will already have had the opportunity of shopping around for a favourable report.

Cartledge v Jopling, 1962 This very important case has already been mentioned.It brought sharply into focus the problems of a plaintiff whose case would be statute barred before he even knew he had contracted an industrial disease. The position was clearly grossly unfair. In Clarkson v Modern Foundries, 1958, the rule was circumvented by the Judge holding that as all periods of exposure were relevant and the employment had not changed during the time of exposure, full damages could be given for the last three years,the period in time,where injury continued.However,legislation was clearly needed – it was supplied first in 1963, then with further amendments.The subject is discussed in the next chapter.

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Conclusion The question is asked frequently by policyholders and members of the legal profession, why insurers do not contest more claims for industrial disease.The answers to the question are: •

The difficulties as to liability already discussed.

•

The sheer cost of litigation when a number of employers and insurers are involved (see Chapter 8).

•

The fact that each case which has been fought and lost has increased the level of damages for the type of case.

If a higher proportion of monies expended can go to claimants rather than leak out of the system in legal costs,this is the most favourable outcome.As indicated in Chapter 8, effectively this is what insurers tend to try to achieve.

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Limitation in relation to employers liabilities T H E L A W R E F O R M ( L I M I T A T I O N O F A C T I O N S ) A C T, 1 9 5 4 CARTLEDGE V JOPLING, 1962 T H E L I M I T A T I O N A C T, 1 9 6 3 L AT E R D E V E L O P M E N T S THE CURRENT POSITION AND THE L I M I T A T I O N A C T, 1 9 8 0 SECTION 33 O T H E R C O N S I D E R AT I O N S THE EFFECT ON INSURERS

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Chapter 5: Limitation in relation to employers liabilities It is the intention of an insurer with most categories of business,to provide cover for a finite period of time. In that way his liabilities, known and potential, can be calculated with reasonable accuracy.As already indicated, in employers liability insurance, the operative clause makes it clear that cover is provided in respect of injury or disease, caused during the currency of a policy. This means that a policy can be called upon to respond to a claim in respect of more usually,disease – there has been one reported motor claim where traumatic injury was involved – even though the policy may have lapsed years before. However,in considering this aspect of the EL policy,it is necessary also to consider the law of limitation of actions.All civilised countries apply time limits,in respect of actions for civil wrong doing and an action brought after the applicable time limit has expired, will be struck out as a nullity. It must be noted and appreciated however, that limitation relates only to a procedural bar, and the cause of action remains in being, although it cannot be exercised. In practice, the most significant point of this distinction is that the defendant may waive limitation,and allow the action to be brought.Whilst unusual, there have been some cases where insurers have waived the right. In 1939, a genuine attempt was made to simplify the law and rules relating to limitation,by imposing in relation to actions in tort,a limitation period of 6 years in relation to claims for personal injury and property damage. Whilst there were some other special periods of time in relation to particular types of action – for example,an action had to be brought against a local authority within 12 months – the basic rule was simple.

The Law Reform (Limitation of Actions) Act, 1954 This act came into being to resolve some difficulties and anomalies which had come to light, in relation to the Act of 1939.The main point so far as insurers were concerned, was that the period for personal injury claims, was cut from 6 to 3 years.This meant that civil claims in respect of personal injury now needed to be pursued more expeditiously than before.Where a claim was mixed, in that

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it was in respect of both personal injury and property damage, then the period for personal injury was not extended. Equally the period for property damage claims was not reduced. The case of Arnold v CEGB,1988,established that where in a disease case,exposure had entirely occurred and terminated before 1954, then the amendments later discussed did not apply, and a claim remained statute barred.Whilst as time goes on,this principle becomes of less importance,nevertheless,cases involving very old workers who had been exposed to noxious substances before 1954 do,rarely, come to light even now.

Cartledge v Jopling, 1962 As already indicated, the case of Cartledge v Jopling, 1962, highlighted the gross injustice brought about in cases of industrial disease,where some of those affected, were actually statute barred, before they, or anyone else, knew of their condition at all. Whilst Clarkson v Modern Foundries,1956,did show one way of circumventing the 1954 Act, by attributing the bulk of the exposure to the last 3 years, this was unsatisfactory and applied only to a limited number of cases,where employment and exposure were co-terminous with the same employer.In 1963,a further statute came into force.

The Limitation Act, 1963 This was designed to remedy the evil which had come to light in Cartledge v Jopling, by extending the period of time for persons suffering from disease in particular, by giving them a period of 12 months from the date of knowledge in which to commence proceedings.The intention was to allow claims within 12 months of the date on which a person become aware that he was suffering from a disease or condition. However, a spate of litigation followed to clarify the ambiguities in the Act, and it was established that knowledge could mean also knowledge (or being aware) that there was a cause of action and against whom, it might lie.

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Later developments It was still necessary for some ambiguities and inconsistencies to be resolved and so further legislation and litigation followed. Unhappily, the 1963 Act was, with some justification, brought into operation in a hurry, and the drafting therefore, required clarification.A further Act followed in 1975.

The current position and the Limitation Act, 1980 This was a consolidation act to bring together the legislation from 1939 to 1980. Its main provisions relating to insurers’ concerns are: •

An action for tort shall not be brought more than 6 years from the date on which the cause of action occurred.

•

A similar time limit applies in contract.

•

In respect of wrongs causing personal injury or death, the period is 3 years, from the date on which the cause of action accrued, or the date of knowledge – if later – of the person injured.

•

In respect of fatal claims, the period is the same.

•

Knowledge is defined in S 14 as the date on which he first had knowledge of the facts that the injury was significant and attributable in whole or part, to the act or omission alleged to constitute negligence, nuisance or trespass:and the identity of the defendant:and if the act or omission was alleged to be that of a person other than the defendant the identity of that person and the additional facts supporting the bringing of the action.

The section goes on to say that knowledge that any acts or omissions did or did not,as a matter of law constitute negligence,nuisance or breach of duty is irrelevant. The significant injury is defined as one which would be considered sufficiently serious to justify the issue of proceedings for damages against a defendant who did not dispute damages, and was able to satisfy a judgement. A rather odd definition at first blush,but applying an objective test as to justification for proceedings – important in considering applications for legal aid. Knowledge also includes that obtainable from facts observable or ascertainable by the person, or by facts ascertainable from medical or expert advice – but a claimant is not fixed with knowledge of a fact only ascertainable with expert help if he has taken all reasonable steps to ascertain and act on it.

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Section 33 It is this section more than any other which has rectified the balance so far as claimants are concerned.The section says that if the Court considers it equitable, then having regard to the degree by which a plaintiff is prejudiced by the operation of Sections 11 or 12 of the Act: and any decision would prejudice the defendant or any person whom he represents,then the Court may direct the provisions shall not apply to the action, nor to any specified cause of action to which the action relates. If a plaintiff at the time of death could not bring an action because of some other provision – the example actually given is the time limit in Carriage by Air Act 1961 – then Section 12(1) (relating to claims under Fatal Accidents Act) then the section will not be disapplied. Certain rules are set out as to the exercise of discretion: •

The Court shall have regard to all the circumstances of the case and in particular:

•

The length of and reasons for delay on the part of the claimant

•

The extent to which delay has affected the cogency of the evidence brought by plaintiff or defendant.

•

The conduct of the defendant after the cause of action arose involving his making available on request, relevant information by document or inspection.

•

The duration of the plaintiffs disability after the date of the accrual of the cause of action.

•

The promptitude with which the plaintiff acted once he knew he might have a cause of action against the defendant.

•

The steps taken to obtain medical legal or other expert advice and the nature of that advice.

•

In fatal cases, when because of Section 11, the deceased could not maintain an action, the Court must have regard to the delay its length and reasons therefore.

The Court has thus,a very wide discretion within these rules:it is now extremely difficult to maintain the defence of limitation in relation to industrial disease cases.

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Other considerations In cases where a company had gone into liquidation and had been removed from the Register of Companies, it was possible for its name to be restored only if the restoration were within 12 months of its removal.After that time,it was no longer possible for a case to be brought against the company which no longer existed. The Third Parties (Rights Against Insurers) Act,1930 was designed to protect victims where the defendants who had caused harm went bankrupt or into liquidation. However, Post Office v Norwich Union, 1963, established that a judgement was necessary against the insolvent third party, before the next stage in the proceedings,the action against the insurer,could take place.Where the company had gone into liquidation and been removed from the register for more than 12 months, there was no longer a legal entity, which could be sued at all and the claimant was deprived of any right he or she might have had. Mrs. Elsie Bradley had worked for Dart Mill for a number of years. She developed byssinosis as the result of inhaling cotton dust. She wanted to sue her employers. However, they had gone into liquidation many years before and had been removed from the Register of Companies, so no longer existed. She brought an action against Eagle Star requiring them to produce documents which would show whether they had insured Dart Mill. Eagle Star defended the action on the basis, before they could be sued under the Act,there must be a judgement against the liquidated company. They won the action in the House of Lords, to which ultimately the case was referred. There was a predictable furore fanned by the media over the loophole in the Act. It had been reviewed in 1976 when Government had set up a scheme of compensation for slate quarry workers with pneumoconiosis,in the same position as Mrs. Bradley, so far as their employers were concerned. Mrs. Bradley was, in fact, entitled to compensation under these provisions because the scheme has been extended to cover other chest and lung diseases. Government considered there was a loophole in the Act and that claimants needed further protection.The Companies Act, 1989, was hastily amended to include a provision that a company could be restored to the register.This provision whilst giving protection to claimants, an object insurers would support, created a new IBNR liability for insurers. In relation to Appeals where a notice has to be given, normally within 6 weeks of the judgement,the Court of Appeal ruled in Savill v Southend Health Authority 1994,that discretion to allow an appeal out of time could not be exercised,if the reasons for the delay were not before the Court, as it had no material on which to exercise its discretion.

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The effect on insurers The effect of these changes in the law on insurers were profound. •

They were now faced with claims going back for many years.

•

Often, policy records had not been retained. Some insurers required from the insured or broker absolute proof of cover, refusing searches or co-operation in trawling their records.

•

Investigation was difficult – companies had lost staff,changed location or had been taken over in many cases.

•

Because the assembly of evidence was so hard,defence became difficult as already seen in previous chapters.

The most important effects however, were of a financial nature. Insurers were faced with large numbers of claims many of them very expensive, from periods of cover in the past – often the remote past. Rates of premium at that time had reflected the economic circumstances of the time. Damages had been much lower and of course, underwriters had rated on the basis of compensation levels at the time, taking into account the fact that industrial disease claims were rare. Insurers had,therefore,not taken such claims into account when calculating their reserves.They were faced with the fact that money had to be found to pay these claims as they became known, and to set aside reserves for those claims which had been incurred but not reported (IBNR). These reserves could be created only from current premiums and rates started to rise to cope with this difficult problem, and at the same time, damages started to escalate at a rate more rapid than at any time before. That, with very few exceptions, EL insurers survived this period was a tribute both to underwriters and also to the strength of reserves which had been set up in the past. The insurers have been faced with literally thousands of claims – very large numbers for deafness – and the bill has been very substantial indeed.There has been resistance on the part of employers, to the paying for claims which occurred in years gone by out of current rates. The problem was created by the fact that the effect of the legislation was retrospective.The door was opened to all those claims,not resolved already,which fell firstly within the limited extension allowed by the 1963 Act,and then its revisions.

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Now as indicated above,limitation is largely at the discretion of the Court,subject to the rules in the 1980 Act.As a defence,limitation is now difficult to plead with reasonable prospects of success. A large number of claims for industrial disease coming forward at the present time can be regarded as truly ‘stale’claims because the unfortunate claimants have known about their condition for a considerable period of time and will find it difficult to show that they did not know that they might have a right of action. For this reason as time goes on it is necessary for insurers to scrutinise such cases very carefully because it may be possible to bring back in the defence of limitation.

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Employers liability insurance THE POLICY W H AT I S C O V E R E D ? ‘CAUSED DURING’ EXTENSIONS CONDITIONS TRADE ENDORSEMENTS LIMITS OF INDEMNITY CAPPING EXCESS OF LOSS COVER

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Chapter 6: Employers liability insurance It was recognised from the early days of Workmens Compensation,that provision to meet the statutory obligations imposed upon an employer, could be made by way of insurance. The basic policy provided for payment of compensation under the Workmens Compensation Acts,with or without extra benefits in respect of scheduled diseases. Most policies included cover in respect of Common Law claims,although as already indicated, the number of Common Law claims was very low.When Workmens Compensation ceased in 1948, insurers continued to provide cover, at a fraction of their former premium rates. The basic common law policy came into use at that time and, with some amendments, has continued to be in use to the present time. Some of the amendments came about because of the Compulsory Insurance provisions,some because of changed social perspectives but it has been necessary for EL insurance providers to take very close note of the law and its changing views.A copy of a policy in current use is in appendix A – by courtesy of Eagle Star Insurance Co. Ltd. It will now be examined.

The policy The Preamble as usual makes it clear that the Insured has applied for insurance and paid or agreed to pay the premium for the period specified in the Schedule or for any subsequent period. It is important to note two things in the Preamble.

48

•

The business is stated to be as described in the Schedule and no other for the purpose of the insurance. It is very important that the description of the business be both accurate and comprehensive so that no arguments can arise if new activities are undertaken.

•

The premium has been paid or agreed to be paid. The difficulty experienced in some classes of business where it is said the premium has been paid when it has not is therefore avoided.

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What is covered? The operative clause makes it clear that this is a liability policy giving an indemnity to the Insured – the employer. It is not a policy providing payment of benefit to injured persons where there is no liability.The clause defines employees in respect of liability to whom the policy gives an indemnity. It defines the status of an employee exactly as those under a contract of service or apprenticeship. A contract for services is not enough to establish an employer/employee relationship.However in the latter days of the twentieth century the old concept of what is employment tends to have been blurred very considerably. Those under a contract of service were identified in Mersey Docks and Harbour Board v Coggins and Griffiths(Liverpool)Ltd., 1946, as those where the employer had the control of the manner of the work in question – put more simply, the employer can say not only what is to be done but how it is to be done. That comparatively simple test has become more sophisticated. Cases such as Ready Mixed Concrete v Minister of Pensions, 1968, Ferguson v John Dawson, 1976,and Hall v Lorimer,1994,introduced considerations of control and suggested a distinct and different test in the health and safety field.The basic simple test as in Mersey Docks and Harbour Board still applied despite all this. However, the case of Lane v Shire Roofing Oxford Ltd., 1995, changes this.Whilst control is still important, such matters as whose business is the work being done for and who is in charge of overall safety are of importance.In this case,Mr.Lane regarded himself,and was regarded as,a self employed contractor.When he had an accident however, he sued as an employee and was so regarded by the Court of Appeal. Insurers must have regard to this decision and possibly amend the labour only sub contractors endorsement to cover such self employed persons who really are quasi employees,making sure that payments made to such persons are included in wage declarations for premium purposes. Insurers had been quite prepared to extend their policies to cover labour masters and their associates but it was necessary to have regard to the Lane decision and amend the labour only sub contractors endorsement so that such self employed persons who really are quasi employees – and may be regarded by the courts as true employees are included in those persons in respect of whom a liability is granted.A case such as the Lane case does blur the boundary between EL and PL cover. The indemnity is in respect of all sums for which the insured is liable in respect of any claim for damages – the word damages is wide enough to cover both exemplary and punitive damages – the former have been awarded rarely in the past, the existence of the latter was doubted but seems now to be established in the case of Treadaway v C.C.of West Midlands 1994,where in addition to general damages of £2,500, £40,000 was awarded by way of aggravated damages – there

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seem to be punitive elements there.That punitive damages are covered now seems to have been established beyond doubt by the case of Lancs CC v Municipal Mutual, 1996, where the Court made it quite clear that unless clear and specific words to exclude elements such as aggravated damages from the policy cover were included, then the court would regard them as falling within the term damages.The court said that insurers could devise and use quite simply a form of words which might restrict cover in the way they wished.Claimants costs and expenses have been paid in addition as well as all costs and expenses incurred in defending a claim with the insurers consent.This section is of importance because costs can be very high.Problems can arise where for instance a public enquiry is held.In strict theory costs incurred in representation at such events is not covered.Most insurers however, provide representation at their expense on the basis that this can legitimately be regarded as an investigation and defence cost. Because such enquiries can go on for a long time and costs can be quite huge – on occasion several millions of pounds have been incurred – the position has to be considered carefully. In any event,as discussed later,capping with its limit inclusive of costs,has altered the whole position.

‘Caused during’ The indemnity provided is in respect of bodily injury or disease ‘caused during‘ the period of insurance. Bodily injury as an expression, of course, includes death – the ultimate bodily injury. It is the words ‘caused during’ which have given insurers the greatest difficulty. The relevant time is not when the injury or disease symptoms are presented as a case,it goes back to the time of the first significant damage – Cartledge v Jopling – which is of especial importance in cases of industrial disease. If there has been exposure over a period of many years, there may be a number of insurers and a number of employers involved.In the next chapter,the question of Understandings and Agreements is discussed to see how insurers have sought to cope with the problem and avoid the leakage of huge sums in legal costs out of the market. It can be readily seen how the use of these words has created the long tail which has bedevilled the business for so many years – a carry over from WCA policies.

