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Session 2006 - 07
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Public Bill Committee Debates

Draft Compensation Act 2006

The Committee consisted of the following Members:

Chairman: Mr. David Wilshire
Balls, Ed (Economic Secretary to the Treasury)
Benyon, Mr. Richard (Newbury) (Con)
Bone, Mr. Peter (Wellingborough) (Con)
Breed, Mr. Colin (South-East Cornwall) (LD)
Brennan, Kevin (Lord Commissioner of Her Majesty's Treasury)
Bryant, Chris (Rhondda) (Lab)
Burrowes, Mr. David (Enfield, Southgate) (Con)
Cable, Dr. Vincent (Twickenham) (LD)
Efford, Clive (Eltham) (Lab)
Evennett, Mr. David (Bexleyheath and Crayford) (Con)
Grogan, Mr. John (Selby) (Lab)
Hoban, Mr. Mark (Fareham) (Con)
Johnson, Ms Diana R. (Kingston upon Hull, North) (Lab)
Kemp, Mr. Fraser (Houghton and Washington, East) (Lab)
Kilfoyle, Mr. Peter (Liverpool, Walton) (Lab)
Mullin, Mr. Chris (Sunderland, South) (Lab)
Tami, Mark (Alyn and Deeside) (Lab)
Susan Griffiths, Committee Clerk
† attended the Committee

Second Delegated Legislation Committee

Monday 4 December 2006

[Mr. David Wilshire in the Chair]

