House of Commons - Constitutional Affairs

Select Committee on Constitutional Affairs Written Evidence

Evidence submitted by the Trades Union Congress (TUC)

SUMMARY

— The TUC does not believe there is a compensation culture.

— The number of claims is falling.

— Nine in every 10 workers who are injured or made ill through work do not claim.

— Compensation payments could be cut were more employers to offer early access to rehabilitation.

— Costs could be cut were insurance companies to admit liability at an early stage.

— There is no evidence of a "risk averse" culture.

— The TUC would welcome regulation of commercial Claims Management Companies.

— The proposed change to the law of compensation is unnecessary and could be unhelpful.

THE MYTH OF THE COMPENSATION CULTURE

1. The TUC would wish to give evidence in relation to compensation for claims of personal Injury against employees following an accident or occupational disease.

2. It is the TUC's contention that there is no compensation culture within the UK and, in fact, the reverse is the case, with most people reluctant to claim compensation, or unable to do so.

3. The number of civil claims for compensation against employers as a result of accidents have fallen ever year for the last five years.[51] In fact, according to a recent report by the Better regulation Task Force, despite the introduction of "no win—no fee" claims, the total cost of compensation cases in Britain has remained, in real terms, static since 1989.[52]

4. Britain also pays out much less out on civil compensation, as a proportion of its GDP, than any other major European country apart from Denmark, and a third that of the USA.[53]

5. Each year over 850,000 people are injured or made ill as a result of their job.[54] The most common injuries are musculoskeletal disorders such as back injury or RSI, injuries from slips and falls, skin diseases, and deafness. Many people will get better, some will not. Over 25,000 people are forced to give up work every year as a result of work-related injuries or illness.

6. However the number who gain compensation from their employer is, according to the Association of British Insurers, around 60,000 a year.[55] A further 20,000 will make a successful claim for industrial injuries benefit, which is a government funded "no fault" scheme.[56]

7. This means that 9 out of every 10 workers who are injured or made ill through work get no compensation.

PAYMENTS

8. The TUC would also challenge the idea that compensation payments are too high. Exact figures are difficult to come by because in excess of 95% of cases are settled out of court[57]. Figures from the leading solicitors companies give an average personal injury settlement of around £7,500[58]. However, because there are a small number of large payments, the vast majority of claimants receive less than £5,000. Over three quarters of cases taken by trade unions result in a settlement of under this amount.

9. Payments are made based on decided cases and independent medical evidence compensating actual loss and even where there is a debilitating and life destroying disease the compensation is never more than those guidelines. An example is mesothelioma caused by asbestos exposure. This is invariably fatal. The guidelines for pain and suffering are £45,000—£70,000, however if the case is settled after death, the payment is often lower, with a standard tariff for bereavement damages of £10,000[59].

10. There have been reports of individuals getting large settlements for occupational diseases, sometimes in excess of £100,000. These cases, which are very rare, are relatively young workers who, because of their employers' admitted or proven negligence, will no longer be able to work again in their chosen profession as a result of their illness. This level simply reflects the loss in their income over their remaining working life.

11. Very occasionally there are settlements of over £1,000,000. These invariably relate to people who have been so badly injured that they require permanent care and will never work again. Often they will have lost the use of their limbs and/or are significantly brain-damaged.

12. The TUC would contend that, in reality, the levels of compensation in Personal Injury cases are too low. It is now seven years since the Law Commission recommended raising the damages for non-pecuniary loss in PL cases by increasing them to up to double the current rate but that has never been implemented.

ROLE OF THE INSURANCE INDUSTRY

13. Concern has been raised in the past about the effect of Personal Injury settlements on the insurance industry, especially where asbestos related diseases are concerned. The insurance market is about assessing risk, pricing premiums accordingly, investing premiums collected, and hoping that the risks don't become a reality. To win compensation in a civil claim against an employer, the claimant has to show negligence. This means that the employer knew or ought to have known that they were putting you at risk. If the employer can show that they could not have known that there was a risk then they will not be liable for damages. For example claims for hearing loss can only be brought for damage caused after the HSE produced guidance on this in 1963.