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Extensions There are a number of extensions which have come about with changes in the law and industrial practice which has meant the insurance has to adapt with the changes. The first extension refers to employees temporarily abroad where the contract of employment was concluded within the UK. It does not require any claim to be brought within the jurisdiction of UK Courts. The second extension really goes outside the principle of the contract of employment.Indemnity is given in respect of a variety of persons,not so employed, where the payments made are included in the wages declaration: claims from such people are handled as other EL claims. Extension three gives a personal indemnity to directors and employees to overcome the Lister problem.Extension four gives not only the Insured,but also a principal who has been involved in proceedings in respect of claims requiring indemnity under the policy.This avoids the involvement of other insurers or self insured bodies, the possibility of a fight between two defendants and reduces costs. Extension 5 gives an indemnity to the Insured’s personal representatives in the usual way. Extension 6 deals with Coroners Inquest representation and criminal prosecutions. Extension 7 provides indemnity in respect of certain activities ancillary to the Business. Extension 8 allows private work for directors or executives to be regarded as work within the Business. Extension 9 extends cover in respect of medical treatment by members of first aid or medical arrangements but does not extend to cover medical practitioners. This is because the medical practitioner will have cover from one of the medical defence organisations, and because such claims can be extremely expensive. Extension 10 gives cover to directors and employees in respect of legal costs and expenses in certain prosecutions under HSWA,subject to certain restrictions and refers to fees reasonably incurred by Solicitors. No mention is made of Counsel who may be needed.This is usually the subject of negotiation. Extension 11 is a fail safe for employees who have sued someone other than their employer and whilst successful, have failed in enforcing the judgement.

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Extension 12 provides for payments to be made when members of the insured have to attend Court.There is a proviso that all claims are in the conduct and control of the insurers and the extensions do not apply if there is cover elsewhere. The exclusions are important: 1

Refers to offshore installations – it was a result of the Piper Alpha disaster where the most unlikely of employers were found to have personnel offshore

2

Refers to the old restriction and argument between motor and EL insurers – see Chapter 1.

Conditions It will be observed that this particular insurer has no conditions in the policy. Where conditions are applied they refer to the reporting of claims, the control of claims,subrogation,contribution and usually wages being declared.A condition may be included giving the insurer the right to recover payments made solely because of the Compulsory Insurance provisions. However, as discussed later, conditions were circumscribed by the Employers Liability (Compulsory Insurance) Act, 1969, and vary now between insurers. Despite the fact that conditions were restricted by the terms of the compulsory insurance act the right of the insurer to declare a policy void ab initio was retained and has been so up until the present time, despite the strictures of the Courts in the case of Dunbar v A & B Painters Ltd, 1983.

Trade endorsements These are limitations on cover used by some insurers to reduce their risk.Examples are height and depth restrictions in construction work. Whilst in the negotiations leading up to the Compulsory Insurance Provisions, they were regarded as being acceptable,there have been many doubts expressed since,especially in Dunbar v A & B Painters,see Chapter 7.They tend to be used less frequently. It is, however, not possible to exclude diseases or any physical conditions.

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Limits of indemnity It was for many years the practice to issue EL policies without any financial limit of indemnity.This was a survival from WCA policies where no limit of indemnity could be imposed in respect of the statutory liability.This practice continued even though the Compulsory Insurance Act only required cover up to £2,000,000 and only one or two American insurers issued policies with these limits. However,the escalation of damages at a rate far in excess of inflation,along with a degree of risk concentration, culminated in the horrific Piper Alpha disaster. As a result of this latter in particular,reinsurers signified they could not,or would not, give unlimited reinsurance cover. Insurers there had to consider, albeit with reluctance, the capping of their exposure.

Capping Appendix B is a specimen endorsement indicating the limit of indemnity to be £10,000,000.However,that limit is not in respect of damages alone,but includes all legal costs and expenses, not only the claimants but also those incurred by the insurer.This limit of indemnity must be regarded as too low by the standards of the case of Bresheuvel v Birrell, 1988, where £9.3M was awarded in respect of one injury.The case is discussed later under the heading of Damages,but must be regarded as casting doubt on the adequacy of any limit of indemnity in the region of £10M. This can have the effect of dramatically cutting the amount of indemnity available for damages.The question of the costs incurred in respect of enquiries and the like becomes a very difficult one. The endorsement goes further in declaring that where more than one party is indemnified, then no further sum than £10,000,000 inclusive will be paid.This refers to the group type policy where a number of companies will be insured under an umbrella type of policy which will undertake to treat each as a separate entity with cross liability clauses – where one company may claim against another – and other refinements. However, capping of this nature will certainly force a new view on the market. The law has been reviewed and the tentative view expressed by DTI that each company under a policy requires its own statutory limit of indemnity, has now clearly been altered and an entirely contrary view is expressed in the Employers Liability (Compulsory Insurance) Regulations 1998.As it stands, the provisions

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for capping forced on the market, have certainly created problems never before experienced in this class of business. Amongst them may be listed: •

The inclusion of costs in the limit of indemnity

•

The group policy

•

The exposure of more than one policy to the same risk and the effect on reinsurance – as in Piper Alpha.

It is not yet possible definitively to answer all these questions – the new problems will take some time to solve.

Excess of loss cover The question of cover above the limit now specified has created a demand for excess of loss cover, as in the PL market where layered or scheduled policies are common. Excess of loss cover is now being written in the market, although it must be said that not all insurers are yet prepared to write some of the high limits which are required, and this means that an EL risk may well have to be scheduled in the same way as a public liability risk.There can be difficulties over claims handling because the interest of the primary and upper layers are sometimes in conflict, particularly if the upper layers are anxious to see a settlement achieved within the limits of the first layer when that insurer may consider he has a complete defence but runs the risk of forcing the upper layers to contribute. Many large policy holders require cover far in excess of the primary layer now offered within the market. As indicated scheduled policies may be considered although there could be problems in relation to the compulsory insurance provisions and the leading insurer might well have to front for all others. It may be possible to consider separate cost policies but these would lead inevitably to the problem of control of claims and the expenditure on costs and damages. And the use of a capping device therefore has created new problems from those it was designed to resolve.

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Compulsory insurance provisions THE EMPLOYERS LIABILITY (COMPULSORY INSURANCE) R E G U L AT I O N S , 1 9 9 8 REPUGNANT CONDITIONS EL/MOTOR TRADE ENDORSEMENTS CLAIMS MADE POLICIES B R A D L E Y V E A G L E S TA R EMPLOYERS LIABILITY INSURANCE BUREAU (ELIB) P E N A LT I E S

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Chapter 7: Compulsory insurance provisions The standard EL policy wording is now controlled to some extent, as we have seen,by the Employers Liability (Compulsory Insurance) Act 1969 and Regulations made thereunder. It is required that cover be provided to all employers with few exceptions in respect of liability for death, injury or disease arising out of and in the course of the employment of the injured person. The exceptions include those: •

Employing family only

•

With few employees

•

Where an employee works in the UK for less than 7 days.

The words mirror the Operative Clause and when the Act came into force a limit of indemnity of not less than £2M per occurrence was required.This rarely caused difficulty because until quite recently the policy has not been limited financially, so far as indemnity was concerned, and the limit adopted by the EL market was even then well above the Act figure. However the figure of £2M was woefully outdated and for that and other reasons a review of the legislation was carried out.Initially a consultation document followed by a white paper was issued by the Department of Employment.Views were sought and then expressed as to whether the minimum amount of cover should be changed and if so how and the options were given as: •

a single limit of £10M per occurrence

•

a single higher limit

•

a formula relating to employers circumstances

•

no fixed limit with duty to ensure for maximum possible loss

•

a combination of options.

Some of these options were certainly not regarded as particularly favourable by insurers because of the difficulty in operating them. Employers also found themselves in the difficulty of not thinking a fixed limit was particularly helpful because whatever the limit it could well be exceeded by an award in the courts.

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It was considered as to whether any limit should apply to disease cases. If there were no limit and each case was regarded as a single claim then no problem would arise. But it was suggested by certain insurers that if a decision was taken by an employer,such as to use or to continue to use a dangerous substance,that possibly that decision could be taken to be the cause of all diseases arising from the substance on this one occurrence. Consideration was given for a limit to be applied on group policies and should the form of certificate be changed to include the amount of cover. If any limits or trade endorsements applied should they in fact be specified in the certificate of insurance. Should certificates be displayed or should a requirement that copies of certificates, and certificates of present and past,be available for inspection.What action could be taken to assist in the identification of insurers in dissolved companies. Should enforcement powers and penalties be raised and what steps could be taken to compensate employees whose employer is not insured.Certain possible changes to offshore installations were considered and should the existing exemptions be extended or removed.

The Employers Liability (Compulsory Insurance) Regulations, 1998 Having considered views which were expressed by insurers and others these regulations came into force and really must be regarded as not doing the job properly. Regulation two repeats the prohibition on certain conditions in policies of insurance and this is discussed later.This regulation goes on to indicate that excesses are no longer to be regarded, are repugnant to the Act and in fact fronting arrangements where an insurer deals with and pays claims being reimbursed by the employer are no longer illegal. Regulation two indicates that the relevant limit is to be not less than £5M in respect of a claim relating to any one or more employees arising out of any one occurrence and any cost or expenses incurred in relation to the claim.Where an employer is controlling one or more subsidiaries then the requirements shall be taken to apply to that company with any subsidiaries together as if they were a single employer.This effectively means that a company like ICI has exactly the same requirements for insurance as the corner shop where there are employees rather than only family employed.

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Regulation four deals with certificates of insurance.This requires that the certificate be displayed and that the certificate specifies the amount of excess in which insurance cover is provided by the policy and the maximum amount of the cover. Employers are required to retain each certificate for 40 years.Regulation five requires a display of the certificate of insurance, except with an offshore installation the employer must produce the certificate for inspection at the request of an employee. Regulation six and seven deal with the inspection of certificates of insurance by inspectors.Regulation nine deals with certain employers who are excluded from the provisions of the Act. These regulations now give teeth to the 1969 Act but it has to be said that the teeth are not very sharp.The limit of indemnity of £5M is not by today’s standard sufficient because it can be seen quite clearly that with cases like that of Biesheuvel (see above) then the limit can be exceeded by one individual claim. Further, nothing has been done about the indication of restrictions which might be imposed on the insurance by trade endorsements and so employees inspecting the certificate will not know if there are any such restrictions. Finally,and probably most seriously,nothing has been done to avoid the situation created by Richardson v Pitt Stanley and Dunbar and A & B Painters v Economic. In the first case,because the company went into liquidation and was not insured, a seriously injured employee was unable to recover because the court held that the director responsible for arranging insurance was liable only criminally and not civilly. In the second case the policy was declared void ab initio for misrepresentation as to a claim experience and here the Court of Appeal was highly critical. We now therefore seem to have a system of compulsory insurance which really satisfies no one.It does not satisfy claimants because there are loop holes.It does not satisfy insurers because of the necessity of arranging higher levels of indemnity than those which are granted at primary level.It should not satisfy the state because of the loop holes already mentioned and because it is in conflict with the law relating to compulsory motor insurance – see Monk v Warbey.

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Repugnant conditions The Act made certain conditions repugnant in its provisions and thus unenforceable by insurers.These conditions are repeated in the 1998 regulations and they are: •

Any condition requiring something to be done after an event giving rise to a claim – like requiring incidents to be reported or claims correspondence forwarded to the Insurer.

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Any condition requiring an employer to take reasonable care for his employees safety.

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Any condition requiring an employer to observe statutory provisions – these two conditions would if enforced in theory have allowed virtually any claim to be repudiated.

•

Any condition requiring an insured to keep records and make returns – this refers to wages or capitation returns on which premium depends.

Such conditions cannot be enforced to the detriment of an injured person.The Act does allow as does the RTA incorporation of a provision whereby the insurer can recover from the insured any sums paid solely because of the provisions of the Act. Most insurers have taken advantage of the provision.

EL/motor As already indicated regulations made, both under the Employers Liability (Compulsory Insurance) Act and under the Road Traffic Act, have made it clear that where employees are involved in accidents involving motor vehicles where the accident arises out of and in the course of employment, then the case will be dealt with as a motor case.This is confirmed by No. 14 of Schedule 2 to the Employers Liability (General) Regulations 1998.As already indicated claims by the driver will continue to be dealt with as Employers Liability claims and where an accident occurs in circumstances where compulsory motor insurance is not required then the claim will be an employers liability claim. The new regulations came into force with effect from 1 January 1999.

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Trade endorsements When discussions were going on in relation to the drafting of the Act,the industry raised the question of trade endorsements.These are endorsements used by insurers as tools of underwriting to restrict areas of exposure by limiting the scope or the nature of the work covered.The view was then expressed unofficially that these would continue to be legal and enforceable.They are not used to a large extent at the present time because of doubts which have existed. These doubts were confirmed in the case of Dunbar and A & B Painters v Economic Insurance & Whitehouse where a policy was declared void ab initio for misrepresentation as to a claims experience and the Court of Appeal was highly critical.There were trade endorsements on the policy and the ability to use these and to void the policy were described as driving a coach and horses through the provisions of the Act. No legislative action has been taken and this loop hole still exists. It is however important to realise that since EL insurance became compulsory it is not possible to exclude particular or specific diseases as was sometimes done in the past.

Claims made policies Another problem has been caused by the projected use of a claims made wording in EL insurance. Such wordings which are used in products liability and professional indemnity insurances trigger the operation of the policy when the claim is made,rather than when the liability arises and they have been considered because of the long tail of disease claims.The theory is with claims made policies the insurer will deal only with claims made after the inception of the policy.Such a policy will exclude liability when cover is provided by another insurer but should also provide retro active cover in respect of any period where the insured cannot identify another insurer.The snag is that there is considerable doubt that the claims made policy is legal in that it is probably out with the Act. Two leading Counsel of repute consider that a claims made wording is not sufficient to guarantee payment to an injured workman. If retro cover were given then deficiencies to some extent are overcome but the retro cover is still applied only to old claims made during the period of the policy. If the claims made policy at some time in the future were to revert to a conventional wording then there could be broken periods of cover. If the insured were to go into liquidation then notwithstanding the case of Bradley v Eagle Star (see below)

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and the amendment of the Companies Act 1989 there might not be an insurer to be sued directly. It must be said that one other leading Counsel has said that provided retro cover is properly arranged then there can be no objections raised.The penalty for failing to insure is a fine and as has already been indicated no civil responsibility rests upon Directors personally. Richardson v Pitt Stanley, 1995.

Bradley v Eagle Star This case was discussed under the heading of Limitation and concerned the situation where an employer had gone into liquidation some 20 years before an ex employee sought damages.The company had been removed from the Register of Companies so there was no prospective defendant to sue.Action was commenced under the Third Parties Rights Against Insurers Act 1930.It failed in the House of Lords because no judgement had been obtained against any defendant. It could in fact not be obtained because only 12 months was allowed at that time to restore a defunct company to the register. However the position was altered by the Companies Act 1989 so that restoration is now allowed.

Employers Liability Insurance Bureau (ELIB) It was not considered necessary when the Act was passed to set up a bureau as was done with motor insurance,to deal with cases where claimants might remain uncompensated because of lack of insurance. The case of Dunbar has been reported as has another case very recently,mentioned below,and it might appear that there is no problem but the two cases mentioned could be merely the tip of an iceberg especially in a time of rapidly rising premiums. The position has been reviewed and it will be observed that the new regulations do not provide for the provision of any ELIB,on the basis that this would be putting an undue burden upon the insurance industry. Whilst such a body might lead to rather more overt evasion of insurance than has been seen,in the knowledge that there was a funded source of compensation for injured workers where insurance money was not available, no steps have been taken to block the obvious loop holes existing.

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Penalties The act imposes criminal penalties upon the employer if he fails to insure and also upon any director or officer of the employer where the offence has been committed with the consent,connivance or facilitated by any neglect on the part of such persons. The case of Richardson v Pitt Stanley & others,1994,has already been discussed and a seriously injured workman failed to recover compensation where there was a clear breach of statutory duty.The workman in fact claimed judgement but it was then revealed that the company was not insured and promptly went into liquidation. The injured man went to the director responsible for the arrangement of insurance on the basis he was personally liable to him for failure to insure the employers liability at law.The Court of Appeal held that no such liability on directors existed. There was only a criminal penalty. In the case of Monk v Warbey, 1934, where a similar situation arose with a motor vehicle and the owner permitted its use on a highway uninsured he was held personally liable to an injured person. There is, as has already been indicated, a distinction between RTA and EL cases. It is unfortunate that this distinction exists.

