The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, every Member of this House can recognise that working people should have proper protection from personal injury or disease arising during their work. When this principle is breached through negligence or breach of statutory duty, it is right that a person should be compensated by their employer or employer’s insurer.
We find ourselves presented with a situation that undermines these seemingly simple assumptions. Many sufferers of diffuse mesothelioma, caused by exposure to asbestos, are unable to find an employer or insurer against whom to make a claim. These people were negligently exposed to asbestos and subsequently developed a fatal disease, yet they must go uncompensated for their immeasurable loss because sufficient records do not exist to trace the responsible insurer or employer. The need to address this is apparent and urgent.
Government, media and public interest in asbestos-related diseases is long-standing. In 1965, the Sunday Times brought this issue to the spotlight and reported on research showing the fatality of exposure to asbestos fibres. Since then, this spotlight has rightly not gone away. Asbestos-related diseases have featured in the press and on television repeatedly, with dedicated programmes produced in 1967, 1971, 1975 and 1982. In 1979, the then Government legislated to make payments to those with certain dust-related diseases who had been exposed to asbestos at work but who could not find an employer or insurer to sue, although lump-sum payments under that were lower than civil damages. In 1999, the insurance industry created a code of practice for better tracing of employers’ liability insurance policies. Although success rates for inquiries on difficult-to-trace policies increased, more needed to be done. In 2008, the previous Government introduced a scheme to make lump-sum payments to all people with diffuse mesothelioma regardless of whether they were exposed to asbestos at work. I pay tribute to the work of the noble Lord, Lord McKenzie of Luton. In 2010, as Parliamentary Under-Secretary for Work and Pensions, the noble Lord issued the consultation that has led us to where we are now. Without his efforts, this matter would not have had the profile that it so rightly deserves, and due credit must be given for his continued efforts to obtain support for sufferers.
The focus of this Bill is diffuse mesothelioma, a fatal disease caused almost exclusively by exposure to asbestos. Diffuse mesothelioma has a long latency period, often of 40 to 50 years. Once diagnosed, the average life expectancy of a sufferer is short: between nine and 13 months. The long delay between exposure and developing the disease, combined with inconsistent record-keeping in the insurance industry, means that individuals often struggle to trace an employer or insurer against whom to make a claim for civil damages. The insurance industry and this Government recognise that this is unjust and that provision must be made for these people.
Despite the recognition of this market failure, the insurance industry alone has not been able to put this right. Disputes between insurers and the different interests of companies that still offer employers’ liability cover, which I shall refer to as “active” insurers, and those that no longer do so—I shall refer to them as “run-off” insurers—have prevented the industry agreeing on a voluntary levy. Industry representatives have therefore asked for legislation to impose a levy to support a payment scheme.
The Mesothelioma Bill will establish a payment scheme to make a lump-sum payment to eligible sufferers of mesothelioma and their eligible dependants. The scheme will be funded through a levy on insurers active in the employers’ liability market, meaning that the active employers’ liability insurance market as a whole will bear the cost. Timing is key; the number of diffuse mesothelioma cases is expected to peak around 2015. My aim is to launch the scheme as soon as possible—ideally in April 2014.
We expect there to be roughly 28,000 deaths from mesothelioma between July 2012 and March 2024. If the Bill is passed during 2013, first payments could be made around July 2014 to those diagnosed with mesothelioma on or after 25 July 2012. Around 300 people a year could receive an average payment of approximately £100,000.
The Bill is first and foremost a means to create a scheme to provide for those people who would otherwise be unable to bring a civil claim against their employer. In other words, it is a scheme of last resort. The driving principle is that, where adequate records are not available, those who have developed this disease as a result of their employer’s negligence, or breach of statutory duty, should still be able to access payment for their injury, and the process of applying for this should be as straightforward as possible.
Secondly, the Bill is part of the ongoing commitment of this Government, previous Governments and the insurance industry to correct a market failure. The Bill includes measures which will improve the tracing of employers’ liability insurance policies through the creation of a technical committee that makes binding decisions on insurance cover.
It is at this point worth reflecting on the work that the Ministry of Justice, too, is doing to support sufferers of mesothelioma. In December, a Written Ministerial Statement was issued confirming the Government's intention to consult on a range of measures, including a specific pre-action protocol for mesothelioma cases, a portal and fixed legal costs for such cases. None of these elements is beholden on our Bill and, similarly, our Bill is not beholden on them, but together they demonstrate the desire across government to help people with this terrible illness.
I turn to the question of payments. The scheme will make payments on a tariff basis to eligible people with mesothelioma, or to an eligible dependant if that person has died, where they cannot trace either an employer who exposed them to asbestos or that employer’s insurer and where they have not received civil damages or some other compensation payment in respect of mesothelioma. The scheme is not intended to be an alternative to civil damages, nor is it a compensation scheme. The scheme will be set up by the Secretary of State, who will make arrangements for another body to be the scheme administrator.
