Court of Appeal delivers a blow to insurers challenge to Benefits Recovery Act

On 14 January 2022, the Court of Appeal unanimously upheld the appeal made by the Secretary of State for Work and Pensions against the decision of Mr Justice Henshaw. It also dismissed the insurers’ cross-appeal. The leading judgment was given by Dingemans LJ.

Background

The Social Security Recovery of Benefits Act [1997] requires compensators (usually insurers) who are legally responsible (in whole or in part) for a claimant’s condition giving rise to a claim for state benefits, to discharge those benefits in full, even in circumstances where:

• The claimant is considered to be contributorily negligent
• Where an employers’ negligence has only contributed in part to the claimant’s condition
• Where other untraced tortfeasors are responsible for the claimant’s condition
• Where the benefits do not correspond to any claimed head of loss.

The insurers argued that, since the enactment of the 1997 Act, the number of long-tail disease claims (particularly for asbestos-related conditions), has increased markedly. As these were historical, legacy exposures, they were unable to price such changes into premiums which gave rise to increased financial liability. This, they said, could not have been contemplated by Parliament at the time of the enactment of the 1997 Act.

As such, the insurers argued that the Act infringed their Article 1 of Protocol 1 rights set out in The Human Rights Act [1998], namely their right to a “peaceful enjoyment of its possessions”.

The decision below

The court originally ruled substantively in the insurer's favour, holding that the 1997 Act had breached such rights on all but the fourth example (above). The claimant appealed and the insurers cross-appealed on the fourth ground.

The Court of Appeal

It was common ground between the parties that the court should adopt the four-stage test set out by the Supreme Court in Bank Mellat v HM Treasury [2013] UKSC 38 & 39, namely;

1. Whether the objective is sufficiently important to justify limitation of a fundamental right
2. Whether it is rationally connected to the objective
3. Whether a less intrusive measure could have been used
4. Whether …….a fair balance has been struck between the rights of individuals and the interests of the community.

Dingemans LJ, providing the leading judgment, held that Mr Justice Henshaw had taken an “impermissibly narrow approach” to the legitimate aim and objective of The 1997 Act.

He substituted his own assessment, holding that the 1997 Act was a measure of both economic policy and social policy and that it had borne a legitimate aim and rational connection.

 Dingemans LJ held that a “fair balance” had been achieved, given that;

• Insurers had the right to appeal the certificate of recoverable benefits if it was felt that the benefits had not been paid in connection with the accident, injury or disease
• Benefits were paid only to the date of the compromise agreement
• There was a long stop of five years beyond which ongoing benefits were not recoverable from compensators
• The state in legacy exposure cases was unable to recoup medical costs incurred in treating claimants on the NHS
• The state was deprived of taxes in relation to loss of earnings paid to claimants by compensators.

Limitation

In remarks which should be regarded as “obiter”, Dingemans LJ addressed the issue of limitation.

Whilst noting that the intention of the parties appears to have been to address both limitation and quantification of damages in hearings subsequent to the High Court, limitation was addressed by the judge in the original Judgment, with Mr Justice Henshaw ruling that the cases had been brought ‘’in time”. 

Although Dingemans LJ accepted that a Human Rights Act claim could be brought “at any time”, it was subject to “any rule imposing a stricter time limit” [CPR 54.5]. In judicial review cases, this was three months.

He noted that the practical administrative difficulties of a successful outcome for the insurers would lead to the exhumation of historic CRU certificates. Dingemans LJ went so far as to describe a challenge over 20 years after the enactment of the 1997 Act, as “the antithesis of a rapid audit of the legality of decision making”.

Conclusions and next steps

The underlying litigation has highlighted the ostensibly unfair way in which the 1997 Act operates — most notably in divisible disease cases.

This is exemplified by a previous decision of Carder v University of Exeter which required the insurers to pay the entirety of recoverable benefits despite having been found to have contributed a mere 2.3 % towards the claimant’s overall condition.

With this Court of Appeal ruling, that “unfairness” will remain, unless a successful appeal eventuates. The unanimity of the Court of Appeal’s decision and Dingemans’ LJ “obiter” comments on limitation, may well be seen by insurers as limiting factors to any appeal.