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Agreements and understandings M A R K E T U N D E R S TA N D I N G S AN EXAMPLE T H E R E S U LT S THE NEWCASTLE DEAFNESS CASES THE DEAFNESS AGREEMENTS THE VWF AGREEMENT L AT E S T D E V E L O P M E N T S LISTER V ROMFORD ICE CO. THE MARKET AGREEMENT THE COMMON LAW AGREEMENT

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Chapter 8: Agreements and understandings The question of industrial disease and limitation in relation to claims for these conditions has already been considered.Effectively,as already seen,prior to 1963, it was,except in some special cases,as where the Clarkson v Modern Foundries principle applied (see Chapter 4) and in short term disease cases,extremely difficult for a claim to be maintained, in respect of disease, where exposure took place over a long period of time. There had,as already explained,been different considerations to apply to diseases caused by essentially short term factors, and such diseases included dermatitis and chrome ulceration.The difficulties of exposure over a long period did not cause difficulty normally,because exposure could usually be identified to a particular short period. When the 1963 Limitation Act came into force,it became apparent very soon that a large number of claims would come forward in respect of the long term diseases like asbestosis and pneumoconiosis.Certain problems were immediately apparent: •

Cases where exposure had taken place over a long period of work,where exposure was with more than one employer.

•

Cases where there had been a change of insurer during a period of employment.This was a problem already identified in the Clarkson type case.

Essentially both problems were inter related,because one of the most difficult areas to resolve, was the different insurer interest and how each related to the other in respect of the value of the claim.Similar considerations applied,in looking at different employer interests,where each period of employment involved exposure to noxious substances. In the early cases immediately following the 1963 Act, it was not uncommon especially in asbestosis cases,involving the insulating trade,where workers were mobile, to find 10 or more employers involved over a 30 year period, with 20 insurers providing indemnity,some for a number of the employers.The legal costs incurred where each employer and each insurer of an employer needed separate legal representation, because of possible conflicts of interest, were enormous. Discussion took place between some of the insurers most heavily involved and it was resolved something would be done.

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Market understandings Insurers decided that whilst a formal agreement might not be appropriate because of difficulties in formulating a wording, informal understandings would be appropriate. These understandings depended on each insurer being prepared to regard all periods of exposure as equally relevant and not seeking to differentiate between early, middle or late years, insofar as their relevance was concerned.At that time, medical science could not in fact make such distinction and whilst advancing knowledge might now be able to highlight distinctions, with few exceptions – usually resolved by reference to ABI Claims Settlement Panel – insurers have carried on this principle. Having established the principle it was then easy enough to come up with a formula, that claims would be shared on the basis of time on risk during exposure.The employer will refer the claim to the insurer who held the risk at the time of the employment of the claimant when exposure took place,or to the current insurer if exposure has not ceased. That office will handle the claim and being provided with a full insurance history by the insured, will seek contribution from all other insurers involved, on behalf of that insured. There will be occasions when the insured either cannot identify the insurer by any means or in the alternative was uninsured for the period, if that should antedate 1969. In those circumstances the insured will himself be expected to make the contribution. In cases where the insured has gone into liquidation then the insurers will pay only their rateable share towards the total claim.

An example As indicated there is no formal agreement between insurers as to cases of this sort. However, most offices transacting EL insurance in any quantity have reached informal arrangements as to sharing on a time exposed basis.This has been done largely to avoid the incurrence of heavy litigation costs involving many defendants,some with several insurers.An example will illustrate clearly how such an arrangement will work: W has developed asbestosis. He has worked in the industry for 40 years; 5 years were spent with A, 12 with B, 5 with C, 8 with D, 10 with E. A was insured with office O during the whole period.

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B was insured with office P for 4 years,0 for 3 years and office R for 5 years. C was insured with office S for 4 years and with office R for 1 year. D was insured with office W for 7 years and with office S for 1 year. E was insured with office Z for the whole period. The sharing arrangement is acceptable to all offices and operates as follows: A is liable for 5/40 of total period of exposure.To be paid by Office 0. B is liable for 12/40 of total period. Office P will pay 4/12 of 12/40 0 3/12 of 12/40 and R 5/12 of 12/40. C is liable for 5/40 of total period. Office S will pay 4/5 of 5/40 and Office R will pay 1/5 of 5/40. D is liable for 8/40 of total period. Office W will pay 7/8 of 8/40 and Office S 1/8 of 8/40. Finally E is liable for 10/40 and Office Z pays that proportion. The offices are therefore liable as follows: Office O 5/40 for A: 3/12 of 12/40 for B. Office P 4/12 of 12/40 for B. Office R 5/12 of 12/40 for B and 1/5 of 5/40 for C. Office S 4/5 of 5/40 for C and 1/8 of 8/40 for D. Office W 7/8 of 8/40 for D. Office Z 10/40 for E. The final shares of any settlement or of the total cost will therefore be: Office 0 96/480, P 48/480, R 72/480, S 60/480, W 84/480, Z 120/480. Some calculations become extremely involved,periods of months rather than years being involved.Since damages in some of these cases can be extremely high,and the costs of litigation formidable, such calculations even to such fine limits are necessary and economically worthwhile. Where there are periods where no insurance was in force, then the proportion for those uninsured periods will be borne by the insured themselves.

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The results The result of this sort of arrangement has been to keep litigation costs to a minimum. Indeed, the Wolfson Institute of the University of Oxford carried out a survey as to asbestosis claims,in the UK and the USA,in 1987,and found that a much higher proportion of insurers’ payments ended with the claimant than in the US, where a higher proportion was expended on legal expenses.This fact alone can be regarded as a justification for the system.

The Newcastle deafness cases There is argument about whether deafness is an industrial disease, a condition or a disability – but for the sake of this discussion,it will be regarded as a disease. Deafness claims caused great problems because of their large numbers and difficulties in establishing levels of damages. In 1984, the cases of Thompson and Ors v Smiths Ship Repairers often called the Newcastle deafness cases were heard. Payments into Court were made and fairly modest damages were awarded within the payments in.The Trade Unions backing the cases were left with an enormous bill for costs and some negotiation took place with the insurance company concerned.

The deafness agreements As a result of these discussions,an agreement was produced which was very detailed in that it set out levels of compensation, at various ages, for different levels of hearing loss.Arrangements for medical examination and levels of legal fees were also set out. Originally only one company,The Iron Trades, subscribed to the agreement but other insurers gradually became parties to it and a large number of claims has been settled using the Agreement formula. It is subject to revision at intervals of 2/3 years and from time to time some cases will come before the Courts, but without the agreement, the Courts would not be able to cope with the numbers of claims. Whilst the agreement has been successful in disposing of large numbers of claims without litigation, the one criticism made, is that its existence has a ‘flypaper’ effect in that it attracts more claims than otherwise might occur. There is undoubtedly a measure of truth in this, but so long as the overall cost of claims

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under the Agreement does not exceed what would be the cost of litigating or settling claims without the Agreement, the position is in balance. The vast saving is in legal costs and administration expenses.

The VWF agreement Because of the conclusion of the deafness agreement,discussion took place over another disease,Vibration White Finger or Raynaud’s Disease.It was thought there was a comparatively small population at risk, those using vibratory equipment like chain saws or jack hammers. In the event, there has been a larger influx of claims than anticipated. Less formal and detailed than the deafness agreement, this one has still worked successfully, and has kept litigation at bay except in small numbers of cases. It is, incidentally, not a condition that both agreements must be concluded. Very substantial compensation is now in the course of being recovered by coal miners who contracted VWF as the result of the use of vibrating tools under ground. The numbers involved are quite substantial and the sums awarded in excess of those sort of figures which should up to date been awarded by the Courts.The omens are therefore not good by the way in which damages in respect of this condition are treated.

Latest developments There has been a somewhat sinister development in relation to these agreements. Certain Solicitors with the assistance of Legal Aid,are now seeking damages from their Trade Unions and the Union Solicitors on behalf of their client members, on the grounds that by agreeing to settlements under the agreements, which were too low,then claimants have been deprived of the opportunity of suing for damages. What will happen in these cases has yet to be revealed.If the claimants are successful, then the future of agreements such as these must be regarded as doubtful.

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Lister v Romford Ice Co. In Chapter 1 the above case, which concerned the liability of an employee to reimburse to his employer, damages the latter had to pay because of his negligence, was discussed along with other cases, which confirmed and reinforced the principle. (You are referred to that Chapter for the details.)

The market agreement As a result of the Lister case,as indicated in Chapter 1,an agreement was concluded within the insurance market,including Lloyds,as to pursuit of employees whose assets might be exposed on a personal basis. The Government of the day undertook to have the then nationalised industries subscribe to the Agreement and to ‘persuade’ other organisations to do this as well.Whilst they have been largely successful in their efforts,they did not succeed entirely and from time to time, some difficulty can arise. Another problem can now be seen. It is a condition of membership of the ABI, and also Lloyds, that each member subscribes to the Agreement. If however, continental insurers based in EU countries choose to write EL business in the UK directly, rather than through UK registered subsidiaries, they will not necessarily have subscribed to the Agreement.Therefore they will be free to act in what they perceive to be their interests, being by the Third Directive responsible to regulatory authorities in their own countries. It may well be that the legislation considered in 1954, advocated again in 1968 by Denning MR and consistently overlooked, will at last be introduced to do away with an archaic rule of law. It has already been indicated that young solicitors have been sued by their employers.At least one bank manager has been sued by his employers (Janata Bank v Ali) and anecdotally one or other of the Medical Protection Bodies has attempted to recover from an insured nurse.The problem is,that unless the paying party seeking recovery is an insurer, then there is apparently no sanction which can be exercised to prevent the legal right from being operated in their favour. It does become important that this subject be looked at and unhappily one opportunity was missed when considering the question of compulsory insurance.

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The common law agreement This, the only truly formal agreement in the EL field, has been largely rendered superfluous by the transfer of the risk of employees being injured in motor vehicles, to the motor policy.The agreement is largely redundant and may well soon be withdrawn completely. As already discussed, the problem of the driver risk still remains to be resolved.

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Compensation and damages T H E VA L U AT I O N O F C L A I M S DAMAGES LOSS OF EARNINGS MEDICAL EXPENSES DSS BENEFITS T H E C L AW B A C K A N D I T S O P E R AT I O N STRUCTURED SETTLEMENTS INTEREST LEVELS OF DAMAGES

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Chapter 9: Compensation and damages The compensation for injury – and as already stated, every EL claim is a claim for injury – is monetary and is damages.

The valuation of claims The valuation of claims is an extremely important function of the claims department, for three basic reasons: •

Estimating: the value of the claim will be estimated early in its life so that the insurer knows its liabilities for ‘known’ claims.

•

Settlement: It is essential that the claims department knows the value of its claims so that settlements are not excessive.

•

IBNR: Incurred but not reported liabilities can be calculated from the average cost of settled claims, linked to averages of outstandings.

The personnel concerned must therefore have a wide,not merely basic knowledge of damages,how they are made up and calculated and the methods of settlement available.Because the function is so basic and so important,methods of check tend now to be employed over the estimating process by actuaries and these actuaries will in fact prepare a model which can be compared with the figures produced by the claims department. Such knowledge must also be there to enable control to be exercised over legal advisers, where litigation is involved, because advice is given by lawyers, but decisions are made by claims personnel.

Damages Damages can be classified as: •

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General damages which consists of all sums awarded by a Court as compensation which have not been specially proved. Such damages include sums for pain and suffering,loss of amenity,loss of a limb,future loss of earnings, continuing care, loss of prospects of employment commonly called the Smith v Manchester element, and where

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appropriate, loss of expectation of life. None of these sums can be calculated accurately or evaluated on a published scale. •

Special damages which are sums known at the date of trial – liquidated – and can therefore be proved by the production of documents.The largest item of special damage is usually loss of earnings until the date of trial. Other items are commonly medical fees, damage to clothing; and other items of like kind, where documentary evidence is available to prove them specially.

Those are the main classifications but general damages can be sub divided into: •

Compensatory damages:the sums of compensation for the injury and its consequences.

•

Contemptuous damages: where the plaintiff has proved a case but really the Court considers the action unjustified and its time wasted. The sum awarded is generally so low that costs are not allowed and the plaintiff is thus out of pocket.Such awards are usually found in libel cases where the traditional award of contemptuous damages was one farthing, but even here inflation has taken its toll and it is now usually one penny. Such an award is conceivable in a standard personal injury case where there has been a deliberate attempt to deceive the Court as to the existence of an injury, its nature or extent – malingering.

•

Aggravated damages:these are damages which are awarded when the conduct of the defendant is viewed with disfavour or displeasure by the Court because of his conduct which has in some way increased the injury to, or the distress of, the plaintiff.The damages will be increased accordingly.

•

Exemplary damages:these are substantial awards made in fairly limited circumstances and up until now,have been defined as being cases where the defendant has been acting in a public capacity and has used his position to be oppressive, or where the defendant having knowledge of what might occur has calculated that an award of general damages will not be sufficient to affect his own property. Very substantial exemplary damages were awarded in the case of Treadaway v CC of West Midlands 1994 (see below).

Frequently, reference is made in the media to sums awarded in the United States and known as punitive damages and designed to punish a defendant for his conduct, which has been unduly reprehensible either in the causation of the injury, or in conduct up to or during the trial. What is generally overlooked in considering such awards, which generally are of vast sums, is that on application, the award

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is reviewed and often reduced to comparatively small sums,which are not worthy of the publicity given to the original sum. Punitive damages are unknown in UK law but there is a somewhat worrying tendency manifesting itself of a move in that direction.Thus in Treadaway v C.C. of West Midlands, 1994, general damages of £2,500 and aggravated damages of £7,500 were awarded: in addition a sum of £40,000 was awarded in respect of exemplary damages.It was a case where the conduct of the police was described as ‘really amounting to torture’.Obviously the circumstances were exceptional but it is again possible to consider the possibility of the conduct of an employer being exceptionally bad and thus attracting an award of this type, if not amount. The wording of most EL policies at the moment would cover such an award.

Loss of earnings The largest element of special damage in most claims is the loss of earnings to the date of trial.That loss of earnings is calculated by taking the average wage and multiplying by the period of absence. The pay with which the insurer is concerned is that after deduction of tax and National Insurance contributions.There are some cases where that is neither so straightforward nor such an easy calculation as is implied.In Gourlay v BTC,1957, the Court made it clear that it was not concerned that tax be calculated to the last penny but that a general assessment be made.This concept becomes of much more importance at the present time, when so many people are self employed (the labour masters extension to the EL policy may cover them) or on short term contract. In the recent case of Ward v Newalls Insulation (1998) the plaintiff had been employed by the defendants for some years and had been exposed to asbestos which resulted in his contracting a lung disease and effected his expectation of life. He also had the risk of developing cancer. Leaving the defendants employ, he went into partnership and on the advice of accountants for tax purposes, he and his partner enrolled their spouses and each were entitled to 25% of the profits. The plaintiff claimed following personal injury for loss of earning capacity and the judges award was on the basis of that 25%.The plaintiff appealed on the grounds that he should have been awarded on the basis of a 50% loss of partnership profits – to include profits which would have been paid to his wife – irrespective of how the arrangement was treated for income tax purposes.The Court of Appeal decided somewhat surprisingly that an arrangement made for tax purposes was not necessarily the correct basis for measuring a loss of earning capacity. In other

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words the courts will now recognise arrangements for tax avoidance schemes in the calculation of damages. Promotion or rate increases may make the average over a long period unsafe or unfair: the average may have to be calculated over a shorter period of time or in extreme cases, by taking the earnings of other workers doing the same or a similar job. Again where work is of an unusual or seasonal nature, it may be necessary to consider earnings on an annual basis or even over a longer period,so that a proper calculation can be made. It is important to note that at present, the insurer does not have to account for any tax deducted to the Revenue.

Medical expenses It is not necessary for medical treatment to be obtained on the National Health Service.The Law Reform (Personal Injuries) Act,1948,specifically states that medical expenses may be recovered in any claim for personal injury. To date, such claims have not been numerous but the greater use of medical insurance, and the practice of the insurer using his subrogated rights to recover from a negligent third party may increase the number.Where group schemes are involved and the principal insured is the employer,the most usual case,the policy wording must be looked at carefully to see whether subrogation is possible as between indemnified employee and employer or is precluded. In the individual insured case, the medical expenses insurer will join with the employee and the claim be included in the special damages. Some few years back the Law Commission published a paper in which it was suggested that all National Health Service charges incurred as the result of an injury caused through the responsibility of another should be recovered by the state. Government decided to follow this recommendation in part and the Road Traffic (NHS Charges) Bill has now been introduced into parliament and it is likely to be passed into law in 1999,although it will require regulations to give it implementation. The Bill is concerned only with motor accidents and indicates that powers will be introduced to calculate charges according to a tariff designed to be simple. This is expected to consist of a set fee for accident and emergency treatment and a daily rate for in patient treatment and will be the subject of a ceiling.At

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the present time there does not appear to be any intention of recovering the entire cost as was forecast in inspired ‘leaks’. Charges will now be computed on a national basis and collected by the Compensation Recovery Unit. Charges to be levied for accidents before 2 July 1997 are £295 flat rate charge for out patient treatment: £435 per day for in patient treatment, to a maximum of £3,000. For accidents on or after 2 July 1997 the flat charge is £354 for out patient treatment and £435 per day for in patient treatment to a maximum of £10,000. There is scope for revision of charges insurers are going to find this new arrangement a substantial drain on funds. On the face of it there is nothing revolutionary in either the Bill or the concept. Power to recover such charges subject to fixed limits was given first by the Road & Rail Traffic Act 1934 and has been embodied in succeeding Road Traffic Acts. The problem is the recommendation of the Law Commission in that all charges be recovered where the injury was the responsibility of someone other than the injured party. It is likely that the thin end of a very substantial wedge has now been inserted into the concept of NHS treatment for accidental injuries. At some stage government is bound to consider the position of Employers Liability insurers and consider whether they cannot be made to pay for treatment necessary as a result of their negligence. The cost to EL insurers would be quite huge and would become an administrative nightmare.The position might be improved if some sort of a franchise were to be introduced but the problem that arises with such a franchise, is that once the system is up and running the franchise then tends to be withdrawn,as has happened with the clawback and claims relating to £2,500 or less (see below).

