Association of British Insurers follow up correspondence 2nd February 2011
Committee for Finance and Personnel
Damages (Asbestos-Related Conditions) Bill
Further Evidence from the Association of British Insurers
Responses to questions from the Finance Committee following ABI Evidence Session on January 19th 2011
The UK insurance industry is the third largest in the world and the largest in Europe. It is a vital part of the UK economy, managing investments amounting to 24% of the UK’s total net worth and contributing the fourth highest corporation tax of any sector. Employing over 275,000 people in the UK alone, the insurance industry is also one of this country’s major exporters, with a fifth of its net premium income coming from overseas business.
1. In its response to the Committee’s call for evidence on the Bill the Association of British Insurers states that “pleural plaques are not a disease”. However during the debate on the Bill’s Second Stage there was a discussion about whether the bodily change in the form of pleural plaques amounts to an injury or should be classed as a disease.
- Can you advise the Committee how you have come to the conclusion that pleural plaques are not a disease?
1.1 The ABI is not a medical body. Our position that pleural plaques are not a disease is entirely based on the medical consensus that emerged before the Johnston decision, and has been reinforced since then by further medical research.
1.2 The medical consensus that p leural plaques are not a disease is based on the fact that they do not demonstrate the characteristics associated with a disease:
- Pleural plaques are symptomless in all but a handful of exceptional case. Dyspnoea (shortness of breath) and chest pain do not occur and abnormal physical signs are not found.1 Where small lung decrements are found in patients, these are generally attributed to asymptomatic pulmonary fibrosis (early asbestosis) rather than pleural plaques.2 The generally accepted medical evidence is that plaques by themselves do not produce significant changes in lung function. There are relatively few studies of large populations of people with pleural plaques but a large general population survey from Uppsala in Sweden found that practically all of 827 subjects were symptom free at the time that their plaques were discovered. 3
- Pleural plaques are benign or non-malignant, and do not lead to anything more serious. Pleural pl aques calcify as they age and become more visible on radiography but they are not pre-malignant lesions.4 As medical opinion agrees, p laques only indicate that there has been exposure to asbestos.5
- Pleural plaques do not impair quality of life and do not affect life expectancy or give rise to clinical complications.6 The fact that pleural plaques are endemic in the general population of some countries, as for example in areas of China, Macedonia, Corsica and Turkey, lends strength to the assertion that people who are not aware that they have pleural plaques do not suffer any impact on their quality of life.7
1.3 Pleural plaques can therefore be distinguished from asbestos-related diseases which usually do show symptoms8:
- Asbestosis - a form of pulmonary fibrosis, is usually progressive. It may result in severe respiratory disability and often premature death.
- Diffuse pleural thickening - can cause symptoms by virtue of its restrictive effect on lung expansion;
- Pleural effusions - sometimes the earliest sign of an effect of a significant exposure to asbestos and may cause transient symptoms;
- Mesothelioma - a malignant tumour;
- Other rarer pleural tumours, including the localized fibrous mesothelioma.
1.4 As pleural plaques are not a disease, the Law Lords in the similar cases of Rothwell and Johnston, and courts since then, have found that the presence of asymptomatic pleural plaques does not constitute negligent damage. Lord Hoffman clarified that, ‘ Damage in this sense is an abstract concept of being worse off, physically or economically, so that compensation is an appropriate remedy. It does not mean simply a physical change...having no perceptible effect upon one’s health or capability. ’9Thus, although pleural plaques indicate some change to the lungs, they do not constitute damage as there is no perceptible effect upon health or capability.
1.5 In his response to the Department for Finance and Personnel consultation on Pleural Plaques in 2008, the Chief Medical Officer for Northern Ireland acknowledged two upcoming reports from the Chief Medical Officer for England and Wales and the Industrial Injuries Advisory Council. He said, ‘The input from this authoritative body [the IIAC] will I hope prove useful. Likewise I note the independent review which the Chief Medical Officer for England…has commissioned and I look forward to its deliberations. Any effort which can be made to ensure a better understanding of pleural plaques to both the public and the medical profession is likely to be useful.’10
Having reviewed in depth the latest medical evidence, both of these reports concluded that pleural plaques should not be classed as a compensatable disease.
