Aviva Insurance Ltd v The Secretary of State for Work and Pensions

JurisdictionEngland & Wales
JudgeSir Julian Flaux, C.,Lord Justice Dingemans,Lady Justice Carr
Judgment Date14 January 2022
Neutral Citation[2022] EWCA Civ 15
Docket NumberCase No: C1/2021/0310 & C1/2021/0340
CourtCourt of Appeal (Civil Division)

[2022] EWCA Civ 15

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Mr Justice Henshaw

[2020] EWHC 3118 (Admin)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Sir Julian Flaux, CHANCELLOR OF THE HIGH COURT

Lord Justice Dingemans

and

Lady Justice Carr

Case No: C1/2021/0310 & C1/2021/0340

Between:
(1) Aviva Insurance Limited
(2) Swiss Reinsurance Company Limited
Claimants/Respondents
and
The Secretary of State for Work and Pensions
Defendant/Appellant

Michael Kent QC, Benjamin Tankel and Kate Boakes (instructed by Keoghs LLP) for the Respondents

Edward Brown and Brendan McGurk (instructed by Government Legal Department) for the Appellant

Hearing dates: 12, 13 & 14 October 2021

Approved Judgment

Lord Justice Dingemans

Introduction

1

This appeal and cross-appeal raise issues about the compatibility of the Social Security (Recovery of Benefits) Act 1997 (“the 1997 Act”) and regulations made under it, with article 1 of the first protocol (A1P1) of the European Convention on Human Rights and Fundamental Freedoms (“ECHR”), to which domestic effect was given by the Human Rights Act 1998. The 1997 Act made alterations to the scheme for the repayment to the State of benefits made under certificates of benefits issued by the Compensation Recovery Unit (“CRU”). The certificates are issued where claims for compensation have been made by those suffering an accident, injury or disease (“the injured person”). The CRU was originally established by the Social Security Act 1989 (“the 1989 Act”) which Act had made fundamental changes to the scheme established by the Law Reform (Personal Injuries) Act 1948 (“the 1948 Act”).

2

The proceedings were brought by a claim dated 4 July 2019 by the Claimants Aviva Insurance Limited (“Aviva”) and Swiss Reinsurance Company Limited (“Swiss Re”) against the Defendant, the Secretary of State for Work and Pensions (“the Secretary of State”). Aviva sold employers' liability insurance policies. These policies covered employers who had acted in breach of common law or statutory duties and were liable for various industrial diseases. Swiss Re provided reinsurance cover for certain of Aviva's liability for long tail claims.

3

The complaint made by Aviva and Swiss Re (“the insurers”) is that the 1997 Act and the Regulations made under it require employers' liability insurers to pay to the CRU amounts equal to certain social security benefits received by claimants in personal injury cases. The complaint is not of the scheme as a whole, which they accept could, with modifications in their favour, be lawful. The challenge is to what the insurers describe “as an unintended but increasingly onerous by-product at the margins of the scheme, which involves obligations imposed on a dwindling number of liability insurers holding long-tail disease legacy policies arising from liabilities for long-tail asbestos-related diseases”. The insurers contend in particular that the effect of the decision of the House of Lords in Fairchild v Glenhaven Funeral Services Limited [2003] 1 AC 32, and other developments in relation to employers' liability for long-tail diseases has meant that their obligations under the 1997 Act infringe A1P1 of the ECHR.

4

The claim was heard by Mr Justice Henshaw (“the judge”) in a hearing on 8 and 9 July 2020. Judgment was handed down on 20 November 2020. There was a further hearing on the terms of the order to give effect to the judgment, and a judgment on those consequential matters was handed down on 12 January 2021. The judge declared that the Defendant, the Secretary of State had acted unlawfully by failing to read down the 1997 Act to permit a reduction in the quantum of benefits paid by Aviva or Swiss Re in two situations from 2 October 2000. The situations were first the requirement to pay 100 per cent of the recoverable benefit even where the employee's own negligence contributed to the damage sustained (“the contributory negligence CRU payments” and “the first situation”), and secondly the requirement to pay 100 per cent of the recoverable benefit even where the employee's “divisible” disease is in part unconnected with the insured's wrongdoing (“the divisible disease CRU payments” and “the second situation”).