DSS benefits A person who is injured in his occupation is entitled to various benefits, commencing with his Statutory Sick Pay, paid by his employer and taken into account in full, when calculating the net earnings loss. Once the statutory period has expired then certain benefits become payable by DSS and continue at variable rates for varying periods with supplements depending on marital status and whether there are dependent children.

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The claw back and its operation In 1948,as already indicated,Industrial Injury Benefit replaced WCA benefits and the victims of other accidents would receive Sickness Benefit from the State. It was thought that Common Law claims would not be attractive to victims, who would be content with their weekly benefits. But what of those who made Common Law claims – they would still have their state benefits.After discussion with all interested parties,the historic compromise was agreed with the TUC and the CBI, that one half of benefits only, should be offset against any claim for loss of earnings. No offset took place against general damages.The reason for the 50% rule was basically that both parties contributed approximately equally to the NI Fund and thus,each was entitled to half the benefits. Various other benefits were added over the years.The relationship between the contributions varied; some benefits were held by the Courts to be such as they should be offset entirely, but no suggestion was ever made that the State could or should recoup its outlay. However the Pearson Commission in 1973 first came up with the idea that claimants were receiving double compensation when damages were paid and they retained 50% of their benefits.This was ignored, as was the rest of the report, until the Public Accounts Committee of the House of Commons came up with the idea that £150M per year was there to be obtained from claimants, because of what Pearson had called double compensation. Investigation by Accountants,Touche Ross on behalf the DSS, showed the figure of £150M to be wildly optimistic,and nearer £50/75M,came down to about £45M, and there are very substantial administration costs which have been and will be incurred by Government.Representations were made by various bodies (ABI,CBI, TUC,Law Society,Bar Council,British Rail and British Coal) and it is to be supposed that Government thought if its proposals were opposed by such strange bedfellows, then they were on to something. The proposal was outlined in the Social Security Act 1989, section 23 and given teeth by regulations made thereunder.All benefits paid to a claimant must now be refunded by the compensator,usually an insurer,to the DSS.In the first instance cases where the payment did not exceed £2,500 were exempt and the old rules of 50% applied to such small matters. Any such cases that are still outstanding are still dealt with in that way. However, the rule is now that all benefits are to be recovered and it is the responsibility of the compensator to make payment to the DSS.The refund applied to all benefits paid up until the date of settlement or five years from the date of claim, whichever is earlier. Payments into court are affected because now the payment in will consist of two parts; a monetary sum

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and a certificate to show the amount deducted,thus giving the gross value of the payment in. If the compensator elects to pay in without deduction then, he not the claimant, is liable to account to the DSS for the benefits. Where an interim payment is to be made,benefits payable to date must be deducted and a net payment made, otherwise again the compensator can be liable.When a claim is notified to a compensator, he and the claimants Solicitors are asked to include with their initial letter of claim either or both their client’s National Insurance Number and date of birth. Once the claim is registered, before any payment is made a certificate of benefits must be obtained and such sum as is shown,deducted from the payment if non exempt.The DSS have undertaken where an application is marked ‘Urgent’or is faxed then it will be given priority attention. Clearly if a hearing is imminent or a payment into court to be made the details of benefits are required well in advance. The effects on insurers are profound: •

They lose 50% of the benefits and thus the level of payments is raised by around 15%

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The system is inflationary because premiums had to be raised to absorb these costs, 7% to 8% in EL.

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However, above and beyond these direct costs are indirect costs – the additional administration in communicating with the DSS:the fact that instead of one payment of damages there will be two payments.

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The increased delay in settling claims and the fact that claimants and their advisers will seek to push up levels of damages to compensate for the loss of benefits. Some pressure is already been exerted in this direction in relation to asbestosis cases.

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The inevitable rise in the amount of litigation.

The effect on claimants: •

A loss of 50% of benefits

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A deduction is now limited merely to loss of earnings but was formerly one which might go into general damages.

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A deduction to be made in full with no reduction in that payment for contributory negligence.Thus,where a claimant is guilty of substantial contributory negligence,he may recover nothing himself the whole award can go to the DSS.

Is the system just and equitable – the answer must be no because it does not equate with the principle that benefits provided by a claimant personally by way of

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insurance are not to be taken into account in calculating his damages.This principle follows Fatal Accidents (Damages) Act, 1906, which ante dated a decision of the High Court in the 1970’s that participation in benefits in accordance with contribution towards premium should be followed,and has been repeated in Fatal Accidents Act, 1989. It must be said that the claw back rules operate in similar fashion to provisions of the same nature in Continental countries.Whilst it appears fatuous that a person should be paid by his employers and also by the State, it must be remembered that the claimant has paid towards his entitlement to benefits – there is a perceived inequity as to the way in which benefits paid under private insurance are handled.

Structured settlements Structured settlements have excited a great deal of interest in the last few years but cannot be regarded as entirely new. As far back as the early 1970’s some proposals were put to the Robens Committee and these were based on an income based settlement for widows. In the late 1970’s a paper on the subject was published but really was in advance of its time. The reasons for the subject being considered were the case of Jefford v Gee,which with differing rates of interest for different heads of damages caused itemisation and the total of the items far exceeded the total global sum which customarily had been awarded till then.In 1971,a High Court Judge was asked to assess damages in one of the thalidomide cases and his figure was £55,000 for a grievously disabled child. In the Hussein case in 1988, over £1M was awarded for similar disabilities, the injuries being different.The idea of the settlement on an instalment basis was given some impetus by the result of discussion with the ABI and Inland Revenue when the latter agreed that periodic payments would be regarded by them as damages deferred and not income – thus they would be tax free and the claimant provided with a tax free income. Special forms of discharge have been drafted and agreed by Revenue as satisfactory. The concept has been recognised both judicially and by statute – the case of Kelly v Dawes, 1989, was the first where settlement was recorded by the Court: and in the Social Security Act, 1989, a structured settlement was in fact defined and rules laid down for the claw back to be applicable in special ways. There is a built in prejudice against any interference with the concept of the traditional method of providing compensation in the UK,the lump sum in damages.

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To try and mitigate the effects of the ‘one’ bite at the cherry rule, two safeguards to the position have been introduced. •

Itemisation – which effectively led to thoughts on structured settlements.

•

Provisional damages – the interim award with power to re-open in the event of a serious deterioration in condition.

There had been no real work done into the position of seriously injured claimants and what happened to them and their awards of damages until the ABI set up the first real survey.The report indicated no real over-compensation except for continuing care, which was not provided to the extent forecast: a later survey indicates some dis-satisfaction in later years with awards made some time before. The structured settlement works by providing a sum for immediate needs, with the purchase of an annuity to provide a tax free sum to the claimant, during his life. Insurers are less keen because it has become clear there is an administrative burden because the Revenue insist on the payment being net of tax by the annuity company with insurers topping up. In times of low interest rates, annuities are never so attractive. The advantages to the claimant can be summarised as: •

An income on a regular basis,possibly index linked certainly with some element of inflation proofing.

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Immediate needs will be satisfied by a lump sum.

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A seriously injured person should not become a charge on the State.

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The money will never run out The disadvantages are however:

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Deprivation of the opportunity of windfall damages.

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Right of an individual to dispose of his own capital sum is compromised.

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Relatives can be deprived of a legacy.

It has never been suggested that structured settlements should be mandatory, they should merely be another means of compensating claimants available to the Courts and insurers.A report on damages commissioned by the Lord Chancellor commends such settlements as one means of dealing with very large claims.They will therefore remain as an option to be agreed between the parties.

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Two members of Parliament asked Government to amend the Finance Act,1995, to permit payments of annuities to be made gross.This will relieve the burden of administration on the general insurer.Structured settlements may become more attractive to them now that amendment has been adopted.

Interest Interest on damages can be a very substantial sum and is awarded because the plaintiff, in theory, has been kept out of his money by the defendant. Interest is not awarded on future losses and at varying rates on general and special damages. The very recent case of Wadey v Surrey CC,1999 has decided that when interest is calculated on a plaintiffs damages,then the court should disregard state benefits received by the plaintiff as a result of the accident.This effectively means the plaintiff receives interest on the whole of his special damages, even though a deduction is being made for the Social Security Benefits he has to refund. Yet another IBNR burden has been created for insurers and it will be necessary for adjustments to be made to reserves.

Levels of damages The Law Commission in a recent report has said that awards for pure general damages,i.e.compensation for actual injury,are too low and should in most serious cases be doubled.It is true that the general damages component in a large award, has not increased as much as,or as quickly as,the other components.Nevertheless, it is submitted that the package as a whole must be considered in the round.The difference between Leung and Biesheuvel is over 100%. Because every EL claim is one for personal injury, if the recommendations were to be adopted, the effect on the class of business would be very serious and premiums would need to rise substantially.

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Defences and the handling of claims DEFENCES DENIAL I N E V I TA B L E A C C I D E N T VOLENTI NON FIT INJURIA CONTRIBUTORY NEGLIGENCE OUTSIDE THE SCOPE OF EMPLOYMENT FORESEEABILITY OTHER DEFENCES CONDUCT OF CLAIMS I N V E S T I G AT I O N T H E FA C T S OUTSOURCING SETTLEMENT L I T I G AT I O N C A S E S T H E L I T I G AT I O N T E A M

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Chapter 10 Defences and the handling of claims It has already been said that the fact that Employers Liability Insurance is compulsory does not mean that compensation is paid automatically. It is necessary for the injured worker to show that the employer was at fault and that that fault was the cause of the injury.It must follow that the employer can attempt to show absence of fault and that he has a defence to the claim.

Defences It is a fact that if allegations are made against any person who owes a duty of care to another, he is not automatically liable.There are a number of defences which can be raised.

Denial The first and most obvious of these is a complete denial of all the allegations made or that the act complained of was wrong,or that the act was causative of the injury. It has always been the rule that it is for the plaintiff to prove his case not for the defendant to disprove it.This has meant that a straight denial of the facts narrated by the plaintiff was sufficient for the defendant if in the opinion of the Courts the allegations were not proven.However,the Woolf recommendations now forbid a straight denial and detailed statements of why the defendant does not consider himself to be responsible must be given.The protocols which have been agreed as the result of discussions following the Woolf recommendation, make it clear that in pre-litigation correspondence this type of information must be given first by plaintiffs and defendants solicitors.

Inevitable accident The defendant may escape liability if he can show he exercised reasonable care and yet despite that,the injury occurred.It really is a very hard task for the defendant to show that the degree of care exercised was high enough.It can be of importance

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in cases of res ipsa loquitur, where the onus of proof is transferred from plaintiff to defendant, the circumstances appearing to speak for themselves. In Walsh v Holst & Co.,1958,very unusually the defendant was able to discharge the burden.

Volenti non fit injuria This means that to the volunteer no harm can be done. It means that where a person knew of a risk and yet volunteered to run the risk, he cannot afterwards complain of the danger and the consequences. It is however not enough to show that the claimant knew of the risk, he must also have consented to running that risk.Thus in Smith v Baker, 1891, where a man working in a quarry complained of the practice of stones being carried over his work place by crane and was injured, the defence of volenti failed: he knew of the risk but had not consented to run it. However, although for many years, it was thought the defence was no longer available in employers cases, especially where there was a breach of statutory duty,in Shatwell v ICI,1965,it applied.There two brothers were shotfirers upon whom as a class specific duties were imposed. They agreed to disregard the regulations,which imposed those specific duties upon them and when one brother was injured and sought to sue his employers, the defence of volenti succeeded. Obviously there are very few instances where this can be used with the pattern of new regulations imposing duties upon the worker,a plea of breach of statutory duty against the worker might be more usual and successful.In the case of volenti, the defendant succeeds completely.

Contributory negligence Undoubtedly, the most important argument in the defence of a claim against an employer is contributory negligence.There is an argument in jurisprudence that contributory negligence is not a defence but a mitigating factor. However, the defence is scrutinised very strictly by the Courts in employment cases.The following points are of great importance: •

Not every act of carelessness will be regarded as contributory negligence. Many such acts are regarded by the Courts as mere inadvertence, particularly when routine work is involved,Frost v John Summers,1955; Caswell v Powell Duffryn, 1940.

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•

Judges are loath to find contributory negligence in cases of breach of statutory duty.Very often, it is necessary to look beyond the plaintiffs actions, to see whether proper instruction as to the observance of statutory regulations had been given.

•

If the breach was occasioned solely by the plaintiffs fault,contributory negligence of 100% can be found,Ginty v Belmont Building Supplies, 1954.

•

Where a number of men are working together and between them an accident occurs, either common law or breach of statutory duty being involved,the plaintiffs damages will be reduced for his own negligence. Thus in Stapley v Gypsum Mines,1953,where two men were involved a reduction of 50% was made.In Williams v Port of Liverpool Authority 1956,where ten men were concerned one man was injured because of disobedience to instructions.It was held that the liability of the plaintiff was not determined by the counting of heads,and the plaintiff was held 50% to blame.Therefore, the conduct of the claimant and the degree of responsibility must be considered carefully especially in relation to the present day concept of team working.

As already indicated, the probability is that an allegation of breach of statutory duty on the part of an employee is likely to be as successful as a plea of contributory negligence,more especially as the Health and Safety at Work Act does impose these specific statutory duties.

Outside the scope of employment Where the employee is acting outside the scope of his employment, he has no claim against his employer, even where there is a breach of statutory duty; Napieralski v Curtis, 1959.Where one employee acting within the scope of his employment is injured by another,acting outside the scope,whilst the responsible employee may be liable personally, the employer is not liable. This can be of importance in for example cases of assault by one employee upon another. If, however,the employer knew of a record of violence,he may be liable on the basis that one County Court Judge said, that to employ a servant with a known record of violence and a fierce and ungovernable temper,was akin to keeping a dangerous animal on the premises. The employer has of course also to bear in mind the terms of the Rehabilitation of Offenders Act.

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Certain convictions under the Rehabilitation of Offenders Act are spent after a particular length of time and do not have to be disclosed.Therefore in completing an employment application a prospective employee does not have to disclose such convictions.It is not usual to find that convictions involving violence become spent and it is only if such convictions are disclosed that the employer will become aware of the prospective employees record of violence. In the first instance the employer will not know of any propensity that the prospective employee has towards violence;in the second instance he must take into account safety of other members of his staff but if some convictions which are not spent are not disclosed then again he will have no knowledge of,and thus no responsibility for,the conduct of the employee.

Foreseeability If the damage/injury was not foreseeable, the employer will not be liable.Where however, some injury of the nature complained of is foreseen then the defence will fail, Smith v Leach Braine & Co., 1962.This concept is linked to the basic principle that a defendant must accept the plaintiff as he finds him,and if an injury is more serious to one person than to another,that is the defendants misfortune, the so called ‘eggshell skull’ rule. In the case of Page v Smith 1994 the House of Lords held that where a road collision occurred and it was foreseeable that a physical injury might occur, the fact that a psychological injury took place is immaterial and the claimant was able to recover damages. In the case of McFarlane v E E Caledonian 1994, a man described as not of ordinary phlegm suffered alleged psychiatric injury as the result of a rig fire. He did not recover damages because he was not personally in the zone of danger.That was a Scottish case but the very recently heard case of Frost v CC South Yorkshire 1998, established that police officers who were not in the zone of injury were not entitled to recover damages for psychiatric injury and that in any event those in public service by reason of their training must expect to be involved in unpleasant incidents of this sort. It may be that the House of Lords is endeavouring to put a brake on the spate of claims for stress and psychiatric injury which have occurred.

Other defences It is possible to plead emergency and Act of God in employment cases,but it will be appreciated that their application, of necessity, is limited.The most common

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cause for the failure of a plaintiffs case is that he simply fails to prove it. He is unable to discharge the onus imposed by English law on a plaintiff, to establish causation either in the sense of showing the employer to be at fault, or if fault was there, that it caused the injury.

Conduct of claims It is the responsibility of the insurer to have the conduct and control of claims. Although in relation to certain of those claims,he may seek the advice of lawyers and other experts. Even in cases where there is a deductible,the insurer,subject to keeping his policy holder informed, will still deal with the claims.

Investigation In considering EL, as with all liability claims, three questions always have to be considered. •

Whether there is liability under the policy and whether the insurer must indemnify under the terms of the policy.

•

Whether the insured is liable to the third party at Common Law or under contract or under Statute in whole or in part

•

What is the value of the claim.