1.6 This Bill would therefore be imposing an interpretation of what constitutes a compensatable disease which is in direct conflict with the medical and legal consensus in both England and Wales, and in Northern Ireland.
2. The ABI has repeatedly advised the Committee that it believes the Damages (Asbestos-Related Conditions) Bill is in contravention of the European Convention on Human Rights, specifically Article 1 and Article 6. The Committee has not taken these concerns lightly and is taking steps to become further informed on this issue. During Monday’s debate the Minister stated that: “I am happy to say that, in light of all the information that is available to me, in my view, the Bill is legally competent.”
- Can you advise the Committee what evidence you have used to reach your conclusions about the possible contravention of the ECHR?
- Are you willing to share the legal advice that you have received with the Committee?
2.1 Our assertions about the possible contravention of the ECHR are based on the arguments insurers are advancing in the judicial review that has been brought against the Damages (Asbestos-Related Conditions) (Scotland) Act 2009 (‘the Scottish Damages Act’), which is very similar to this Bill. Insurers brought the judicial review in Scotland on three grounds: contravention of ECHR Article 1 of Protocol 1 rights, Article 6 rights, and common law irrationality. Initial legal advice from Northern Ireland solicitors indicates that similar arguments would be applicable in Northern Ireland. We are not in a position to share any legal advice with the Committee, but the points below outline the arguments used in the judicial review in Scotland, and which we believe would also apply to this Bill.
2.2 The first issue for any court to consider on a possible contravention of the ECHR is whether the claimant has the standing or the right to bring the case. All entities are able to bring a case against state bodies under the ECHR, from individuals to companies, if their interests are sufficiently impacted by the action of the state. The judicial review of the Scottish Damages Act was heard in the first instance by Lord Emslie in the Outer Court of Session in Edinburgh in September 2009. Lord Emslie allowed insurers standing as he found t he Scottish Damages Act impacted on insurers closely enough to make their action competent on both ECHR and common law grounds. Indeed, he said that ‘it would be an affront to justice if the insurers weren't able to challenge the 2009 Act...For admissibility purposes, the important elements of the petitioners’ claims are (i) in passing the 2009 Act the Parliament deliberately targeted indemnity insurers through the medium of pleural plaques litigation; and (ii) that insurers have a close and controlling involvement in such litigation’.11 It is likely therefore that, as this Bill closely mirrors the Scottish Damages Act, insurers would have standing to bring judicial review on ECHR grounds against it.
2.3 The first ECHR ground is that there has been an illegal interference with property rights under Article 1 Protocol 1. This ground requires insurers to demonstrate that (i) there is a possession; (ii) the possession has been interfered with; (iii) the interference is not justified through compelling public interest grounds and is not proportionate. The insurers’ possession in the Scottish judicial review was characterised in various ways. It was argued that the Rothwell judgment gave insurers immunity from claims for compensation for asymptomatic pleural plaques; that the capital of an insurance company used to pay compensation for asymptomatic pleural plaques is a possession; and finally, as insurers are obliged by FSA regulations to reserve for anticipated liabilities, that these reserved funds are a possession. The Scottish Government tried to argue that none of these qualified as ‘possession’ under Article 1 Protocol 1, claiming that they did not have economic value. However, in his judgment, Lord Emslie found that insurers’ capital resources did qualify as ‘possession’.12
2.4 The argument that insurers ‘possession’ had been interfered with was based on two counts. First, the Rothwell judgment itself is an asset of economic value which the insurers were deprived of as a result of the Scottish Damages Act . The decision gave insurers immunity from suit and relieved them of any liability to compensate for asymptomatic asbestos-related conditions. The Scottish Damages Act would deprive the insurers of this immunity. Second, the Scottish Damages Act would ultimately deprive the insurers of their capital by forcing them to pay it out in compensation. However, the more immediate effect of the Scottish Damages Act would be to impact on the insurers’ regulatory obligation to reserve for anticipated liabilities. The uncertainty surrounding the future costs of asymptomatic asbestos-related claims means that it would be very difficult for insurers to calculate what their future liabilities will be. As a result a significant proportion of insurers’ capital would be tied up in reserves, and would be rendered unavailable either for development of the business or for distribution to shareholders. An added element to the argument under breach of Article 1 Protocol 1 is the retrospective nature of the interference in the possession. In regard to this Bill, the interference in insurers’ possession is further compounded by the delay of two years between the Johnston decision and the Bill being introduced.