Draft Compensation Act 2006

(Contribution for Mesothelioma Claims) Regulations 2006

4.30 pm
The Economic Secretary to the Treasury (Ed Balls): I beg to move,
That the Committee has considered the draft Compensation Act 2006 (Contribution for Mesothelioma Claims) Regulations 2006.
It is a privilege to serve under your chairmanship, Mr. Wilshire. Through the regulations, we are making changes to the financial services compensation scheme to allow the Financial Services Authority to make rules facilitating the faster payment of compensation to mesothelioma victims. This step was required as a direct result of the Compensation Act 2006 and follows the short consultation conducted earlier this autumn.
I know that many hon. Members, including some on this Committee, have constituents who have suffered from this disease, and have taken a keen interest in measures to help victims to receive more timely access to compensation. They include my hon. Friends the Members for Rhondda, for Alyn and Deeside, for Houghton and Washington, East, for Barnsley, West and Penistone (Mr. Clapham) and for Manchester, Central (Tony Lloyd) and my right hon. Friend the Member for Leeds, West (John Battle), who have campaigned on these matters for some years.
As hon. Members will know, mesothelioma is a cancer of the lining of the lungs or abdomen that is almost always caused by exposure to asbestos. The Government legislated in the 2006 Act to help claimants suffering from this cancer to obtain as quickly as possible the compensation to which they are entitled. That was achieved by reversing the effects of the House of Lords judgment in Barker v. Corus UK. The Government took the view that the practical effects of that decision would have made it more difficult and time consuming for sufferers of the cancer to obtain full compensation in circumstances in which they and their families were already in considerable pain and distress.
The 2006 Act provides that, where a person has negligently or in breach of statutory duty caused or permitted another person to be exposed to asbestos and as a result that person has contracted mesothelioma, the negligent person will be jointly and severally liable. That will enable the claimant to recover full compensation from any responsible person.
The DWP launched a consultation to discuss improving claims handling. That consultation closed on 23 November. It is analysing the responses and will publish a summary shortly. It is also organising a summit, on 13 March, at which stakeholders will discuss options for action following the consultation. We are debating a small part of that wider work to improve claims handling. It is a process change as a direct result of the decision to reverse the Barker judgment, but it is necessary to speed up payment to victims where the FSCS is involved. Our consultation on the changes sought views on the specific changes that were being made to the FSCS to broaden the circumstances in which responsible persons, defined as employers or insurers, can claim a contribution directly against the scheme in these cases.
Mr. Peter Bone (Wellingborough) (Con): Will the Minister explain whether the measure would help in a case in my constituency? Unfortunately, the very well liked mayor of Rushden died of this dreadful disease earlier in the year. He was a plumber all his life, but he was affected by asbestos as a boy when he was an apprentice plumber. Unfortunately, however, the company involved has long since gone and so has the insurance company. Will this measure help the family to recover some compensation?
Ed Balls: I am obviously very sad to hear ofthe circumstances of that case. I cannot comment on the details, but I think that the answer will depend on the precise dates at which the exposure occurred. The compensation scheme exists precisely to ensure that people can obtain compensation if they have had exposure and have an employer or insurance company that is now insolvent. Our ability to give compensation only goes back to the early 1970s, and if the exposure occurred under a company that went into insolvency before 1974, the compensation scheme would not apply. If exposure was at any point after 1974, there is the possibility of compensation under the scheme. If the hon. Gentleman sends me the details of that particular case, I would be happy to look into it and give him a more considered response when we have the precise facts.
The Committee is considering the particular procedural changes that are needed to implement the 2006 Act. We are not looking at the wider operation of the FSCS as that would be more properly looked at in the context of the DWP consultation. There are wider issues about the way in which compensation and this scheme applies to individuals such as the hon. Gentleman’s constituent, who may or may not be entitled to compensation, and they will be considered in the context of that wider consultation. The regulations essentially bring us back to the position before the Barker judgment and ensure, given the clarification that has occurred in legal judgements in recent years, that the FSCS can continue to play the same role with regards to compensation as it did before the legal case. The measure involves a set of rather narrow process changes to get things back on track and to ensure that claims can be moved through speedily. As I said, broader issues about compensation are a matter for the wider review that the DWP is conducting.
To give a bit of background, the FSCS is an industry-backed fund and is a last resort in relation to financial services products—in this case, insurance. It provides a consumer safety net in relation to financial services and can pay out compensation if a firm is unable or likely to be unable to pay out on valid claims. It is an independent body established by the Financial Services and Markets Act 2000 and the rationale behind the scheme is to give people the confidenceto invest in financial services. The fund does not provide general compensation as that would be a fundamentally different compensation scheme; it exists to compensate people where an insurance company, or in this case an insurance company offering employer liability insurance to an employer, has become insolvent.
Following the Government’s decision to reverse the effects of the Barker judgment, the Treasury has laid legislation before the House to allow the Financial Services Authority to make changes to the compensation scheme to help victims of this cancer receive more timely access to compensation. Broadly speaking, under the proposed changes, a negligent employer and insurer which has paid compensation to victims of the disease will now be able to claim a contribution from the FSCS in certain cases. That should help to avoid delay in compensation being paid to claimants while the FSCS liability is established, and it is also fairer to insurers and responsible employers, who, without the changes, would not be able to paythe victim up front and subsequently recover a contribution from the FSCS. The measure introduces a process change that does not alter the overall liability of the compensation scheme. As the regulations state, the proposals have a retrospective effect and allow the payment of compensation to a responsible person or their insurer notwithstanding the fact that they have already made a payment to the victim wherethe application for payment is made on or after25 July 2006.
Mr. Peter Kilfoyle (Liverpool, Walton) (Lab): It may be beyond the remit of this statutory instrument, but do the arrangements apply to people who are in the armed forces? I know that it applies to people who are in civilian occupations, but the armed forces used to be exempt and often it was an easy ploy for employers to shift the onus of responsibility for mesothelioma by linking it to someone’s time in the armed forces while knowing full well that people could not make a claim.
Ed Balls: The regulations apply to any insurance company or employer that is designated a responsible person under the 2006 Act. I would have to go back to the Act to find out the situation with regard to this particular compensation scheme and those employers. I am not sure whether my hon. Friend’s point is within the remit of the regulations with regard to the way in which compensation arrangements arrive after the definition of a responsible person, but I am happy to write to him to give him a clear answer.
