January blues for the insurance industry following benefits reimbursement decision

England and Wales

We now have the Court of Appeal’s emphatic judgment in R (Aviva Insurance Ltd and Swiss Reinsurance Co Ltd) v. Secretary of State for Work and Pensions allowing the Secretary of State’s appeal against the High Court’s ruling on the recovery of Compensation Recovery Unit (CRU) payments by insurers.  For the insurance industry, the Court of Appeal’s judgment will not serve as a remedy for the January blues.

High Court decision

The subject of the judicial review had been the interpretation and application of the Social Security (Recovery of Benefits) Act 1997 and its compatibility with the European Convention of Human Rights (EHCR). The issue at stake was whether the obligation on insurers to repay 100% of benefits received by the claimant, irrespective of whether there was contributory negligence, or the insurer was only responsible for a portion of the damages, was compatible with the insurers’ rights under ECHR Protocol 1 Article 1. The High Court had found in favour of the insurer claimants.

Court of Appeal decision

In his detailed Judgment, unequivocally endorsed by Sir Julian Flaux, Dingemans LJ identified ‘fair balance’ as the central issue and noted that:

  • State benefits are only payable to the date of compromise, with a long stop date of five years.

  • Insurers can benefit from the state providing free medical care if care continues outside of the above period.

  • Damages for loss of earnings are paid net of income tax, with a consequent loss to the state.

He also focused on the chronological implications as regards:

  • the wider evolution of social and economic policy;

  • the point at which concerns had been raised by the insurance industry;

  • the relevant periods for bringing such actions.

In doing so, Dingemans LJ noted that:

  • The regime that the insurers were seeking to unpick had been born out of Sir William Beveridge’s 1942 report on Social Insurance and Allied Services, which in turn had been enshrined in the Law Reform (Personal Injuries) Act 1948, Social Security Act 1989 and the Social Security (Recovery of Benefits) Act 1997.

  • The ABI had not objected to the ‘social and economic policy choices’ set out in the 1997 Act which had been in operation for 21 years by the time the insurers had commenced the present proceedings. Adding that any reasonable insurer in the EL market ‘must have known that medical understanding about causes of industrial diseases would develop, and the law would react to those developments’.

  • In this instance, CPR 54.5 imposed a three month time limit for bringing judicial review proceedings. Dingemans LJ did not accept that the insurers’ difficulty in identifying  when they considered the 1997 Act began to infringe their rights under Article 1 should serve as justification for ignoring that time limit. He expanded that such time limits serve to ensure that any ‘necessary interference with good administration is kept within reasonable and proportionate limits’.  He termed the prospect of:

    • Permitting the ‘exhumation’ of such an extensive number of CRU certificates as creating ‘administrative difficulties for both the insurers and the Secretary of State’; and

    • Permitting insurers to bring damages claims for all CRU certificates issued since either 2 October 2000 or 1 January 2003 (depending upon the circumstances in each such claim) as ‘the antithesis of a rapid audit of the legality of decision making’.

The Secretary of State’s appeal was unanimously allowed and the claim for judicial review was dismissed.

Comment

The short point, the position for insurers is as it was. They are liable to meet 100% of the benefits that appear on a CRU certificate and, in co-defended claims, the DWP will continue to pursue the first payor for the full sum.   

The Court of Appeal provided a comprehensive explanation as to how they had approached ‘fair balance’ and made their collective view on time limits clear. As Sir Julian Flaux added in a succent endorsement, the:

recoupment of social security benefits paid to the victims of the tort is a matter of socio-economic policy which is quintessentially a matter for Parliament not for the Courts’.

Given the enormity of what is at stake, it may be that this is not the final chapter. However, the compelling and forceful views of Dingeman LJ and Sir Julian Flaux may well mean that, at least as regards CRU, the insurance industry will not recover from these January blues.   

For a look back at the position as it was after the High Court’s decision, see our earlier Law-Now.

Further reading:

R (Aviva Insurance Ltd and Swiss Reinsurance Co Ltd) v. Secretary of State for Work and Pensions [2022] EWCA Civ 15.