2.5 Finally, a n interference with a possession under Article 1 of Protocol 1 can only be justified if it strikes a “fair balance” between the rights of the person or company whose possessions are affected and the general interests of the community. The first step, then, is to decide whether there is any public interest in the proposed interference. The courts will respect Parliaments’ judgment about what is in the public interest unless that judgement is ‘manifestly without reasonable foundation’. The insurers in the Scottish judicial review argued that the assertion that the Scottish Damages Act was in the public interest was ‘manifestly without reasonable foundation’, as it reversed a decision of the House of Lords in a manner which was at odds with the ordinary principles of the law of negligence. It also sought to compensate people with asymptomatic conditions who were not in pain, had suffered no physical impairment or disfigurement and were at no greater risk of developing an asbestos-related disease than a person who, having also been exposed to asbestos, had not developed pleural plaques.
2.6 The second step is to demonstrate that, even if there were some public interest, the interference is proportionate, in striking a fair balance between the rights of the insurers and the general interests of the community that are served by the legislation. In the judicial review, the insurers argued that, in enacting the legislation, the Scottish Parliament had not sufficiently considered the fact that it would deprive insurers of a right and would impose on them an unquantifiable, but substantial, financial burden. Rather the Scottish Damages Act focused on the aim of compensating ‘victims’ of pleural plaques regardless of the consequences. While it is undoubtedly a compelling public interest to ensure that those suffering from asbestos-related diseases are fully and promptly compensated, the same cannot be assumed for those suffering from asymptomatic conditions for which there is no ‘harm’ as recognised in the ordinary laws of negligence.
2.7 The second ECHR ground relates to rights to fair process under Article 6. In the judicial review, the insurers argued that by introducing legislation that overruled a judgment that had progressed through the legal system and had been finally decided in the highest UK court, the Scottish Parliament had removed employers’ and insurers’ rights to have a decision impacting their business decided finally by an independent and impartial tribunal.
2.8 Although Lord Emslie found in the judicial review of the Scottish Damages Act that the insurers’ case was insufficient on the ECHR grounds, he expressed sympathy with their grounds and said they were not without substance. ‘There is clearly room for differences of opinion as to whether the Parliament was right to legislate in the way it did, and it remains to be seen whether the 2009 Act will prove to have adverse legal or political consequences in years to come.’13
2.9 The Scottish judicial review was appealed to the Inner Court of Session in Edinburgh in July 2010. We are now awaiting judgment from the court. As the Northern Ireland Assembly report on this Bill notes, the Scottish Parliament is the only known example of a legislature that has legislated to make pleural plaques compensatable14, and the legality of this action is subject to a legal process that will, by its completion, have taken four to five years to resolve.
3. Section 3 of the ABI Paper raises concerns that Department for Finance and Personnel has not produced a sufficiently robust financial impact assessment of the impact of this Bill.
- There are those who believe that the introduction of this Bill is the ‘right thing to do’. How do you respond to the suggestion that if it is the ‘right’ thing to do, then cost should not matter?
3.1 It is difficult to see on what grounds this Bill is the ‘right thing to do’, or how it could be a legitimate policy aim. The Assembly should consider the proportionality of the legislation, and take into account vital questions of both state budget capacity and financial impact on the local economy. We have serious concerns that the Department for Finance and Personnel (DFP) has not produced a sufficiently robust financial impact assessment for this Bill. For example, they have not provided a detailed breakdown of cost projections to the Northern Ireland Executive from DETI’s continuing Harland and Woolf liabilities, which we estimate form the vast bulk of Northern Ireland asbestos-related exposures. Moreover, we believe that the DFP have not sufficiently considered other means of advancing their policy objective of supporting people with pleural plaques, which would be more helpful to them and would have fewer wide-reaching consequences.