Subsections (7) to (11) of section 3 of the 2006 Act confer a power on the Treasury to make regulations about the provision of compensation under the FSCS to a responsible person or the insurer of a responsible person in specified circumstances. Broadly speaking, the regulations include two additional powers for the FSA to make various rules in relation to the compensation scheme.
First, regulation 2 sets out a power that deals with claims involving insurers subject to insolvency and other defaults that took place before the commencement of the Financial Services and Markets Act 2000 on 1 December 2001. The power applies when a claimant could have claimed under the FSCS order where section 3(1) of the 2006 Act applies. It is restricted to claims relating to mesothelioma because section 3(1) applies only when a responsible person has negligently or in breach of statutory duty caused or permitted a victim to be exposed to asbestos; when the victim has contracted mesothelioma as a result of exposure; when, because of the nature of the disease and the state of medical science, it is not possible to say whether that exposure caused the illness; and when the responsible person is liable in tort for the exposure in connection with the damage caused to the victim.
Secondly, the powers to make rules will apply only where and to the extent that a responsible person could claim a contribution from another person who is also responsible for causing damage to a mesothelioma victim under the Civil Liability (Contribution) Act 1978, but is unable or likely to be unable to get a contribution because an insurer or the other responsible person is unable or likely to be unable to satisfy the claim for a contribution.
The regulations also set out various specific situations that can be expressly covered by the FSA’s rules concerning the FSCS. Regulation 3 is almost identical to regulation 2, except that it applies to claims after 1 December and therefore under FSMA. The final provision, regulation 4, relieves the FSA of the statutory obligation to consult on its rules and any guidance it publishes on the subject. It has been included to allow a quick change to be made to the FSA’s rules. However, a consultation has been carried out jointly by the Treasury and the FSA in recent months and, as I said, the proposal was widely supported. Once the regulations are passed the FSA will be able to bring the detailed rule changes to its next available board meeting, which is scheduled to take place later this month.
In short, this is a detailed process and an important step in helping victims of the disease to receive timely access to compensation, and to ensure that insurers and responsible persons are required to take their responsibilities seriously and are not prejudiced with regard to the operation of the compensation scheme.
The Chairman: I felt it proper to let the Economic Secretary put these detailed regulations into context, but I would be grateful if the debate could be confined to what he describes as this “detailed process” and not the general issues that arise.
4.43 pm
Mr. Mark Hoban (Fareham) (Con): May I add my welcome to that of the Economic Secretary, Mr. Wilshire, and say what a pleasure it is to serve under your chairmanship for the first time?
I welcome the update that the Economic Secretary gave on the broader consequences of the Barker v. Corus case and how they are being carried forward by the DWP. This afternoon is another of those consensual occasions on which the Economic Secretary and I agree. I am afraid that this is the second time in seven days that that has happened, and I suspect that it is doing no good for either of our reputations.
The Conservative party supports the measure, as we supported the enabling legislation in the 2006 Act. It is clear from the responses to the consultation process which the Economic Secretary outlined that the regulations have broad support from the financial services sector and its advisers. There are a number of mesothelioma sufferers in south Hampshire as a consequence of exposure to asbestos in the dockyard and elsewhere, and I know that they will welcome the consensus. On that note, I echo the question asked by the hon. Member for Liverpool, Walton about the scope of the regulations and which employees will benefit from them. I suspect that, in my own constituency and elsewhere, a number of people who have served in the armed forces will have an interest in the application of the 2006 Act.
This statutory instrument flows from the 2006 Act and reflects the Government’s decision to overturn the verdict on the case of Barker v. Corus. If that had not been corrected, it would have been far more difficult for sufferers of mesothelioma to receive proper and timely compensation. It is worth mentioning that two of the three cases heard under the umbrella of Barker v. Corus were funded by the Government, and it is odd for them to try to reverse the consequences of a judgment on a case for which they funded litigation.
The practical consequence of the case was to require the liability of all parties to be established first and for payments to be made in parallel. That would have been very time-consuming and involved a delay in compensating people with a very aggressive condition and a very short life expectancy. As the Minister said, this statutory instrument will enable one insurer to take the lead on a claim in the knowledge that it can collect contributions from other employers, insurers or—if the relevant insurer is insolvent—from the financial services compensation scheme.
On Report, my hon. Friend the Member for Ryedale (Mr. Greenway) said that, based on an average settlement of £150,000 and about 2,000 deathsper annum, the claims could cost in the region of£30 billion over 10 to 15 years. As I understand it, this statutory instrument will have the practical impact of speeding up claims but will not alter the quantum of total claims.
What assessment has the Treasury made of the impact of the timing of payments by insurers into the financial services compensation scheme if the payment process is accelerated? Has any modelling been done on the share of the total bill that the FSCS will pick up? With that in mind, what impact does the Minister believe there will be on any changes to the funding of the scheme, to be outlined in a consultation document next year? As I said, we support the regulations and wish to see them passed.
4.47 pm
Mr. Colin Breed (South-East Cornwall) (LD): I shall heed your advice, Mr. Wilshire.
The proposals are very welcome, as they reverse the Barker v. Corus decision. We are talking about a terminal illness, and it is wholly right that we should speed up the compensation claims. It is not easy to understand what anguish the Barker decision caused to many mesothelioma sufferers, and I am sure that the regulations will be a welcome relief to them, as the end of the debacle seems to be in sight. The decision certainly had a vastly detrimental effect on the victims, a section of our society that most needs protection. The amendments to the 2006 Act will certainly be welcome.
When the hon. Member for Liverpool, Walton was at the Ministry of Defence, he may well have received many letters, including some from me. It is right to say that dockyard employees were affected by the disease, because asbestos was on ships. They worked side by side with royal naval personnel doing exactly the same job at exactly the same time, but now find themselves in very different circumstances. Dockyard employees will be compensated and benefit from the regulations, but those ex-servicemen, who worked for the Royal Navy, have not received compensation, and under current circumstances and the regulations they will not get it. The Crown Proceedings (Armed Forces) Act 1987 prevents that, which is a great shame.
We are beginning to recognise the aggressive nature of this terrible disease, and the relatively small number from our armed forces who were subjected to it as a result of their work—we had no idea then about its effect—are denied compensation. I know that this subject is not part of the regulations, but it is right to put it on the record, bearing in mind that I and other MPs with dockyards in their constituency have, on a regular basis, constituents dying of the disease. Those people do not have the advantage of the compensation schemes that are available to those who worked in the private sector.
Nevertheless, the order is a welcome move in the right direction. It demonstrates that the Government are determined to get payments through, and for thatI applaud them, but I hope that even at this stage they might reconsider the situation of those who were affected while serving with our armed forces.
4.50 pm
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