House of Commons - Public Accounts

Select Committee on Public Accounts Twelfth Report

1 Implementation of the Coal Health Compensation Schemes

1. In January 1998, the Department of Trade and Industry (the Department for Business, Enterprise and Regulatory Reform since June 2007) took responsibility for the accumulated personal injury liabilities of the British Coal Corporation. In the same year, the courts found the Corporation negligent in respect to lung disease caused by coal dust (Chronic Obstructive Pulmonary Disease or COPD) and hand injuries caused by using vibrating equipment (Vibration White Finger or VWF). Under the courts and in negotiation with claimant's solicitors the Department established two schemes to pay compensation. Both schemes are now closed to new claimants.[2]

2. The Department received over three quarters of a million claims from former miners, their widows, or their estates for COPD (592,000), and VWF (170,000). By the time all the claims have been settled, the Department estimates that it will have paid some £4.1 billion in compensation.[3]

3. The Department did not, however, undertake at senior level a systematic appraisal of the options available for discharging the liability prior to the court judgements, for example establishing a statutory scheme. It had considered at working level some of the possible options, including offering the liability to reinsurance and the possibility of putting the schemes on a statutory footing, where Parliament rather than the courts would determine the schemes' rules. But once the Court had taken its decision the legal position became more complex. The closer the Department came to the Court decision the more restricted the options became.[4]

TIME TAKEN TO PROCESS CLAIMS

4. Some claimants have waited a long time for their compensation, causing frustration and anxiety to often elderly and ill claimants. The Department gave priority to living miners and their widows. The median time taken to process claims under the full COPD scheme was, at March 2007, 29 months. For VWF claims, it took 20 months. Performance in some individual cases was far worse. Some claims have taken more than ten years to process and some remain outstanding (Table 1).[5]

Table 1: Time taken to process OPD and VWF claims (at March 2007)

COPD processing time for offers made after a medical assessment
	Average (months)	Maximum (months)	50% of claims dealt with in less than (months)
Miners	35	133	31
Widows' claims	33	131	28
Estate claims	31	134	27
All claims	33	134	29
VWF processing time for general damages offers made after a medical assessment
	Average (months)	Maximum (months)	50% of claims dealt with in less than (months)
Miners	26	138	19
Widows' claims	31	126	25
Estate claims	30	138	25
All claims	27	138	20

Note: The maxima figures exclude cases still to receive offers after 31 March 2007, cases litigated outside the schemes and those which were withdrawn or denied.

Source: National Audit Office analysis of data from Capita Insurance Services.

ESTIMATES OF THE VOLUME OF CLAIMS

5. At the start, the Department had greatly underestimated the likely number of claims. In March 1998, just after taking over responsibility for the liabilities, the Department forecast that the number of claims during the life of the schemes would be of the order of 173,500 for COPD and 45,000 for VWF, compared with the eventual number of 592,000 COPD and 170,000 VWF claims (Table 2). The combined liability of the two schemes was expected to be some £614 million, compared to the eventual total of £4.1 billion.[6]

Table 2: Summary position of the VWF and COPD Schemes to September 2007

VWF
Claims received	169,617
Claims settled¹	157,301
Outstanding VWF claims	12,316
COPD
Total COPD claims received	591,751
Claims settled	475,547
Outstanding COPD claims	116,204

Note: Claims settled figures includes claims which were denied and withdrawn

Source: Department for Business, Enterprise and Regulatory Reform

6. The Department had initially relied on forecasts prepared by the British Coal Corporation. It did not commission its own actuarial assessment of the likely number of claims and liabilities. In early 1998, the Department had not appreciated that the entitlement to compensation could be passed to the estate of the miner upon death and to subsequent estates if not claimed. The Department learned of this liability in late 1998 but it did not compile new estimates until 2001. Estate claims were to prove significant, accounting for 44% of COPD claims and 8% of VWF claims.[7]