Whilst these questions appear to be elementary, the answers are crucial to the handling of the claim and any payment which is made. The first question to be answered relates to the relationship between the insurer and the insured.Has what has happened and led to the claim against the insured occurred in circumstances which are covered by the policy.The policy wording must be examined with care. Any amendments to the standard wording by endorsement, or otherwise, must be considered. Some endorsements are restrictive,others extend the cover available.On occasion pre contract negotiations may have led to correspondence, which commit one party or the other to a particular course of conduct. Sometimes,it may not be possible to make a final decision until a full investigation of the circumstances of the occurrence has been made. If that is the position, then to avoid their becoming estopped and committed finally to the acceptance

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of the claim,insurers must put in writing to the insured the fact that their position is reserved, and that all investigations are without prejudice. EL insurance as already seen is compulsory and the implications of that need to be considered.Certain conditions are repugnant to the act and whilst the insured may be in breach of the policy conditions,the insurer cannot rely on those breaches so far as the injured worker is concerned. His claim will require to be dealt with and then,if a condition entitling the insurer to recover from the insured has been incorporated into the policy, the insurer can take his chance of recovering from his insured. It does mean on occasion that even where a judgement has been given, insurers must still indemnify under the policy, subject to the comments above.

The facts To answer the second question, an investigation of the facts must be made.This may involve a visit to the scene,the taking of statements from witnesses,possibly the involvement of solicitors and in the heaviest and most complex of cases,even an opinion from, and a conference with, counsel or leading counsel. Contract documents may be involved – they must be considered especially having regard to the latest legislation in relation to unfair contract terms.When the policy position still needs to be resolved,this investigation hopefully will give information sufficient to reach a decision. Very occasionally,a trial is needed to resolve the point,the insurer possibly being involved as Third Party, in the main action involving the insured. It must be remembered that in commercial insurance matters,the services of the Ombudsman are not available. In litigation cases now,statements must be produced to the other side.Solicitors will therefore usually prepare statements to be signed by the witnesses because the other side will be doing the same thing – it must be remembered there is no property in a witness. The statement taken by a claims inspector may be much more valuable, because it is taken early. Claims personnel must be trained to take statements rather than paraphrase what the witness says into a report. If a witness refuses to make a statement or says he knows nothing, a signed note to that effect is valuable: if that cannot be obtained then a brief statement from the claims inspector dated signed, and preferably witnessed can be used in evidence.

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Outsourcing For various reasons arising in part because of the considerable number of mergers between insurers which have taken place and also in an attempt to contain expense ratios and maintain a service in a competitive market many insurers have considered and some have adopted a practice of outsourcing their claims.Whilst to a very large extent this has so far taken place on the motor side, undoubtedly consideration will have to be given to the use of outsources in employers liability claims,because of the fact that so many more investigations will have to be carried out at an early stage. Outsourcing simply means that an outside agency is commissioned and employed to deal with claims on behalf of an insurer,although up to what stage will depend upon the contract between the insurer and the outsource. Outsourcing may take a number of forms: •

All claims will be notified not to the insurer but by policy instruction to the outsource and the outsource will then handle the claim.

•

Handling the claim may take place up to a particular limitation of value or the mandate may require reporting at various stages.

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The outsource may be given authority to deal with claims up to the outset of litigation at which stage the insurer will wish to become involved.

•

The outsource will be given complete authority to deal with claims and to the retention level at which stage reinsurers may wish to become involved.

It would be extremely unusual in personal injury cases and it has to be born in mind that all EL claims are personal injury claims for an outsource to be given carte blanche. The principle outsources in use are adjusters and solicitors. Whilst in the past adjusters had been used to deal principally with material damage claims, over the last 5 – 7 years many have set up their own liability departments staffed in many instances by insurance personnel and they are now able to offer a service in which not only will they investigate but they will also seek to determine liability. Solicitors are also offering their services in the handling of claims from the ground up as distinct from cases involving litigation.Solicitors consider themselves uniquely qualified to deal with liability cases and as Officers of the Court they are entitled to represent their nominal and insurer clients,even when litigation is under way

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which means that cases do not necessarily have to change hands.There are a number of problems which can arise: •

The interests of the outsource and the insurer may not necessarily coincide,this is purely and simply because the business interests of the parties involved are not necessarily identical.The business interest of the insurer is the disposition of claims as quickly and economically as possible and this may involve settlement repudiation and/or litigation. The business of solicitors is truly that of litigation and that of adjusters the settlement of claims without necessarily being involved in litigation. It has to be said that some adjusters to aid in the decisions of liability have taken solicitors into their employ.

•

Cost:whilst insurers have been able to cut their expense ratio the actual cost of the claims account has been debited with these extra expenses and at some instances fees have approached or are coming close to approaching the savings which have been made by the slimming down of claims departments.

•

Claims cost:because the outsource does not have the same involvement with a monetary consequence of the actions as did insurance staff,there is the possibility of increasing claims ratios and perusal of some of the DTI returns by insurers indicates that in some instances claims ratios are increasing.

It is an undoubted fact that outsourcing has advantages for insurers;from the debit side there are disadvantages in that the insurer loses direct control of his claims and may in fact not be in possession of all material facts relating to individual claims at any one time. If the two interests can be reconciled then outsourcing may have much to offer and may in fact become necessary in the handling of employers liability claims.

Settlement The vast majority of EL claims are settled or repudiated and finally terminated without payment.The number which proceed to litigation is comparatively small – those which are actually fought are a very small number. Settlements are negotiated by insurers directly with Solicitors or claimants personally, or sometimes their Trade Unions.In dealing with Solicitors,insurers will use either correspondence or their claims officials will discuss with the Solicitor, negotiating settlement. The art of negotiation lies in pitching any offer at the right level making use of arguments as to liability and possibly agreeing contributory negligence.

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Care must be taken to ensure that the 50/50 settlement does not become the norm – it implies the easy way out of negotiation. In dealing with claimants personally care must be exercised:the lay claimant must be advised he might be better placed in taking legal advice.If the claimant prefers to proceed alone,then a signed note that the position has been explained to him must be obtained.This will avoid any allegation that the insurer has sought to take advantage of a less experienced person.Most Trade Unions have now wound up their claims departments because of the expense of running such organisations, and more importantly,because they consider that their members are better served by legal advisers.Where settlements are negotiated with Trade Unions,again they must be on a proper basis and at the right level. When payment is made, it is unusual, but not unknown, for a separate discharge to be obtained.The letter sending the cheque should indicate payment is in full and final settlement of all claims against the employer, in respect of the circumstance giving rise to the claim. Cashing the cheque is of course, acceptance and brings the claim to an end.

Litigation cases It is a truism that the business of insurance is the disposition of claims by settlement or repudiation;litigation is the business of lawyers.It must therefore be the subject of a proper considered decision to allow a case to proceed on to litigation. It is therefore most important that where claims have been outsourced that insurers are kept fully aware of any litigation in which they may become involved. That does not mean that all cases should be paid.To do this,whilst saving on legal costs, does mean gaining the reputation of being soft and thus more claims are encouraged. If the insurer is satisfied there is no liability, then he should be prepared, if the evidence is available, to repudiate and if that denial of liability is not accepted, then to allow proceedings and to contest them. If the insurer is concerned that to pay one claim of a certain type, that a large number of others like it might be made, then again consideration must be given to repudiation and litigation because of the snowball effect. In some cases the insurer cannot achieve a settlement at reasonable figures because the claimant’s demands are too great.Again,the answer may be the issue of proceedings followed by a quick payment into court to give protection against costs.

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There are also a small number of very large claims where it is impossible,because of the tactics adopted by the claimant or advisers, to negotiate at all, let alone achieve a settlement – such cases may have to go to the Court door before any real discussions can take place. In such cases, it is sometimes possible to arrange via the Solicitors on each side,for a discussion between counsel – this can sometimes bring about a break through.

The litigation team It is very important to have the right people to deal with litigation cases and the team should consist of: •

Insurer:an experienced claims official well versed in the law and practice who can appreciate and evaluate the information he is given and take the necessary decisions.He must therefore be given adequate authority.

•

Outsource:if an outsource is being employed then the outsource will liaise closely with the insurers and the outsource may be either an adjuster or a solicitor,in which case the relationship described below under the heading of Solicitor is one of great importance.

•

Solicitor: usually the relationship between insurers and Solicitors is a close one based on a long association.It is common for one or two firms (preferably the latter because of the element of competition introduced) to be given the insurers work in an area – sometimes large connections are included.A Solicitor is in fact an officer of the Supreme Court. It is because he has certain powers and duties that insurers engage him to carry out all the legal work necessary, including the interviewing of witnesses (from whom statements should already have been taken by insurers) the assembly of evidence; the instructing of counsel and the tendering of advice.

•

Counsel: is a barrister who is an advocate who primarily, prepares pleadings and other documentation in the case and will give opinions, either in writing or in conference. Barristers are of two kinds: –

Junior Counsel:who are engaged in High Court and County Court cases.They prepare pleadings and may be asked to give preliminary advice

–

Senior Counsel: Queens Counsel (a QC or silk) will be engaged in cases of importance.As cases become of greater value and of greater complexity, so QC’s tend to be engaged by insurers earlier.This is an excellent development, for the earlier the silk is

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involved (preferably in conference) the earlier decisions can be made as to the conduct of the claim. Up until the Courts Act, Solicitors had rights of audience in the County Court but not in superior courts.Whilst certain rights are now given to Solicitors these should for the moment be regarded with caution until greater experience of their operation and the calibre of Solicitor advocates has been properly gauged. It is no longer necessary for leading counsel to be accompanied by junior counsel although it may be desirable in some cases. If, however, a junior has to leave a case because he is actually appearing in another case at the same time, a briefed silk may be the most satisfactory way of dealing with an emergency situation. It is to be noted that a qualified member of the Chartered Insurance Institute can send papers directly to Counsel without the need of a Solicitor: it is a power to be used in connection with insurance points, as the interpretation of policy wordings rather than liability claims; it is however there.

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Litigation procedure HIGH COURT THE TRIAL COUNTY COURTS INTERLOCUTORY PROCEEDINGS T H E PA P E R C A S E THE FUTURE COSTS LEGAL AID CONDITIONAL FEES T H E W O L F R E P O RT A N D R E C O M M E N D AT I O N S O N C I V I L PROCEDURE THE PROPOSED SOLUTIONS CASE MANAGEMENT THE COURTS PROCEDURE PRE-ACCIDENT PROTOCOLS CONCLUSIONS

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Chapter 11 Litigation procedure Procedure in litigation is at the present time the subject of massive change. Lord Woolf was commissioned to look at the whole structure of English Law and procedure and his report issued in June 1995 advocated very substantial reform of the Courts and procedures.In fact adoption of the recommendations will bring about the most substantial change in legal procedure since the Judicature Act of 1876.The Lord Chancellor has in a number of key note speeches indicated his view that other forms of dispute resolution have a place in our society and that the Court should in many dispute situations be positively the last resort.The Master of the Roles – the senior civil judge – has issued a Practice Direction, the two main points of which are speed and the use of the paper case. It is clear that the traditional form of litigation is under attack and is shortly to be replaced by something substantially different.The recommendations of Lord Woolf were considered at the behest of the Cabinet considered and the Middleton Report produced, which indicated broad approval for the recommendations. The implementation date is 26 April 1999 and this date has been the subject of much criticism because it is indicated that the legal profession and certainly the insurance industry,are not familiar enough with the new procedures to enable them to work as smoothly. Representations were made to the Lord Chancellor about a postponement of the implementation date.Not withstanding the fact that the new Rules of Court were not published until mid January 1999, the Lord Chancellor has indicated that the implementation date was a firm one and that training by members of the legal profession and others concerned would mean that a smooth transition would take place. It remains a matter of doubt.The substance of the recommendations will be discussed later in this chapter.

High Court It was said for many years that English litigation was too slow and cumbersome and most importantly was too expensive, depriving far too many people access to justice.The idea of litigation was to avoid the settlement of disputes in hot blood by, in many cases, violent action.A procedure was developed to clarify the issues between the parties, and to enable the Courts to pronounce. Inevitably the current type of procedure has become cumbersome with the: •

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Writ of Summons – summonsing the defendant at the suit of the plaintiff to the Queen’s High Court.

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Statement of Claim – in which the plaintiff sets out the reasons for his claim, and the nature of his injury and losses.

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Defence – where the defendant says why he is not liable – in the past a bare denial of each allegation sufficed,now the defendant has to give reasons for his denial.

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Discovery of documents – where each side makes available all of its relevant documents – this can be very damaging if incriminating documents have been kept.

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Directions – now automatic, but giving other technical details as to the mode of trial, including very importantly, the number of medical and other expert witnesses.

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Setting down – when the case is set down for trial.

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The trial – an adversarial contest where each side puts its case with the evidence to support it.

The trial It is the trial which can be very costly – the giving of evidence orally with examination and cross-examination can be time consuming,especially when there are more than two parties involved. The trial of a civil action takes place before a Judge alone except in very exceptional circumstances as recently when,a civil action was brought by a plaintiff in respect of personal injuries – in that case rape – and because of the quasi-criminal nature of the proceedings a jury was deemed necessary. The trial opens by Counsel for the plaintiff addressing the Court, indicating the nature of his evidence, referring to specific documents, and then going over the Statement of Claim and Defence. He then calls in evidence which is given by witnesses orally.Counsel asks questions to which the witness replies and the Judge will ask for clarification of points which are not clear.After examination in chief of each witness has finished, Counsel for the defendant will cross-examine;after cross-examination,Counsel for the plaintiff may re-examine to clarify any points which have arisen on cross-examination. Once the plaintiff’s evidence has been heard, then the defendant will call his evidence and will examine each witness,Counsel for the plaintiff having the right of cross-examination of the defendants witnesses.

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Once all the evidence has been heard,Counsel for the defendant will first address the Court in his closing speech.The plaintiff’s Counsel has the right of address last when the defendant has called any evidence. Judgement will then be given, the Judge of course giving reasons for his decision.He may,if the case is complex, or if he requires time to consider the matter, reserve judgement and give it at a later date. There may be cases where the defendant decides to call no evidence – he is, in other words,saying that the plaintiff has not proved his case,and there is nothing to disprove. If no evidence is given for the defendant, then Counsel will have the right of closing address last.This is a valuable privilege. If any evidence is given for the defendant at all, then the plaintiff’s Counsel retains the right of address last. If the Judge indicates to either Counsel that he does not require to be addressed by one or other Counsel,this may be taken as a virtually certain sign that judgement will be given in favour of that party. However, as already indicated, this procedure will be substantially altered if only the Practice Direction is followed.Witness statements are now exchanged before trial; medical evidence, hopefully, is agreed; other expert evidence is before the Court in writing and the Practice Direction indicates that statements and reports are to be taken as evidence in chief.The whole thrust is to rely less upon oral procedure and more upon the paper case. Whilst such reform in the interests of speed and economy may be desirable,whether they will provide a satisfactory trial by adversarial means remains to be seen.

County Courts The County Courts were originally designed to provide a quicker and easier method of dealing with smaller disputes.Jurisdiction has now been extended so that they deal with all but the largest and most complex matters. Procedure now,although still rather less formal,mirrors the High Court method. Cases which are worth up to £50,000, unless they are of public importance or of extreme complexity,will now be heard in the County Courts which are regarded as their proper forum.

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Interlocutory proceedings These are hearings before Court officials, Masters, sometimes Judges, on matters related to the trial, thus: •

Interrogatories – where either side is asked to give replies to formal and searching questions in writing, if allowed by the Court.

•

Inspection and photographs – now usually permitted by the defendants but sometimes objected to on the grounds it is a mere ‘fishing’expedition.

•

Medical examination – the action may be stayed if the plaintiff will not submit for medical examination.

These interlocutory summonses now seem to proliferate – they are expensive.

The paper case Discovery of documents,as already seen briefly,requires each side to make available to the other, the relevant documents in its possession. Sometimes disclosure can open up the way to interrogatories, which will put an end to the case. Discovery goes further now than originally intended in that,as already indicated, medical and other expert reports upon which reliance at trial will be placed,must be exchanged or released and the statements of witnesses made available;in itself the latter has made the taking of statements an art, each side seeking to nullify the statement taken by the other. Indeed whether such statements can be relied upon is certainly open to doubt if, without being tested by question and answer, the statement is to be relied upon as the evidence in chief. As indicated, the recent Practice Direction has made the route to the paper case more certain. Counsel must make available to the Judge, a skeleton argument, much like the case put to the Judge in the US.Documents must be strictly relevant, penalties for an over-enthusiastic discovery are imposed. Advocacy must be kept short and to the point – in fact the oral case is on its way out as statements and reports,as already indicated,are to be regarded as evidence in chief with cross-examination thereon. Insurers have not yet generally realised the disadvantages which are imposed upon them by the restriction upon cross examination. It is an old truism that cases are not won.They are inevitably lost by the other side and this is usually because of the quality of oral evidence under cross examination.

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Penalties are imposed upon the offending parties’ solicitors in the form of costs to be paid by them.This is of great importance to insurers who must make certain that they are kept aware of any such errors that are made by their solicitors.