3.2 Following the discussion under question 2 above, there are many reasons why passing this Bill is not ‘the right thing to do’. The Bill aims to compensate people with an asymptomatic, painless condition, which will potentially lead to all of those who formerly worked in the shipyards over a 70-80 year period undergoing x-rays, and will add to, rather than reduce, their and their relatives’ concern over their own wellbeing. Moreover, it is difficult to see that it is ‘right’ to compensate for an anxiety that some people may contract an asbestos-related disease, when the medical evidence demonstrates that they have no higher risk of contracting such a disease than those who worked alongside them but do not have pleural plaques.
3.3 The Assembly should consider the disproportionate impact of the legislation on the state budget, especially when compared to the figures involved with other areas of DETI investment.15 DETI recently made provision in its spending proposals for potential liabilities of £31 million up to 2015 in relation to asbestos-related liabilities, estimating about £3 million a year for pleural plaques claims. As previously stated, we believe this to be a substantial underestimate – we estimate that the cost up to 2015 is likely to be approximately £39.5 million for pleural plaques claims alone. This includes £6 million a year in pleural plaques compensation plus a backlog of £15.5 million. Leaving aside other investment priorities, this would leave DETI with fewer funds to compensate genuine sufferers, such as those suffering from mesothelioma, asbestos-related lung cancer, and symptomatic asbestosis, especially if DETI projections for these liabilities are similarly underestimated.
3.4 The Assembly should also consider in more depth the impact of the Bill on the wider economy and on private parties. The Bill would impact on insurers’, employers’ and Local Authority resources, as they would also have to make provisions to pay compensation to those with pleural plaques. In doing so, it again would deplete funds for compensating genuine sufferers from asbestos-related diseases. The diversion of resources away from claimants suffering from a disease we understand to be one of the concerns that prompted a number of US States to enact legislation preventing claims from being brought by those with symptomless asbestos-related conditions.
3.5 The Assembly should also consider that the Bill might well have a long term impact on the insurance market in Northern Ireland. Many factors go into insurers’ pricing strategies, but, fundamentally, the cost of paying claims feeds into premiums. Northern Ireland already has levels of damages and costs that are higher than in Great Britain as a whole. This Bill would make Northern Ireland a riskier place to insure businesses as insurers could not be certain that when they went to court, there would not be a subsequent intervention that would entail further costs. Insurers are likely therefore to build this cost into their pricing strategies. Insurers might also withdraw capital capacity from markets where they do not foresee an adequate return. Any uncertainty about the stability of a legal environment could potentially make Northern Ireland a less attractive place for the investment of this capital, which in turn would restrict the availably of insurance in the market, and reduce competitive pressure on prices. At a time when the Executive is seeking ways to develop the private sector in Northern Ireland this may put Northern Ireland businesses at a competitive disadvantage relative to their UK competitors.
3.6 Moreover, the Assembly should consider whether the Executive has sufficiently considered alternative means of achieving its policy objectives. Last year, the Westminster Government announced they would not overturn Rothwell to make pleural plaques compensatable and instead would make payments of £5000 to those claimants who had begun claims in the courts before the Rothwell decision, on the basis of a reasonable expectation of compensation. These payments were limited state payments, and were ex gratia and therefore did not involve any interference with private parties’ possessions and did not tamper with the law of negligence.
3.7 Instead of paying compensation to those with pleural plaques, in our view and supported by medical opinion, the Northern Ireland Executiveshould consider raising awareness of the benign nature of pleural plaques to help allay concerns of those diagnosed with the condition, and the wider public. The DFP’s consultation paper on the Bill recognises that additional information should be provided to those with pleural plaques, a position that was generally supported in responses to the original consultation on pleural plaques . Medical experts have called for information leaflets that set out the difference between pleural plaques and asbestos-related diseases, and that explain that pleural plaques to do not cause any injury to the person concerned.16 Such leaflets have already been produced by the British Thoracic Society and British Lung Foundation for distribution in England and Wales.
4. In your paper you state that “overturning Johnston represents a fundamental change to the law of negligence, undermining the stability of the legal environment in Northern Ireland”. However, for others it is seen as the restoration of a previously actionable action.
- How have you come to this conclusion about the potential consequences of overturning the Johnston case?