14. The dangers of asbestos have been documented since the 19th century, there have been health and safety controls on its use since 1931, and the risks were known across the industry since the 1940s. Despite the known dangers many employers continued to use it and to expose their workers right up to the 1970s. Even now too many fail to take any adequate care with asbestos present in their workplaces. As a result over 2,000 people die every year from exposure often 30 or 40 years ago.

15. All these deaths were avoidable if the industry had protected its workforce. The insurers insured these companies, and took their premiums, despite the knowledge that exposure was occurring and that many would die. There is no reason why these workers should be denied compensation just because the exposure took place many years ago. The insurers were happy to take the risk and should meet their obligations. There is no justification for the taxpayer having to pay the bill.

16. The total cost of claims for occupational diseases is actually only a quarter of the total amount paid out in compensation to workers by insurance companies and the number of claims are falling.

17. Nor should these claims and settlements be seen as putting an undue burden on business. It is a legal requirement for employers who have staff working for them to have insurance cover in case they injure or kill someone through their negligence, or an employee develops an avoidable disease through work. The average cost of EL insurance is 0.25% of total payroll costs[60] and is the lowest in Europe. Average damages for an ELCI claim are £7,500[61].

18. Unfortunately the way the insurance market works there is little economic incentive for employers to take action to reduce the number of injuries and illnesses they cause, as premiums within each sector vary only marginally between the good and bad employers.

19. It is true that premiums have gone up considerably in the last few years, but this is nothing to do with the number of claims. The main reason is that insurance companies were using Employers Liability Insurance as a "loss leader".

20. In 1999 the cost of claims and insurance companies costs was 54% higher than the amount that the insurance companies were charging[62]. Following the stock market crash and the attack on the World Trade Centre, the companies decided they could no longer afford to subsidise Employers Liability Insurance so premiums have gone up. However this is not because of higher compensation or more claims.

COSTS

21. Another factor is that legal and medical costs have been rising much faster than inflation. Between 1997 and 2002 medical and legal costs increased by 50%[63]. This is simply because insurance companies are failing to follow protocols which oblige them to respond to claims within certain time limits and to admit liability early on, if the employer is liable. All too often liability is not admitted until a claim is about to go to court, and unnecessary costs have been run up.

22. The TUC is however concerned about the costs incurred in many Personal Injury cases. In part these seem disproportionate because of the low settlements in most cases, however the TUC would welcome any action to speed up cases and reduce costs, so long as such measures did not reduce the access of claimants to justice. There is no evidence that costs are being incurred by solicitors dragging out cases unnecessarily. Costs must be reasonable, necessary and proportionate. Costs however could be reduced if employers, or their insurance companies, admitted liability early, according to the protocols, rather than waiting until the last minute when the claimant's lawyer will already have had to get medical and other reports and spend, perhaps months, preparing a case.

23. The failure by employers and insurers to admit liability early has another effect as well. It means that often no attempt is made to provide access to early treatment and proper rehabilitation for the victim. This means that the condition may become worse and their chance of a recovery is greatly reduced. This is particularly a problem in injuries that respond best to early treatment, such as back pain.

RISK AVERSION

24. The TUC does not believe that there is any evidence of "risk aversion" within the workplace. The death of 220 workers last year shows that, as do the high rates of occupational ill health and injury.

25. The statutory basis under which employers must act is to reduce risk "as far as reasonably practical". This means removing those hazards which lead to risk where possible and otherwise reducing the risk to the lowest practical level. Unfortunately the focus on "risk averse behaviour" may send the wrong message to employers that it is acceptable to take greater risks with the health or safety of their employees.

26. We do accept that health and safety has been used by some employers and public bodies as an excuse for cutting back activities, often where the real grounds are cost. In addition restrictions imposed by the insurance industry have often been interpreted as being a result of regulation, or risk averse employers.

27. The TUC would like a separation of the risks faced by those who have no choice, such as workers, the young and those with learning disabilities or special needs, from those who choose as part of a lifestyle decision, to undertake an element of risky behaviour. However we believe that this distinction was already make in the judgement of Tomlinson v Congleton BC.

CLAIMS MANAGEMENT ACTIVITIES

28. The TUC has seen a range of cases which show that some claims management companies are acting in a way which is against the interests of both the individual concerned and society. These include taking extortionate premiums, encouraging frivolous claims, inappropriate advertising and considerable lapses in professional conduct.