The future Most cases will now be heard in the County Court because unless a case is likely to exceed £50,000 in value or is of importance or complexity, that will be the designated forum. The High Court will be reserved for large, important and complex cases.There will be penalties for its misuse because the shift of work to the County Court will lead to backlogs,as it is a mere transfer of waiting lists from one venue to another. However, the paper cases are designed to speed up litigation and its flow.We are seeing the theories of the Management Schools translated into legal procedure. The possible increase in jurisdiction of the Small Claims Court especially since the case of Afzul v Ford Motor Company, 1994, where the Court of Appeal held that arbitration (where no costs are recoverable was appropriate even in cases of small personal injury) can solve part of the problem. In employers’liability cases,the use of other means of dealing with claims seems inappropriate. New procedures designed to cut delays and costs should therefore be welcomed with some degree of caution.

Costs For many years,insurers regarded costs as being a normal part of claim settlement and because they formed only a small percentage of total cost, were not particularly concerned. That perception began to change after the Law Society,in the early 1970s,produced a series of booklets on the cost of time and the emphasis began to change from the cost of the job, to the number of hours chargeable and the charge-out rate. Inevitably the emphasis on time caused an escalation in costs which is still continuing. For example, in the Annual Report of the Legal Aid Board, comment has been made on the fact that legal costs continue to rise at a rate considerably in excess of inflation.

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Lawyers will say that their overheads have risen,that increased complexity requires more time and that the speed of the litigation process has made an increase in the costs at the front end,as work which would have been done in the later stages of a case now has to be done earlier, thus increasing the cost of each case. Whilst there may be force in these arguments, insurers are faced with these substantial increases in costs,and competition forces premium levels to rates where they cannot be absorbed. Thought must therefore be given to means of control of own solicitor’s charges as: •

Scales – where the solicitor works to a stage in a case for a fixed fee, plus disbursements.The objection is there is little incentive to settle at an early stage.

•

Block funding – where the insurer pays a sum up front for the handling of a fixed number of cases.

•

Budget – where the solicitor is given a budgetary figure, to cope with all the legal work in a particular area.

None of these schemes is particularly attractive to insurers,however they do provide methods of control. In so far as plaintiff’s costs are concerned, they are in the end controlled by the Courts, who will tax cases, i.e. see what work is allowable and what should be disallowed. The fees of barristers are more difficult to assess.Insurers and their solicitors will know the going rate, as will the barristers usually instructed in their cases.There is a move to try and persuade barristers to show their fees at an hourly rate in any event. Leading Counsel have fees considerably in excess of those of junior counsel,again only an assessment of what is reasonable for the case can be made. If more than one insurer is involved, then on a matter of common interest, such as the level of leading Counsel’s fees, some consultation can take place. Although each insurer will need to protect its own interests.

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Legal Aid In employers’liability claims,the issue of Legal Aid has never loomed large,because so many cases have been backed by Trade Unions.With some rare exceptions, if a claimant has lost,the Trade Union has always been prepared to pay the insurer’s costs. A legally aided plaintiff is, however, protected in that whilst an order for costs can be made (usually endorsed not to be enforced without leave of the Court) it is unusual to find even an order for an amount equal to the unsuccessful claimant’s contribution to his own costs. Two other tests are applied for Legal Aid: •

The Legal Merits Test – that there is a viable case

•

The Cost Benefit Test – that the cost of Legal Aid is justified by the benefit the claimant will receive.

Certificates may be limited to a particular stage and an action. It is significant to note the increase in the number of legally aided claimants in EL cases (even some of the large Trade Unions’ solicitors now handle such cases) with the decline in Union numbers. However alterations in income and capital limits made the number of people eligible for Legal Aid decline substantially;contributions to costs became more substantial and more claimants perforce refused their certificates. In an effort to cut substantially the Legal Aid bill,the Lord Chancellor announced that any claims for monetary compensation would no longer be eligible for Legal Aid unless they were cases of substantial public importance or were block actions such as those where pharmaceutical companies were involved.The system will hopefully be replaced by conditional fees (see below).

Conditional fees For many years, in the USA lawyers have worked for a plaintiff on a ‘no win, no fee’basis.They have been prepared to act in return for a percentage of the damages – sometimes up to 50%. British insurers have viewed this arrangement as undesirable because: •

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There is a conflict of interest created,in that the lawyer has an interest personally in not only the outcome of the case, but also its financial value, so that negotiations are not entirely neutral.

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Because juries in the US know of these arrangements, they have raised damage levels to compensate.

It is the linkage between damages and lawyer’s costs, rather than the concept, which is undesirable and this was made clear to the Lord Chancellor by the ABI, when the issue was being canvassed. The Lord Chancellor, when indicating his approval of a system of what is called ‘conditional fees’ rather than contingency fees, did not incorporate any linkage and the regulations provide that: •

Solicitors can take cases on a ‘no win, no fee’ basis.

•

A mark up of up to 100% on normal rates can be agreed

•

The increased cost is borne by the successful plaintiff – not the unsuccessful defendant.

A barrister is being able to work on a similar basis. However the judges of the House of Lords have indicated that they are unhappy at the thought of a 100% mark-up on fees because that may take too much of a successful plaintiff’s award. The draft regulations are therefore being considered further.They have not been altered but it will be observed below that the Law Society has made certain recommendations. The Law Society initially put in place an insurance scheme so that by payment of a premium of about £100 the plaintiff was to be covered against the risk of having to pay the winners costs if he should lose.A number of other insurers are now prepared to issue what has become known as ‘post event’insurance,although premiums now vary substantially. Initially it was thought that this premium was to be paid by the Plaintiff but that has now changed and the premium for the future will be paid by the loser.This is linked to the fact that the mark up on the conditional fee which is also paid by the plaintiff is also to be changed and the mark up will be paid by the loser.This along with the insurance premium – these are now being calculated in accordance with the risk of failure or success – will mean a substantial burden upon insurers and the gains which were to be anticipated from the substitution of Legal Aid by conditional fees backed by insurance will very largely be dissipated. Experts will be able to act on this basis,if they wish – there really is no incentive for them to do so. It can be seen that really, Solicitors will be pursuing only the good cases on this basis.They have every incentive to do so.

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Application of the Legal Merits Test by the Legal Aid Board will cut out a number of the others. Lawyers will have to fund the cases out of their own pocket in this system.The rewards may be sufficient to make the prospect attractive to them. For insurers the advantage is that the threat of having to pay their own costs is removed with fee insurance in place. These conditions came into force in July 1995. An alternative system, CLAF, advocated by the Bar, whereby successful claimants pay a levy of 10% of their damages, has not found favour. The Law Society recommends that no conditional fee contract should require more than 25% of damages to be paid in costs – some protection where small awards are made.Since the mark up will now have to be paid by the loser – backed in normal circumstances by an insurer – it is confidently to be expected that the Law Society recommendation in so far as mark up is concerned, will no longer be of any avail.

The Woolf report and recommendations on civil procedure As already indicated Lord Woolf was commissioned to enquire into and report on the civil justice system because of criticisms which were being made in all quarters of society.These comments could be summarised as saying the system was too slow, too complex, and above all too expensive, which made it inaccessible to a very large part of the population.The report was published first in an interim version and it was followed by the final report in 1996.The recommendations were regarded as extremely radical and because Lord Woolf had indicated that the whole was to be regarded as a package and should not be in any way filleted, it was submitted by the government for scrutiny and a further report,the Middleton Report,which concluded that the recommendations were substantially to be welcomed.

The proposed solutions Lord Woolf advocates three solutions to the criticisms,the first is case management by the Courts; the second a reform of the system of the Courts and the way they operate; and thirdly for a large number of cases fixed fees.

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Case management At present the progress and pace of litigation is in the hands of the parties.To a very large extent it is the plaintiff who dictates the pace of the litigation although there are opportunities for the defendant to intervene and possibly force the case along. Under the Woolf regime, the management will be in the hands of a team led by a judge.A claim will be lodged at a Court in a new way – writs and summonses will disappear and all actions will be commenced by a claim.The court will decide in which Court the case should be heard and can also with an enlargement of the power of strike out, if there is no reasonable prospect of success or defence.

The courts These will consist of: •

The Small Claims Court: these were set up to provide a quick informal and inexpensive way of dealing with small claims. The original jurisdiction was £500 and was increased to £1,000 – it is instructive to know that when reform was being considered insurers recommended that the limit of jurisdiction be £3,000 but it was set at £1,000 – it is now to be increased to £3,000 and that recommendation has already been accepted and implemented by the Lord Chancellor. However, in the case of Afzul v Ford Motor Company,the Court of Appeal decided that small personal injury claims could be heard in these courts and no costs would be awarded against unsuccessful parties. Legal representation is discouraged in these courts because the amounts are small and in comparison the costs would be large.However,apparently as a result of representation made by plaintiffs lawyers, such cases will now be heard in the next tier of courts and that means that insurers lose because costs will be payable.

•

Fast Track Courts:these will deal with cases worth between £3,000 and £10,000.When the claim is submitted the case will be entered on the Fast Track, unless either party provides good reason for dealing otherwise, if the case falls within those financial limits. There will be a set timetable; only limited discovery will be permitted on both sides; only limited oral evidence; and a trial limited to three hours with a short judgement.The time for hearing may be extended to one day but the parties must decide themselves how to use their limited time. Clearly Lord Woolf has had regard to certain aspects of

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American procedure because in the Supreme Court only limited time is set for argument. •

The Multi Track:this is for the heavier cases.When a defence is received the Court will decide whether standard or special directions are appropriate,a case management conference will be held and issues will hopefully be determined. Pleadings in a simplified form will be available with documents and witness statements – or at least some indication of their availability.A timetable will be set with a preliminary date for a case review meeting and the target date for trial.

Lord Woolf has overlooked the fact that reforms of this sort were advocated and indeed on an experimental basis tried following the report in the 1970s. The experiment was not successful.

Procedure Simplified pleadings are to be used, the object being to set out in one document the material matters – rather like the Scottish Closed Record.Defendants as already indicated can no longer rely on a straight denial of liability but will have to give details of the defences on which they rely. Discovery is to be shortened and simplified – although further discovery may be ordered by application if either party thinks relevant documents have not been disclosed.A procedure similar to this is already in place. On the Fast Track only summaries and witness statements will need to be produced – and on the Multi Track exchange need only be after the case conference. On the Fast Track cross examination – one of the main reasons for an adversarial as distinct from an inquisitorial system will be allowed only with leave of the judge. It was originally suggested that experts would be instructed for the benefit of the Court – which may instruct its own expert if considered necessary – but some variation to this procedure is to be allowed. The agreement of medical evidence is to be encouraged and videos may be used to avoid doctors attendance at Court.Being extremely cynical many doctors will disagree only to come to an agreement at the door of the court when they are able to discuss the matter. Once an expert is instructed no correspondence will be privileged and it was originally suggested that a report be directed to the Court.

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Payments into Court will no longer be in the current form and a formal offer of settlement – as payment into court will for the future be called – English Law now follows Scottish Law in making an offer – called North of the Border – a Tender. Equally for the first time a plaintiff can offer to settle and if awarded a sum equal to,or in excess of,the offer he may receive additional interest at punitive rates and costs.The pressure which is now exerted on a plaintiff when a payment into court is made can now be reciprocated by a plaintiff. The report advocates fixed fees – especially in the Fast Track Courts – so that all parties know their maximum exposure.It is to be expected that this proposal has caused much furore in the legal profession because a profitable source of income can now be seen and could have the prospect of being controlled.It was suggested that in legal aid cases consideration be given to the award of costs – presumably from the fund – to the non assisted party but not surprisingly with the pressure that is in existence to cut the Legal Aid bill that recommendation fell.

Pre-action protocols These are designed to promote settlements, impart information, to make offers and all in all to promote a more co-operative attitude between the parties to an action. Thus, the letter of claim should be sent as soon as there is sufficient information to put forward the claim.The letter should contain a Summary of Facts and outline the details of the claim.The letter must be acknowledged with identification of the insurers within 21 days.The sanction is the issue of proceedings and costs to the claimant. The insurer has three months to admit or deny the claim giving the reasons for the decision and supplying copies of special damages.The sanction is the issue of proceedings and costs. The claimant must provide a schedule of special damages and supporting documents as soon as possible.Medical evidence is subject to the claimant providing a list of experts and within 14 days, the other party may object and an expert should be agreed between them.The time limits are short having regard to the fact the claimant has three years in which to prepare his claim. Insurers must therefore be prepared to investigate claims much more quickly and to reach their decision for proper reasons, set out in the letter of response. It is extremely important that insurers become geared up to dealing with claims in a much more expeditious way than they have done to date.The unfortunate

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thing is that this means that there is a front end loading of costs which inevitably is going to cause the total claims bill to rise. Either fees will have to be paid to outsources or insurers will have to engage more staff so that the time limits can be followed.

Conclusions When these recommendations come into force there will be fundamental changes in the conduct of litigation and claims generally. Insurers, lawyers and other interested parties initially greeted the report with favour, but consideration of the full effects of the report now indicate that it can have very detrimental consequences for insurers. In the first instance a great deal more money will be spent on costs – indeed this is recognised in the Woolf Report where it is somewhat dismissed as being one of the penalties to be paid.The restrictions being placed upon the conduct of the proceedings again can operate really to the detriment of insurers.A claimant will have three years in which to assemble and build up his case.An insurer will be given three months in which to answer the case by the pre-accident protocol before becoming involved in proceedings.A medical report which is produced may in fact be one report although a number of others have been commissioned and have been unfavourable.Whilst that risk was always present in the past it has now been over emphasised by the strict time limits being imposed. At the end of the day are the recommendations going to overcome the criticism of the current system? An obsession with speed can mean a denial of justice.Again this is hinted at in the Woolf Report by indicating that in some cases injustice may take place.As to speed acceleration in one area – for instance three hour trials – can mean slowing down in others and waiting lists, which have been cut substantially, may start to come back. Cheapness is certainly not going to come about at least in the early stages for the reasons already outlined. Case management by judges – who up until now have not been trained managers – is a key issue. Judges have been attending courses but doubts have been expressed as to their effectiveness having regard to the very short period of time allowed before the procedures were implemented.Either considerable training of judges will be needed or administrators may be appointed, as has happened in the NHS.This could be absolutely disastrous for the administration of justice in this country. All in all whilst insurers may welcome some individual areas of the report, taken as a whole it cannot be regarded as favourable to them.

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Claims estimating RESERVES AVERAGE COST IBNR CLAIMS THE ACTUARY AND HIS FUNCTION ACTUARIAL METHODS T E R M I N AT I O N REINSURANCE REINSURANCE AND INDUSTRIAL DISEASES

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Chapter 12: Claims estimating When a claim has been intimated,it is necessary for the ultimate cost of the claim to be estimated and provision made. Such estimates are in fact required for two separate and distinct purposes – the insurers’reserves,and renewal of the policy under which the claim has been made.

Reserves When claims are estimated, the insurer must set aside sufficient money to meet those estimated liabilities.It is clear,therefore,that the estimating of claims is not a matter to be taken lightly. Over-estimation can be as serious a matter as underestimation. In the former case, the proprietors of the enterprise will not receive a proper return on their investment because the money locked in the reserves is not available for distribution;in the latter case,the insurer will find it necessary to make up any deficit there is between reserves and payments from accumulated reserves or from current revenue. In the medium to long term, if this is done regularly, then insolvency can result.In an effort to control the long term effects of claims upon a liability account the assistance of actuaries is now being sought much more. (see below). In dealing with liability claims, there are really two separate methods by which individual claims can be estimated: •

Full liability basis.The insurer calculates his estimated outstanding liability on a 100% basis without making any allowance for contributory negligence or prospects of success.It is not necessary for the gloomiest view of the case from the valuation side to be taken;values must however be realistic and not unduly optimistic. By the adoption of this method, a balanced view is taken and there should be no fluctuations by persons estimating being unduly optimistic as to liability.Variations as to value will continue between estimators.Valuation is not an exact science but a primary cause of dispute, i.e. liability will be removed.

The difficulty is, of course, trying to predict what the value of a claim will be at some time in the future when the average life of a personal injury claim is around thirty months and in many cases,particularly the most serious can be very much more than that.

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Actual liability basis.By this method each claim is assessed individually both for value and liability and the estimate adjusted for contributory negligence or other favourable factors.However,too favourable a view must not be taken because serious under estimating can otherwise result. There can be greater fluctuation by this method since the estimator is exercising his skill both as to liability and quantum.

In both methods, the estimate must be adjusted for payments on account and the estimate fixed as that of outstanding,i.e.residual liability.This is vital because otherwise a double charge will be made on the insurer’s funds.

Average cost As a derivative of the above methods and in an attempt to overcome fluctuations between estimators, an average cost method of estimating was developed and used by some insurers as a more accurate method of arriving at the total of outstanding liability, on a particular account. However, a small number of very large claims, or a large number of very small claims, can cause wide variations in the average cost overall, and some cut-off point may be required. The average cost can be achieved in a number of ways: •

The total amount expended on settled claims in the current year of account divided by the number of settled claims can give a figure.

•

The total spent on claims in the year of account,divided by the number of claims terminated by settlement or otherwise, gives another basis.

•

The total of money spent on settlements alone,divided by the number of settled or terminated claims gives yet another basis.