4.1 Overturning Johnston represents a fundamental change to the law of negligence, which is a central tenant to the common law of tort and has been consistently upheld by the courts. Parties should be able to rely on the certainty of the courts’ decisions, to shape their business practices accordingly. Not knowing when the Northern Ireland Executive is going to intervene in legal decisions for disproportionate policy aims, undermines the stability of the legal environment in Northern Ireland. Moreover, changing the law of negligence potentially increases the level of litigation and likelihood of spurious claims. Both of these consequences would make Northern Ireland a less attractive place for businesses to invest in.
4.2 The Bill would alter the determination as to whether a particular disease or condition constitutes an injury which is compensatable, which has traditionally been a matter for the courts to decide. In order for there to be a valid liability claim under common law, there must be a negligent act by the defendant, this must cause an injury to the claimant’s body, and the claimant must suffer material damage as a result.
4.3 It is true that pleural plaques claims were paid from the 1980s until the judgment in 2006. However, c laims were paid on the basis of the uncertain medical evidence and on the concern that pleural plaques were potentially malignant. As the medical evidence moved towards the current consensus that pleural plaques do not have any symptoms, are non-malignant and do not impair quality of life, the challenge was brought that they should no longer constitute negligible damage. That challenge was initially made in Rothwell by the Westminster Government, supported by insurers, because it was felt that the decision needed to be tested in a court of law. In Rothwell, the medical evidence from both the claimant and defendant parties agreed that pleural plaques were benign, and on this basis the Law Lords found that pleural plaques do not constitute material damage.
4.4 Equally, anxiety is not compensatable i n tort law. In Johnston the five Law Lords found that neither the risk of contracting a disease in the future, nor the individual's anxiety that he might do so, were sufficient grounds for a claim in negligence. The Bill would create rights based on exposure and/or anxiety about the prospect of a future illness, rather than any damage, setting a dangerous precedent that could lead to a flood of ‘exposure only’ claims where no actionable damage has occurred and, even more widely, claims for risk of an illness occurring or for worry that something might happen. For example, exposure to sunlight increases the risk of developing skin cancer, so there could be claims from building site workers that they were not adequately protected from the sun and should be compensated for the anxiety of contracting skin cancer. Those exposed to second hand smoke from their colleagues in the workplace could also claim for the anxiety of contracting lung cancer. It would be difficult to estimate the full consequences of expanding the law of negligence in this way.
4.5 Finally, the Law Lords in Johnston found that even psychiatric illness as a result of concern over the risk of an asbestos-related disease was not compensatable. One of the claimants in Johnston became clinically depressed when he discovered he had pleural plaques. The question was not whether the claimant had suffered damage but whether his employer owed him a duty of care in respect of a psychiatric condition caused by his anxiety at the risk of a future illness. This in turn depended on whether it was reasonably foreseeable that an employee would react in this way to the risk he might contract an asbestos-related disease. In the absence of contrary information, an employer is entitled to assume his employees are persons of reasonable fortitude. Neither the Court of Appeal nor the House of Lords considered it reasonably foreseeable that the risk of an asbestos-related disease would cause psychiatric illness to a person of reasonable fortitude.
4.6 We believe there are no other asymptomatic conditions which are compensated in the way this legislation proposes. The ruling in Johnston has been subsequently tested in cases relating to symptomless or minimally symptomatic asbestosis. In the 2009 cases of Beddoes & Ors v Vinters Defence Stystems & Ors17, the judge, HHJ Walton, found t here is no general formula on asbestosis cases with either no or minimal symptoms, and each case has to be looked at on its own facts. Whether the claimant has suffered material damage is a matter of fact and degree. The judge applied Johnston in finding that, in deciding whether a condition which otherwise does not amount to material injury is actionable damage, the court cannot take into account the possibility that it might, in future, become symptomatic. HHJ Walton applied the same test in the 2010 case of Smith v Deanpast Ltd.18
5. In the ABI letter dated 10 January 2011 concern is expressed that the Committee does not have the appropriate time available to properly scrutinise and consider oral evidence on this legislation.
- Can you outline your concerns about why the Committee needs more time, given that the principles of the Bill have now been agreed by the Assembly?
5.1 Our main concerns are that the Committee has not:
- Sufficiently investigated the cost impact of the Bill, in particular, because no detailed interrogation of DETI figures on asbestos-related liabilities and the specific breakdown for pleural plaques liabilities has been undertaken;
- Sought independent analysis of the cost impact, including actuarial estimates if required, on the potential cost impact of the Bill;
- Sufficiently considered the ECHR implications of the Bill, given the potential for the Bill to be subject to judicial review, the reluctance of the Minister to release legal advice from the Attorney-General, and especially given the ongoing legal case in Scotland.