5

The judge also held that the Secretary of State had acted unlawfully in the same way in a third situation from 1 January 2003. This situation was where other tortfeasors would, in addition to the employed insured by Aviva, be liable in full for an “indivisible” disease, but where the other tortfeasors could not be traced (“the indivisible disease CRU payments with missing contributors” and “the third situation”). The judge granted liberty to the insurers to apply to quash a CRU certificate issued on 7 February 2019 in the sum of £39,144.50 which related to the case of Lawrence Bainbridge.

6

The insurers are intending to claim damages in respect of payments they have made under CRU certificates dating back to 2 October 2000 in certain situations and 1 January 2003 for another situation. The judge ordered that the claims for damages should be transferred to the Chancery Division for further case management and determination. The parties had agreed that issues of limitation in relation to individual claims for repayments under CRU certificates should be dealt with during hearings in the Chancery Division of claims for damages brought by Aviva and Swiss Re. This agreement does not appear to have been recorded in any formal order made by the Court below, although it is referred to in the judgment on consequential matters.

7

The insurers cross-appeal against the refusal of the judge to make a declaration in a fourth situation, namely where the insurers are liable to repay benefits which do not correspond to a head of loss (“the CRU certificates not matching a head of loss” and “the fourth situation”) which they say, on the basis of the judge's reasoning in his main judgment should have resulted in the same order as was made in the first three situations. It might be noted that the insurers relied on a fifth situation which they accepted could not give rise to any remedy, but which was relevant to the issue of fair balance between the insurers' rights and the rights of others made by the 1997 Act and the Regulations made under it. This fifth situation was the requirement to pay 100 per cent of the CRU despite the element of compromise present in most settled claims, including claims settled without admission of liability (“the compromised CRU certificates” and “the fifth situation”).

8

The Secretary of State accepts that the difference drawn by the judge between the first three situations (the contributory negligence CRU payments, the divisible disease CRU payments, and the indivisible disease CRU payments with missing contributors), and the fourth situation loss (“the CRU certificates not matching a head of loss”) was not apparent. It is submitted on behalf of the Secretary of State that this showed an internal inconsistency in the judgment and is said to support the contention that the judgment is wrong. The Secretary of State, however, resists the insurers' cross-appeal, and appeals on the basis, among other grounds, that the judge was wrong to find that the 1997 Act and the Regulations made under it infringed the insurers rights under A1P1 in any of the five situations.

9

In order to make sense of the issues raised by the appeal and cross-appeal it is necessary to set out some relevant developments relating to the treatment of state benefits in personal injury and industrial disease claims.

Relevant developments relating to the treatment of state benefits in personal injury and industrial disease claims

10

As is well known as a matter of history state benefits were not paid to injured workers by the state before the advent of the welfare state and so there was no question of deciding whether such payments should be made to claimants bringing actions for damages or whether they should be taken into account in the calculation of damages. The common law had decided to ignore sums accruing to the injured claimant paid under policies of insurance, as well as sums paid by the benevolence of third parties motivated by sympathy for the injured claimant's misfortune, see Hodgson v Trapp [1989] AC 807 at page 819–820.

11

Sir William Beveridge produced a report in 1942 on Social Insurance and Allied Services. He identified two clear principles, namely that the possible existence of an alternative remedy (and in particular an action for damages) should not prevent an injured person from obtaining immediately the welfare state benefits to which the claimant would otherwise be entitled. The second was that the injured person should not have the same need met twice over. Sir William Beveridge recorded that he could only identify the problem and recommend that possible solutions were considered by technical committees.

12

A departmental committee reported in 1946 which made a recommendation that a claimant should give credit for state benefits received and to be received. In fact, what the then Attorney General described as a compromise was made in the 1948 Act. This provided that the Claimant should give credit for half of certain listed benefits for a period of five years. The five year period has been retained all the way through to the 1997 Act. It is fair to record that the assessment of damages in personal injury actions in the late 1960's and early 1970's was, as the relevant law reports show, a rough and ready exercise without the sophistication of detailed schedules and counter-schedules of damages that are now properly employed on both sides in serious personal injury actions.

13

With the increasing particularisation of claims for past and future financial losses, greater attention came to be paid to...

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