7. The Department accepted that it should have examined the Corporation's forecasts at the beginning but had considered the Corporation to be the experts. The Department believe that even with more analysis the forecasts produced would have been subject to significant uncertainty. It did however accept that an actuarial assessment of the likely number of claims should have been undertaken.[8]

COMPLEXITY

8. The challenge of processing the very large number of claims was exacerbated by the complexity of the schemes' rules. The rules for assessing claims were set out in Claims Handling Agreements (the Agreements). The Department had to negotiate each Agreement with a Claimants Solicitors' Group, drawn from over 300 solicitors representing all claimants. Each agreement also required the approval of the Court. The aim was to replicate, as closely as possible, the outcome the claimant would receive if they went through the full court process. By the time the cases were in the courts and nearing a judgement, the Department suggested that it would have been impractical to extinguish common law rights and that this had necessarily led to complicated rules and processes.[9]

THE CAPACITY TO HANDLE THE CLAIMS

9. Partly as a result of the number of claims being made and the complexity of the processes, the Department and its contractors significantly underestimated the capacity needed to process the actual number of claims made. It took several years to get the required capacity in place, both within the Department and in the range of other advisors required to process claims.[10]

10. Internally, the Department under-resourced its preparations at the outset. During 1998, it had devoted only two staff to managing the COPD and VWF liabilities, rising to three in November of that year. In 1998, the Department was taking decisions on the options open to it, starting negotiations over the schemes' agreements and putting in place the infrastructure to support the processing of claims. Lack of staff resources at this critical stage contributed to deficiencies in the initial planning of these schemes. The Department did not defend the level of staff resources devoted during the initial stages and acknowledged that lessons needed to be learned from this example on the proper management of risk.[11]

11. In September 2001, the Department brought in a senior secondee with programme management experience to strengthen its review of internal procedures to improve performance. The Department had begun to expand its capacity from 2000 but noted that particular difficulties had been created by the receipt of 294,000 COPD claims in the six months before closure to new claims in March 2004.[12]

12. Externally, there were also capacity problems. For example, both schemes required claimants to attend medicals to assess their illness. The scale of the COPD scheme was such that it was difficult to find the number of respiratory specialists required in the UK. Medical and employment records took longer to obtain, and were often incomplete, or did not exist. In addition, some solicitors and other claimant representatives were slow in dealing with their tasks.[13]

FAST-TRACK PROCESSING OF CLAIMS

13. The Department, with the agreement of the other parties and the Court, introduced a fast-track process for dealing with more straightforward COPD claims in 2005. By March 2007, this arrangement had successfully cleared some 174,000 claims. 50% of claims entering the fast-track process were processed within five months, demonstrating that simpler claims could be processed more quickly. The Department doubted that a fast-track process could have been introduced earlier, believing it had only been possible because, by 2005, all sides had experience of dealing with a large number of claims and hence knew what would work.[14]

14. The initial COPD Agreement had included an expedited arrangement but by March 2007 only 24,000 claims had been dealt with via this route. The expedited option had been open to all COPD claimants but had been primarily designed for those with a shortened life expectancy and who might be eligible for higher amounts of compensation.[15]

COMPLETING THE SCHEMES

15. The Department has set "aspirational" dates for completing each scheme: by the end of October 2007 for VWF; and February 2009 for COPD. By September 2007 there were 116,000 COPD and 12,000 VWF cases remaining to be settled. The Department had hoped to virtually complete its processing of VWF claims by the end of October 2007, but this target has slipped to March 2008. The COPD scheme is still on track to achieve its target date of February 2009.[16]

16. The Department is likely to face a number of challenges to closing the schemes. During the lifetime of the schemes, the Department has sought to prioritise claims where the claimant has had a life-threatening illness. Cases raising difficult issues or policy questions have been deferred until the issues were settled. These issues include, for example, whether surface workers have a valid claim for compensation for exposure to dust. Some of the more difficult cases therefore remain outstanding.[17]



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