29. These should not be seen as a reflection on either the legal profession, or the voluntary organisations and trade unions who refer members or clients to solicitors as a part of their broad support services. Trade union legal services refer around 65,000 new cases every year to solicitors. Last year they achieved compensation settlements to the value of over £300 million. This is part of the overall support work that unions undertake and is closely aligned to their work on prevention. Many local support groups provide a similar service.

30. The TUC would welcome the regulation of those Claims Management Companies who operate commercially and where their role is simply to find and pass on claims. We could not support the inclusion of non-commercial organisations under the same regulations, which will be developed to counter a specific issue and will not be appropriate to regulate trade unions, or legal firms, who are already regulated by other means.

LAW OF NEGLIGENCE

31. The TUC is concerned that the government proposals on negligence means that the current common law (which is both clear and well established) will now have to be read in conjunction with this new provision. This will lead to a period of uncertainty. In addition the TUC is concerned that the proposed wording will mean that any worker injured in a "desirable activity" will have to show a higher degree of negligence than a worker suffering the same injury in any other activity. It is unclear what constitutes a "desirable activity". It may be interpreted by the courts as including areas such as school excursions, and volunteer work, but could also be interpreted as covering many public or essential services.

32. The Government has indicated that its intention is simply to clarify the existing law to make it clear that there is no liability and negligence for untoward incidents that could not be avoided by taking reasonable care or exercising reasonable skill. The TUC does not believe that the proposed wording within the bill does that. Instead the provision will lead to a two-tier civil compensation system with workers in occupations deemed a "desirable activity" being denied access to the civil courts.

33. There have been indications that the proposed wording is meant to reflect the judgement in Tomlinson v Congleton BC, which looked at the issue of liability in a case where a youth seriously injured himself after diving into a lake where diving was prohibited. However there are at least two significant differences between the Bill and the judgement given in the Court of Appeal. The first is that this judgement referred to "social value" and not "social activity". These are very different and the latter is much wider.

34. Secondly, the judgement was never intended to cover those who undertake an activity as part of their work. It related to those who choose to take risky activities. This was made quite clear in the judgement, where Lord Hoffman commented "a duty to protect against obvious risks . . . exists only in cases where there is no genuine informed choice, as in the case of employees." This clear distinction is not made in the Bill.

35. Whether any new legislation is necessary is highly doubtful. The Tomlinson judgement stands regardless of any legislation. In addition the TUC believes it has demonstrated that there is no compensation culture within the UK. Personal injury claims are falling and the real scandal is the low levels of compensation awarded to those few workers who are successful.

36. The TUC therefore believes that the proposal for a clause intended to deter compensation claims is not only unnecessary, but does not even meet the aims the Government had claimed for it.

CONCLUSIONS

37. In workers' personal injury cases, claims arise because employers act negligently. There is no evidence of frivolous or unnecessary litigation, most workers do not claim and settlements are modest.

38. The insurance companies can help reduce negligence by linking the premiums much more closely to the actual risk within that employer. Insurance companies should more readily offer risk based premiums that reflect an employer's health and safety history. Good health and safety should be rewarded. However when a claim does arise, costly medical and legal bills would be less likely to arise if insurance companies were more ready to admit liability where justified early and follow court rules.

39. When someone is injured or made ill through work they should have early access to proper rehabilitation. This means the worker would be more likely to make a full or early recovery. Rehabilitation must not however be used as a stick to beat the claimant with, to force them to accept an offer or return to work early. It must only be used as a means of enabling an injured person to cope again either with work, or with family, domestic life and society.

40. The TUC does not believe that there is a risk averse culture within the workplace, and the current debate should be used to strengthen awareness of the legal requirements on employers. However "health and safety" should not be used as an excuse not to take actions which an organisation does not wish to do on cost grounds.

41. The TUC would welcome regulation of Claims Management Companies operating commercially.

42. The Government proposals to alter the law of negligence would be unhelpful and confusing. They may lead to some workers being unable to seek redress against their employer where negligence has taken place.

Trades Union Congress

November 2005