On balance, the second method which takes into account both settlements and interim payments, gives a reasonably accurate figure.This figure multiplied by the number of outstanding claims of a particular class,gives the figure outstanding as at a particular date, but relates only to known claims. Average cost methods are particularly useful in providing a check on the estimates put up by the claims department.A wide variation between the figure produced by individual estimating and average costing requires immediate investigation because either the basis of estimating is wrong, or the figure produced for the average needs adjustment.

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The methods we have been considering are related, as already indicated, to the estimation of ‘known’ claims.With a liability account, however, provision must be made for Incurred But Not Reported claims – IBNR.

IBNR claims At the end of the insurer’s financial year,the insurer will know of all claims reported to him.However,a large number of incidents will have occurred where no report has been made because no claim has come forward.This does not alter the fact that the liability in respect of the claim,which may or may not be made,has been incurred because of the insurer’s being on risk at the time. Such potential claims are known as Incurred But Not Reported claims. When reserves are being set up,therefore,the insurer must estimate the known claims, adopting one or other of the principles discussed, or possibly actuarial methods described below,but also he must make provision for the IBNR claims which will be reported in the coming years.It must be borne in mind that this IBNR reserve is entirely separate and distinct from any further increases in estimates, because of developments in claims and from cases which have been reported to the insurer but are in the pipeline and have not yet been added in as known claims. Such a reserve can be set up by: •

Studying over a period of years the number of IBNR claims reported year by year.

•

Finding the cost of settlement of such claims and finding the average.

•

Finding the number historically of IBNR claims and calculating from that the number of claims to be anticipated in the coming year.

•

Applying either the company average as calculated on average cost, or the average cost of IBNR claims and multiplying by the anticipated number of IBNR claims.

It is a basic essential of claims estimating that an adequate reserve be set up for IBNR claims and is now of course required by the Insurance Company Regulations. There are complex requirements relating to the accounting procedures of insurance companies, mirrored by the requirements for Lloyds. In addition to the ordinary rules relating to accounts which require to be deposited with the Department of Trade and Industry having been audited, a complex return must be made to the Department.

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This requires details of premiums and claims, including the reserve for IBNR, together with details of run-off,so that a pattern of under or over-reserving should become visible. So far, we have been considering purely mechanical means of estimating and calculating reserves and average costs.To try to achieve more accurate forecasting, particularly in the area of IBNR, many companies (most of the large EL insurers, in fact) now employ actuaries and/or statisticians to calculate reserves, being especially concerned with the IBNR problem.

The actuary and his function The actuary is a professional in the field of mathematical forecasting and probability. His work always depends on the basis of assumptions he makes so it is important that the non-actuarial members of staff know what they are. Again, the actuary’s figures will be based on historical data, and EL accounting is,essentially dynamic.Events occur,changes to the law come about,one enormous award can affect the position of many claims. It is essential, therefore, that there be a constant interchange of information between actuarial and other technical departments.This can affect very markedly the pattern and flow of information, if the actuaries are in possession of current information to update or explain variations.

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Actuarial methods These are, by their very nature, complex.The actuary wishes to forecast for any year,the likely number of claims to be received,including IBNR.He will also wish to forecast the total cost of those claims to the year of account. At the simplest actuarial level he will use a triangulation,as in the illustration below, where the vertical line is the year of occurrence and the horizontal the number of years outstanding. Year

1

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The numbers plotted are claims reported. It is common for companies to keep open seven years for example, and all claims notified in that period are allocated to the earliest open year.The object is by forecasting, to fill in the blank spaces at the end of the financial year, and then from a similar triangle plot it on cost, to arrive at a number for the reserve figure. This, at its simplest, is reasonably accurate but increasingly sophisticated methods, including computer systems designed by and for the use of actuaries, are employed. However, a pattern of a very few large payments in one month can throw the actuarial model into disarray unless information is fed between the two departments.

Termination It must follow that with a programme of estimating and reserving,depending on numbers of claims,and a derivative of average cost loaded for inflation,the whole must depend for its accuracy upon only real live claims being counted. It means that there must be a rigorous programme of termination followed.A general review of claims must be continuous.A computer programme can throw up cases for review on an automatic diary, but a general scrutiny should be carried out at least once in a year.

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Cases which are live should be outstanding for their limitation life; if repudiated and no development has occurred for at least twelve months, termination can be considered, with retention of the file in case of reopening. If a 10% re-open rate arises, that can be just about acceptable but lower is better. While strictly not correct, a reserve for re-opens is usually incorporated in the IBNR reserve – the important point is that there is a reserve.

Reinsurance The most common method of reinsurance used in EL insurance is the Excess of Loss Treaty. The ceding insurer (the direct insurer) decides what level of individual loss he is able, or prepared, to bear. He arranges with his reinsurer to bear all losses up to a treaty limit.Thereafter,the ceding insurer might effect second,third and fourth treaties, building up his ability to meet a loss. Additionally,he may want to have catastrophe cover to guard against what might almost be called ‘the doomsday scenario’. That is the theory and in fact the way the market operated until recent years. Reinsurers became alarmed, both at the number of multiple claims, and the way in which damages in the UK were escalating at a rate far in excess of inflation. It must be borne in mind also that the reinsurer had received a premium at a rate applicable years before. To their cost reinsurers were funding damages at current levels, a problem which had bedeviled long tail business for many years. Additionally,reinsurers were exposed to very high levels because of the practice of issuing EL policies with an indemnity unlimited in amount. Insurers found not only were reinsurance rates rising (reflected in primary premiums to which there was consumer resistance), but also reinsurers wanted higher retentions by the direct insurer and lower ceilings on treaty limits. It was this combination of pressures which led really to the abandonment of the EL policy without financial limit.Added to that, insurers were concerned about not only levels of damages, but also total claims cost, including legal costs and charges,and the reason for the capped limit as in professional indemnity insurance, can quickly be seen.

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An excess of cover market is slowly developing.These excess insurers will of course require reinsurance cover of its own,so that there should be an uptake of premium in the reinsurance market. Even at a capped limit of £10 million, few insurers would operate without reinsurance as two or three very large claims could hit an account badly – and remember Leung alone cost £3.4 million without costs,and Biesheuvel £9.2 million. Clearly,the EL market could not,and cannot,function without reinsurance.Retention limits will always depend on the size and degree, of maturity of an account.The actions taken should at least preserve a relationship between the direct insurers and their reinsurers.

Reinsurance and industrial diseases The EL accounts of all insurers have,as we have seen,been hit very hard by industrial disease cases. Reinsurers have tended to be involved only peripherally, because with most of the accounts with a disease tail, the level of each claim on an annual basis (that is the portion caused during each year of exposure) was within the retention. It is therefore the direct insurers who have felt the brunt of the problem. However, some insurers have effected so called ‘time and distance reinsurance’ whereby, on payment of a premium a substantial repayment will be made some years down the track,dependent on the level of disease claims either for individual diseases or the portfolio as a whole. In the main, such contracts have been viewed with almost suspicion because in this field they are novel. Clearly, however, they have their uses.

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Current problems in EL insurance INCREASED COSTS CURRENT PROBLEMS THE FUTURE NEW FORMS OF LIABILITY A LT E R N A T I V E D I S P U T E R E S O L U T I O N ( A D R ) L I M I TAT I O N INDUSTRIAL DISEASE N O F A U LT I S E L P R O P E R LY I N S U R A B L E ?

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Chapter 13: Current problems in EL insurance Ever since the changes in Limitation Law in 1963 created a retrospective liability, Employers Liability insurance has suffered from difficulties.The retrospective liability meant that claims paid at current rates were being funded from,in theory,premiums made in years gone by.The reality was they were being paid from reserves built up over the existence of EL accounts with replenishment taking place from current income. Not unnaturally,current day policy holders found it difficult to accept the necessity for increases in their premiums. However, increased costs from retrospective liability are but one instance of the difficulties.There have been other instances of retrospective liability such as in the clawback provisions, but none so widespread as the limitation provisions.

Increased costs Examples of increased costs are: •

Increased damages.We have already seen that damages are rising at a rate far in excess of inflation. It took from 1971 to 1988 for the level to rise from £55,000 to £1.6 million;but only from 1988 to 1994 to rise from £1.6 million to £3.4 million and from 1994 to 1998 to rise to £9.2 million. Linked with this increase in damages is the equally rapid rise in legal costs impacting from the increase in the claims rate and the amount of litigation – including cases where proceedings are issued but which settle on the way to Court.

•

Increased numbers of claims.ABI statistics show an increase in the number of EL claims from 104,000 in 1984 to 119,000 in 1993.The cost of those claims increased from £218 million in 1984 to £557 million in 1993. No separate figures are available for EL premiums but general liability premiums in the UK amounted to £1,904 million; of that, it is probably realistic to assume about £900 million for EL. The funding of rising numbers of increasing value claims from such a low premium base compared with motor, for instance, with a premium base of £6,418 million is difficult. Increases in premium rates are not regarded kindly.

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•

Long tail.The long tail has always existed from the early days of the account when the limitation period was six years.That has been extended enormously by the incidence of industrial disease where the exposure period can be as long as forty years. Operating a business on that basis can be very difficult.

•

IBNR. It is the imponderable of IBNR which causes so much difficulty. The use of actuarial and statistical techniques can be of value in improving the accuracy of forecasting.However,the IBNR content is,and will remain in EL, the most difficult area of forecasting.

Current problems A number of problems have been revealed as existing and have been the subject of discussion. Indeed the discussions resulted in the passage of the regulations which have already been discussed under the heading of Compulsory Insurance, but many of the problems still remain and have not been solved in any way by discussion or by the regulations.They include: •

Capping:Whilst the department has indicated the statutory limit of £5 million applies across the board to a number of companies,the industry by making its limit of indemnity inclusive of costs is possibly creating a problem for itself having regard to the legal decision already mentioned.An examination of the wording should really take place.

•

Limit of Indemnity:The statutory figure of £2 million was far too low and if that were the figure in 1968 when it was decided then it should have increased probably by a figure of 10 or certainly at least 5 to give a limit of £10 million by statute and under policies. Unhappily that has not happened and the regulations indicate a limit of indemnity of £5 million and policies £10 million.Both having regard to recent decisions must be regarded as low.

•

Excess of limit: the excess market has developed somewhat slowly but now that it is clearly required it has been expanding.

•

Motor/EL:the problem relating to the driver risk here has been resolved by the transfer of the EL risk connected with motor vehicles, it was an example of Brussels Bureaucracy interfering in a system which worked and had worked satisfactorily for years. Defective equipment matters are for EL insurers but it is highly unlikely that there will be any further changes here.The other point that should be made most emphatically is that the position of a worker injured in a motor vehicle is better than

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one who is injured in other circumstances because there is no financial limit of indemnity under the motor policy.

120

•

Trade Endorsements: the position as to the use and legality of trade endorsements has again not been dealt with. The certificate of Insurance should at least show limitations of cover so that workers know if there are hazardous activities where compensation would not be payable by insurers.

•

Voiding of policies: the case of Dunbar V A & B Painters, shows the difficulty facing employees where a policy is declared void ab initio. There is a case for saying that where a Certificate of Insurance is in existence then the insurer must deal with any claim notified as insurer concerned, but this point was sadly overlooked when the new regulations were drafted. It is something which should be rectified.

•

Non-insurance: if the employer does not insure and goes into liquidation then at present, following Richardson V Pitt Stanley, the directors cannot be held personally liable to injured employees.This is in apparent conflict with Monk V Warbey in motor insurance, and as a principle it is outdated. The Court of Appeal found difficulty in contemplating the piercing of the corporate veil.The legislation should do away with any inhibitions and make the personal liability of the directors clear.

•

ELIB: the compulsory insurance provisions were designed to protect the employees and did increase the market premiums by bringing in some employers who were not previously insured.However,Richardsons case showed that the absence of insurance can cause enormous harm to injured employees.If a ELIB is not called for then some other legislative provisions such as making an insurer who issues a certificate liable,with a right of recovery, could solve a problem.

•

Lane V Shire Roofing Co, 1995 has created difficulties as to who is an employee and blurred the distinction as to self employed contractors. Hopefully, this situation might be clarified.

•

Associated & Subsidiary Companies: the regulations referred to subsidiary companies but not to associated companies. Up until now policies where there is a group have referred to associated and subsidiary companies.This situation needs clarification urgently.

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The future It is difficult to be over-optimistic so far as the future is concerned. The last 25 years has seen a rapid escalation in the total cost of claims;an increased number of claims and legislative and judicial changes to the law which have made claims more difficult to defend. The review of the law relating to EL insurance has not solved many of the problems that have been revealed.Whilst the increased use of paper case may reduce overall legal costs,the front end loading which will take place will increase costs generally. It is unfortunate that the use of structured settlements has not brought about order into the awards in very serious cases.The capping of damages does not appear to be a solution that is palatable. However,odd though it seems,in some states in the US that very subject is being considered.

New forms of liability Experience to date has shown few new injuries occurring in entirely new ways. It is fair to say that medical knowledge and treatment does result in more victims surviving, and thus, if they are badly disabled, increased awards result. New forms of liability can arise from changes in statutory law (they seem likely to arise from the EU) especially if the Social Chapter should be introduced. It is a sad fact that few new industrial diseases have manifested themselves;sad because after several thousand years conditions like lead poisoning still arise. However, astute lawyers will undoubtedly pursue claims in respect of recognised conditions like post traumatic stress disorder,in novel circumstances – the omens as the size of awards are not good.Clearly the condition can be applied to EL situations,and it might be argued that employers should have a counselling service available for use in situations where it is deemed necessary for a counsellor to be available.

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Alternative Dispute Resolution (ADR) Much has been said of ADR and the Lord Chancellor,in a recent keynote speech, highlighted the fact that he viewed it with favour. The types generally considered are: •

Conciliation – where an outside agency seeks to bring an amicable solution to a dispute by joining in discussion with the parties.

•

Mediation – where an outside party by meeting with the disputants separately and individually seeks to bring about a settlement. This procedure now must be considered in every High Court case.

•

Arbitration – where the parties agree to the judgement of an agreed arbitrator.

•

Ombudsman – where the equitable jurisdiction of an ombudsman is used to bring about a result.

All of these are suitable for the resolution of disputes arising in contract, be the contract commercial or matrimonial. None of this is really suitable for use in EL cases. The use of tribunals would seem to be unsuitable because there is little to be saved in expense, delay or publicity. The final question to be asked, therefore, is: Is employer’s liability properly insurable? The state has taken the view that compensation for injury is a matter between employer and employee other than for the limited benefits introduced in 1948. Is the question an industrial or a social problem? At first sight, the answer must be an industrial problem – accidents will always occur and people will be injured at work.The important thing is to ensure that they receive compensation when it is due to them. However, it can also be argued that the above is too facile an argument. Injuries occur and people are diseased because industry has failed in its duty. That duty is both to its employees and to the state which, by regulatory means, can punish blatant failures of safety measures. Is it therefore a social problem, and should the responsibility for compensation fall on society as a whole? This approach is that of Professor Tunc who believes that when things are done, or permitted to be done, to facilitate the operation

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of an industrialised and mechanised society,then society as a whole,which derives the benefits, should shoulder the responsibilities.

Limitation To protect defendants from claims, arising long after liability has been incurred, all civilised societies introduce some kind of limitation period.In the UK this period is three years in cases of personal injury – it used to be six years – but was lowered in 1954. Problems arose with claims for industrial disease because,in many cases,the latency period is such that claimants were statute barred before they even knew they had the disease, Cartledge v Joplin, 1962. This was so manifestly unjust that, as we have seen, a series of statutes now give the Courts a very wide discretion,exercised particularly in industrial disease cases. It is fair to say, that it is probable that the pendulum has swung too far in favour of claimants and employers and their insurers are faced with liabilities, not in contemplation, arising from thirty or forty years before. The problem is one of attitude. Often when a liability arose, the standard of care was that generally accepted at the time but later, knowledge and higher standards, increase public awareness and it becomes difficult to avoid entirely the effect of modern knowledge and techniques. The standard set by statute is often ‘so far as reasonably practicable’which nowadays means an employer has to apply a cost benefit test to certain safety measures before deciding they are too expensive. Government was forced into legislation which had a profound effect on insurers. Whether some back stop as to how far back claims could go, might have been introduced,is now academic – it might have helped insurers but would not have cured a perceived injustice.

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Industrial disease Some industrial diseases have been shown to be endemic to some industries.Lead poisoning,asbestosis (manufacturing and use of asbestos) pneumoconiosis (mining, quarrying, foundry work) are examples.There are regulations which, properly observed,should avoid the occurrence of the diseases but the problem is the latency period, because often what was done at the time when the disease was caused was in accordance with best practice; now it may appear primitive.As was said in Stokes v GKN,1968,an employer need not be a pioneer.However,years down the track with a disabled plaintiff that is a difficult concept for a defendant to carry.