- Heard oral evidence from independent medical experts, including the Chief Medical officer for Northern Ireland, given the particular relevance of medical opinion to this Bill;
- Sought expert opinion on the likely effect on business of the Bill and any wider ramifications such as potential impacts on the NHS of increased screening.
5.2 In our view, it is not appropriate for a Bill with such wide implications to be rushed through the legislative process, without sufficient time for scrutiny of the detail. This Bill is contested and the Committee has an important role in providing the Northern Ireland Assembly and its Members with an extensive and robust analysis that considers all matters of the Bill and its potential implications. It is this due process that properly allows Members to make an informed decision on whether the Bill should pass or fall.
6. There has been a suggestion from Zurich Insurance and the wider industry that the introduction of this legislation will set a “dangerous” precedent which will “open the floodgates”.
- Can you tell the Committee what evidence you have to support this view and how you have reached this conclusion?
Please see our answer to question 4.
7. In its response to the consultation on the draft legislation it is reported by DFP that RSA raised concerns about the proportionality and legitimacy of the policy goal behind the legislation.
- Can you explain these concerns to the Committee?
Please see our answer to question 3.
8. In its response to the consultation on the draft legislation it is reported by DFP that Aviva highlighted the need to focus on “serious asbestos related conditions”.
- Can you advise the Committee on the nature of a “serious asbestos related condition” and why you consider pleural plaques does not fall into this category?
8.1 Please see the answer to 1.
Association of British Insurers
03 February 2011
1 Professor Robert Maynard, The Medical Aspects of Pleural Plaques: A Review for the Chief Medical Officer, Sir Liam Donaldson, 2009 http://www.dh.gov.uk/prod_consum_dh/groups/dh_digitalassets/documents/digitalasset/dh_114728.pdf , point 34. Reference to studies Ohlson et al (1985) and McLoud et al (1985) which found no difference in respiratory function in subjects with plaques when compared with normal subjects.
2 Maynard, point 34. Reference to Jarvholm and Sandén (1986), Schwartz et al (1990), Kilburn and Warshaw (1990), Oliver et al (1988), Fridriksson et al (1981).
3 Industrial Injuries Advisories Council, Position Paper 23: Pleural Plaques, 2009 http://www.iiac.org.uk/pdf/pos_papers/pp23.pdf, point 10.
4 Maynard, point 34
5 In their written evidence to the Finance and Personnel Committee, 2011, the Royal College of Physicians notesthat the risk of other asbestos-related conditions is best quantified according to the latency period, duration of exposure, level of exposure, cumulative exposure and type of exposure.
6 Maynard, point 35. Reference to CMO Parkes, W.R. (1994) Occupational Lung Disorders.
7 IIAC report, point 36. Reference to (Luo et al 2003) (Rey et al 1994); (Hasanoglu et al 2003) (Sichletidis 1992)
8 Definitions taken from Maynard report and Royal College of Physicians evidence to Finance and Personnel Committee.
9 Johnston v. NEI International  UKHL 39.
10 Department for Finance and Personnel, Analysis of responses to consultation paper on pleural plaques, 2010.
11 AXA General Insurance Ltd and Others v Lord Advocate and Others  CSOH 2.
12 AXA General Insurance Ltd and Others v Lord Advocate and Others  CSOH 2.
13 AXA General Insurance Ltd and Others v Lord Advocate and Others  CSOH 2.
14 NI Assembly Research and Library Service, Pleural Plaques: numbers, costs and international approaches, NIAR 478-10, October 2010 http://archive.niassembly.gov.uk/finance/2007mandate/research/pleural_plaques.pdf
15 As outlined in Spending and Savings Proposals within the Department of Enterprise, Trade and Investment, 2011.
16 Department for Finance and Personnel, Analysis of responses to consultation paper on pleural plaques, May 2010, p13.
17 Unreported, heard by HHJ Walton in Newcastle Country Court, 2009.
18 Unreported, heard by HHJ Walton in Newcastle Country Court, 2010.