No fault We have already seen the views of Professor Tunc,which philosophically may be sound, but economically could be disastrous. Costing so far appears to have been on the basis of claims rather than accidents and the fly-paper effect of the attraction of increased numbers of claims ignored. In New Zealand where they have a comprehensive ‘no fault’ scheme, the cost has been enormous and revisions have had to be made. In the UK in the present economic climate it is impossible to contemplate the Government taking on this commitment.Indeed,the attitude of Government,which is emphasised by the Social Security Act 1988 and the further amandments which have been made, which brought back the clawback of benefits from claimants in full, seems to indicate almost a contrary view. Private insurers could, however, issue ‘no fault’ policies, rates would be high as would be claims handling expenses,but experience in the very few no fault policies issued,has not been quite so bad as might be expected.It is to be borne in mind, however, that these were hand-picked risks with a high quality labour force. Industry would be expected to find the additional cost, which to use current economic theory would make us less competitive, but at the moment, the CBI is not dismissing the ‘no fault’idea,because of the concern over rising EL premiums.

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Is EL properly insurable? An answer can now be attempted to the question. Commercial EL insurance was for many years profitable, and still can be made so. Whether it should ever be more than marginally profitable because it is a compulsory class, based on personal injury, is open to moral argument. The essentials are:

The right rates The right reserves

What are the right rates is often difficult to judge but they must be adequate to cope with the anticipated and the unexpected disease claims around the corner. The right reserves must have a sufficient IBNR content to cope with disease claims from the past, not the future, that may be a contingency reserve – IBNR it is not. Government is required to produce legislation that is not retro-active – the clawback was again a burden on the EL insurer.With judgements of the Court, changes are inevitable.A judgement has always affected outstanding and yet to occur claims. It is clear that the state is unwilling,or unable,to accept total financial responsibility for the consequences of injury at work.Reductions in Legal Aid eligibility and reviews of DSS benefit, all tell a story of retrenchment rather than expansion. Therefore, insurance must be the answer to the question. Consumer resistance to premium increases is being experienced.A firm market is necessary, insurers must not even contemplate the Government as insurer of last resort, as some insurers have been suggesting.That would be opening the door to regulation of rates as well as terms. However,EL insurers must be prepared to accept some revisions in the law relating to compulsory insurance and almost certainly an Employers’Liability Insurers Bureau. With insurers providing cover at a cost which can be demonstrated to be reasonable, there is no doubt that Employers’ Liability can continue to be an insurable risk.

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APPENDIX A: LIST OF CASES A P P E N D I X B : L I S T O F S TAT U T E S INDEX

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Appendix A: List of Cases Afzul v Ford Motor Co., 1994 ................................................100, 105 Alcock v CC South Yorkshire, 1992.................................................26 Arnold v CEGB, 1988 ......................................................................41 Barkway v South Wales Transport, 1948............................................8 Bradley v Eagle Star, 1988..........................................................44, 60 Bourhill v Young, 1943 ....................................................................25 Bresheuvel v Birrell, 1998........................................................53, 116 Bryce v Swan Hunter, 1987.............................................................35 Cartledge v Jopling, 1962 .............................................37, 41, 50, 122 Cassidy & Wright v Dunlop and Others, 1968 ................................24 Caswell v Powell Duffryn, 1940......................................................85 Cilia v HM James, 1954 ...................................................................11 Clarkson v Modern Foundries, 1956 .........................................37, 64 Coddlington v International Harvesters, 1969 ..................................9 Davie v New Merton Board Mills, 1959.......................................8, 15 Davis v Thos Owen & Co., 1919................................................14. 34 Dooley v Cammell Laird, 1952 ..................................................26, 27 Dulieu v White, 1901.......................................................................25 Dunbar v A & B Painters & Others, 1983......................52, 58, 60, 120 Ferguson v John Dawson, 1976 ......................................................49 Frost v John Summers, 1955......................................................14, 85 Frost v CC South Yorkshire, 1998 ..............................................27, 87 General Cleaning Co. v Christmas, 1953 .........................................12 Ginty v Belmont Builders, 1954 ......................................................86 Gooda Walker, 1994 ........................................................................11 Gourley v BTC, 1957.......................................................................74 Hall v Lorimar, 1995 ........................................................................49 Hamer v Cornelius, 1858 ................................................................10 Hambrook v Stokes Bros., 1925 ......................................................25 Haynes v Qualcast, 1959 ...................................................................7 Hindle v Birtwistle, 1897...................................................................8 Hudson v Ridge, Mfg Co., 1957 .........................................................9 Janata Bank v Ali, 1983...............................................................11, 16

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APPENDICES

Jefford v Gee, 1970 .........................................................................79 Johnson v Croggan & Co., 1954........................................................8 Kelly v Dawes, 1989 ........................................................................79 King v Phillips, 1953 .......................................................................25 Lancs CC v Municipal Mutual, 1996................................................50 Lane v Shire Roofing, 1995 ......................................................49, 120 Latimer v AEC, 1953 ........................................................................11 Levesley v Thos Firth & John Brown, 1953 .....................................15 Lister v Romford Ice Co., 1954 .......................................................10 Lloyd v Grace Smith & Co., 1911 ......................................................9 McDowell v FMC, 1968...................................................................12 McFarlane v EE Caledonian, 1994..............................................26, 87 McLoughlin v O’Brien, 1983 ...........................................................26 Mackry v Stewarts & Lloyds, 1964 ....................................................7 Mersey Docks & HB v Coggins & Griffiths (L’pool) Ltd, 1946 .............................................................49 Monk v Warbey, 1934 .........................................................58, 62, 120 Morris v Ford Motor Co. .................................................................11 Naparielski v Curtis, 1959 ...............................................................86 Owens v Liverpool CC, 1939 ..........................................................25 Page & Smith, 1995 ..............................................................26, 32, 87 Paris v Stepney BC, 1951 .......................................................6, 32, 79 Post Office v Norwich Union, 1963 ................................................44 Priestley v Fowler, 1824 ....................................................................1 R v Secretary of State for Transport, 1990.......................................18 Ready Mixed Concrete v Ministry of Pensions, 1968......................49 Richardson v Pitt Stanley, 1994 ....................................58, 61, 62, 120 Savill v Southend Health Authority, 1994 ........................................44 Schneider v Eisovich, 1960 .............................................................26 Semtex v Gladstone, 1957...............................................................10 Shatwell v ICI, 1965 ........................................................................85 Smith v Baker, 1891.........................................................................85 Smith v BEA, 1951 .............................................................................8 Smith v Crossley Bros, 1951..............................................................9 Smith v Leach Braine, 1962.............................................................87 Smith v Manchester Corporation....................................................72 Stapley v Gypsum Mines, 1953 .......................................................86

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Stokes v GKN, 1968..........................................................7, 9, 33, 123 Szumckk v Accos Tunnelling ...........................................................12 Thompson & Ors, v Smiths Ship Repairers.....................................67 Treadaway v CC West Midlands, 1994..................................49, 73, 74 Vernon v Bosley ..............................................................................27 Wadey v Surrey CC, 1999................................................................81 Walker v Blyth Social Services, 1994 ...........................................7, 26 Walsh v Holst & Co., 1956 ..............................................................85 Ward v Newalls Insulation, 1998.....................................................74 Williams v Post of Liverpool Authority, 1956 ..................................86 Wilsons & Clyde Coal Col v English .................................................6 Winter v Cardiff RDC........................................................................7

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APPENDICES

Appendix B: Table of Statutes Carriage by Air Act, 1961.................................................................43 Companies Act, 1989 .................................................................44, 61 Courts Act .......................................................................................94 Control of Substances (Hazardous to Health Regulations, 1988)...........................................................17 Employers Liability (Compulsory Insurance Act, 1969) ............56, 59 Employers Liability (Compulsory Insurance) (Exemption) Amendment Regulations, 1994 .......................................................10 Employers Liability (Compulsory Insurance) General Regulations, 1998 .....................................................1, 52, 57 Employers Liability (Defective Equipment) Act, 1969.................7, 15 Factories Act, 1937 ..........................................................................14 Factories Act, 1961 ....................................................................14, 17 Factories and Workshops Act, 1901...................................................1 Fatal Accidents Act, 1989.................................................................78 Fatal Accidents (Damages) Act, 1906...............................................78 Finance Act, 1995 ............................................................................80 Health and Safety at Work Act, 1974 ...............................14, 16, 36, 51 Judicature Act, 1876 ........................................................................96 Law Reform (Limitation of Actions) Act, 1954 ................................40 Law Reform (Personal Injuries) Act, 1948 ...................................7, 75 Limitation Act, 1939 ........................................................................40 Limitation Act, 1963...................................................................41, 64 Limitation Act, 1980...................................................................42, 46 Mines and Quarries Act, 1954 .........................................................16 Motor Vehicles (Compulsory Insurance) Regulations, 1992 ...........10 Offices, Shops and Railway Premises Act ........................................16 Personal Protective Equipment (EC Directive 2) Regulations, 1992............................................................................34 Personal Protective Equipment at Work Regulations, 1992 ............34 Provision and Use of Work Equipment Regulations, 1992 ..............15 Rehabilitation of Offenders Act .............................................9, 86, 87 Road and Rail Traffic Act, 1934........................................................76

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Road Traffic Act, 1985......................................................................59 Road Traffic (NHS Charges) Bill, 1999.............................................75 Social Security Act, 1989..........................................................77, 123 Social Security (Prescribed Diseases) Regulations, 1985 ................29 Third Parties (Rights Against Insurers) Act, 1930 ......................44, 61 Threshing Machines Act, 1832 ..........................................................1 Workmens Compensation Act, 1906 ................................2, 22, 24, 48 Workmens Compensation Act, 1925 ................................2, 22, 24, 48 Workmens Compensation Act, 1943 ................................1, 22, 24, 48 Workplace (Health Safety and Welfare) Regulations, 1992..............17

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Index

Chest and lung diseases ................23 asbestosis ............................23 exclusion of.........................23 industries concerned ..........23

A ABI report on seriously injured claimants ..........................80

Claims, common law, development...................................2 common law, few in number ......................2

Acts of violence ..............................9

conduct of...........................88

Actuarial methods of reserving...114

development .........................2

Actuary and function ..................113

discharges ...........................92

Aggravated damages .....................73 Alternative dispute resolution ....122 Agreements....................................... common law .......................70

estimating ....................80, 110 IBNR ............................72, 112 industrial disease – see industrial claims investigation........................88

deafness ..............................67

litigation cases.....................92

Lister market .......................69

litigation team, members.....93

VWF ....................................68

made policies ......................60

and understandings.............64

stale .....................................46

Associated and subsidiary companies ...............................53, 57

reserves .............................110

Average cost estimating ..............111

B

reserving methods ............110 settlement ...........................91 statements ...........................89 valuation..............................72 Claims made policies ....................60

Beveridge report .............................2 Bladder cancer ..............................24

Claw back .....................................76 effect on claimants..............78 effect on insurers ................78

C Cancer of the bladder ...................24

effect on interim payments.77

Capping.................................53, 115

Collateral negligence of employees ..................................8

Champerty ......................................1

Common law duty of employers ....6

Changes in legal procedure ..........96

Company liquidation, effects...44, 60 effects on insurers .........44, 45 effects on reserves ..............45

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Compensation...............................73

denial ..................................84

Compulsory insurance, cover .......................................48, 56 certificates...........................58

emergency ..........................87

disease cases .......................56 display ...........................57, 58

outside scope of employment........................86

exemptions .........................58

volenti non fit injuria ..........85

excesses ..............................57 limit of indemnity..........57, 58

volenti non fit injuria applicable to EL cases .........85

scope of ..............................57

Dermatitis ...................................126

White paper on ...................56

foreseeability.......................87 inevitable accident..............84

Direct instruction of counsel........94

Conditional fees ..........................102

Discovery of documents..97, 99, 105

Contributory negligence ..............85 inadvertence .......................85

Diseases, long term, see industrial diseases...................76

team working ......................86 Costs, calculation of ....................100 control of ..........................101 insurers view of ................101 Convictions, for violence ................9 spent .....................................9 County Courts .......................98, 100

DSS benefits ..................................76 claw back ............................76

E EL compulsory insurance........48, 56 cover required.....................56 conditions, repugnance.......59 limit required ......................57

D Damages, classification of .............72 aggravated ...........................73

not automatic compensation .....................49

compensatory .....................73

EL excess of loss cover .................54 costs policies.......................54

contemptuous.....................73

scheduled policies ..............54

exemplary ...........................73

EL/Motor.......................................59

general ................................72

EL policy .......................................48

punitive ...............................73 special .................................73

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ELIB...............................................61

Dangerous substances ..................17

Employers, duties of........................6 negligence...........................12

Deafness, industrial .......................28

rights against employees.....10

Defences .......................................84 Act of God...........................87

statutory obligation.............12

INDEX

Employers liability policy, operative clause ............................49 caused during......................50 Epithelioma of scrotum ................24 EU directive, third non motor ......................10, 69 six pack regulations ............16

I Increased cost.............................118 damages ............................118 number of claims ..............118 Industrial disease, deafness, other causes..................................36 difficulties of defence .........36

EU law...........................................18

medical investigation ..........37

EU veto .........................................19

periods of exposure, relevance.............................35

Excess limit...................................53

protective clothing..............34

Excess of loss cover ......................54

removal of risk ....................34

Exemplary damages......................73

standards of care .................35

Expert evidence, restrictions ......106

why claims are not defended.......................38

F Factory inspectors, first appointment............................1 Fast track courts .........................105

Industrial diseases.........................22 diagnosis .............................23 history of claims..................22 long term, cardinal principles ............................32

Fees, conditional .........................102 fixed legal..........................104

long term knowledge..........33

Fellow employees, vicarious liability for .......................8

long term warning ..............33

long term precautions.........34 stress ...................................27 types, scheduled..................29

H

types, short term .................26 types, insidious....................26

Health and safety at work commission policy........................16 Health and Safety Act, codes of practice ..........................16 regulations ..........................16

Industrial injuries scheme ..............2 Injury psychiatric..........................25 Inspection.....................................99 Insurance, EL.................................48 legal expenses .......................1 post event......................1, 103 WCA......................................2 Interest..........................................81

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Interlocutory proceedings............99

M

Interrogatories ..............................99

Machinery, dangerous parts.........6, 8

Investigation of industrial disease claims ...............................32

Maintenance ...................................1 Market agreement, motor/EL ........69 Market understandings .................65 operation of ........................65

J Jurisdiction, County Court ............98 high court ...........................96

example ..............................65

small claims court .............105

Medical evidence, use of..37, 97, 106 Medical examination.....................99

L Labour masters........................49, 51

Medical expenses..........................75 and law commission ...........75

Law EU..........................................18

Mental distress, claims for .............25

Legal Aid......................................102 Tests for grants ..................102

Mesothelioma........................24, 127

Legal expenses insurance ...............1

Motor EL ............................10, 69, 70

Limitation .....................23, 40, et seq and problems over claims ....................23, 45

Motor EL agreement .....................70

appeals period for lodging...........................44 Current position ...........................42 discretion, rules...................43 extension of period .......41, 43 knowledge for purpose of...........................42 liquidation of company .......44

Motor claims, employees.........10, 59

Motor/EL, change following directive........................10 Multi track courts .......................106

N Negligence of employees................8 collateral ...............................8 Negligence of employers ..............12 Neurasthenia.................................26

periods of ...........................42 only procedural bar.............40 significant injury .................42 Limit of indemnity ........................53 Litigation.......................................96 Loss of earnings ............................74 tax .......................................74

136

Newcastle deafness cases .............67 New list of diseases, classification .................................29 No fault .......................................124 Non insurance ............................120

INDEX

O

R

Offers to settle ............................107

Reinsurance ................................115 and industrial diseases ......116

Outsource .....................................90 Outsourcing ..................................90 advantages...........................91

Reopening claims, reserves.........115

difficulties ...........................91

Repetitive strain injury, RSI ...........28 successful claims.................29

cost......................................91

unsuccessful claims.............29

what it is .............................90

Retro cover ...................................61

who performs .....................90 Robinson report............................28

P Paper case .....................................99 Passive smoking ............................29 Payments into court....................107 Penalties........................................62 Personal liability, solicitors............11 Place of work................................11 where third party premises ....................11

S Safe system of work ........................6 Scheduled policies ........................54 Shock ............................................26 Small claims court.......................105 Smoking ........................................29 passive.................................29 Statutory obligation of employer ..................................47

Plant tools and equipment, safety of .......................7 insufficiency..........................7

Stress.............................................26 related conditions..........26, 27

Post event insurance ...............1, 103

Structured settlements..................79 advantages of claimants ......80

Procedure, simplified ..................106

amendment in 1995 ............80

Protective equipment, use by employees.....................................34

Substances, dangerous ..................17

Protocols.....................................107

T

Psychiatric injury, claims for illness ...........................25

Tax ................................................74

PTSD, claims for ............................26 Punitive damages ..........................43

Termination of claims .................114 Trial, outline ..................................97 practice direction, Master of the Rolls ..............99 Woolf report ...............................104

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Trade endorsements .....................52 Trade Unions...................................1

U Unidentified insurer......................65

V Valuation of claims........................72 Vibration white finger (VWF) .......28 Vicarious liability ............................8 Violence,Acts of..............................9 Void ab initio ...................58, 60, 120 Voiding policies.......................58, 60 Volenti...........................................85

W Woolf recommendations.............104 Woolf report ...............................104 Workmens compensation ...............2 election .................................2 insurance...............................2

138

DISEASES