The Bill allows for the payment amount to be determined in regulations that will set out a simple tariff, basing payments at roughly 70% of the amount of average civil damages. Payment amounts in the tariff will be linked to an individual’s age. Calculating the amount of civil damages that a person is to receive is complex. However, published research shows that awards in civil cases decrease with the age of the victim. Regarding the amount of the payment, I ask your Lordships’ support in understanding that the scheme strikes a careful balance and does so in a way that is fair and lawful. It ensures a substantial payment to people who have mesothelioma and cannot trace the liable employer or insurer, while ensuring that the contribution made by insurers is fair and not excessive, since not all of them were in business at the relevant time. It will ensure that the scheme can get on with helping sufferers and not get bogged down in legal challenges from insurers.
There are four main criteria for eligibility. The first is that an individual was diagnosed with diffuse mesothelioma on or after 25 July 2012. The second is that they were employed at the time of exposure to asbestos and that this was due to negligence or breach of statutory duty on the part of an employer. The third is that they have not brought a claim for civil damages against an employer or the employer’s insurer and they are unable to do so. The fourth is that they have not already received damages or other compensation payment in respect of their disease, nor are they eligible to. I should point out that individuals who have received a payment under existing state schemes will be eligible to apply, but any such benefits and lump sum payments will be recovered when a payment is made under the new scheme. Eligible dependants of sufferers of diffuse mesothelioma may apply to the scheme where the sufferer has died before making an application. Calculating awards of compensation for dependants in civil cases can be complex, but under the scheme it will be simple and quick. The scheme will pay eligible dependants exactly the same amount as the sufferer would have received. We will set out details of the application process in the scheme rules. The scheme will give a right to an applicant to request a review of decisions taken and confer a right of appeal to the First-tier Tribunal against a decision taken on a review.
A sufferer must have been diagnosed on or after 25 July 2012 to be eligible under the scheme. A cut-off date will always be unfortunate for those whom it excludes. However, we must be pragmatic. The costs to the active insurers funding the scheme would be prohibitive if we were to make the scheme open-ended. It was on 25 July 2012 that the Government announced that they would set up a payment scheme and so created a reasonable expectation that eligible people diagnosed with mesothelioma on or after that date would receive a payment.
The Bill does not—and cannot—look to respond to all asbestos-related disease. The issue of individuals who have developed other asbestos-related diseases through negligence or breach of statutory duty and are unable to bring a civil claim for damages of course needs to be addressed. However, this Bill is not the appropriate instrument to do that. Mesothelioma is distinctive, and its link to asbestos exposure is undeniable. This allows for the fast processing of cases because there is no doubt that asbestos exposure caused the disease. The Bill supports the administration of a simple and streamlined scheme. It could not cover other diseases, where there could ever be a question as to the cause, because the lengthy investigations required in order to prove these cases would choke the scheme, preventing the comparatively simpler mesothelioma cases being administered with the necessary speed. Again, I ask noble Lords to look at this emotive issue from a pragmatic perspective and focus not on what is impossible but on what can be achieved. This legislation is a huge step forward and should be recognised as such.
The establishment of a technical committee to handle disputes relating to cover is key. The technical committee will be distinct from the scheme and will deal solely with disputes related to insurance cover. If a question arises between an insurer and an individual about whether an employer maintained employers’ liability insurance with the insurer at a particular time, the technical committee will be able to make a binding decision on this issue. In practical terms, this means that if a person with diffuse mesothelioma has some evidence that an insurer was providing cover at the time they were negligently exposed but this evidence is contested by the insurer, they can ask the technical committee to make a decision. This will also benefit other mesothelioma sufferers exposed to asbestos by the same employer at the same time, who may wish to bring a claim against that employer in the future. The technical committee will ensure consistency in decision-making and allow more people to take a case to court, having had the issue of cover already decided. Where the technical committee decides that an insurer is not on cover in a particular case, and no other employer or insurer has been traced, the person with diffuse mesothelioma may then be able to apply for a payment under the scheme.
The Bill envisages a review process for any decision taken by the technical committee. Following a review, a person may refer a decision to arbitration, after which very limited recourse to the courts is possible under the arbitration legislation. Again, timing is key; undue delays in the decision-making process would prevent an eligible applicant taking further action while they are still alive, be it seeking damages in the civil courts or applying for a scheme payment. It is expected that the decisions and reviews will be undertaken by the technical committee with the utmost speed.
I now turn to the levy on insurers. The levy will be imposed on active employers’ liability insurers at large, not on the individual insurers who took the premiums and who were on cover in the cases that will come to the scheme. The levy will be fair and not excessive, and set at a rate that does not require the insurers to pass on increased costs to business. The scheme could be jeopardised if the levy were set disproportionately high, which might invite legal challenges from the insurance industry. This would delay the introduction of the scheme, preventing a payment mechanism being in place at the time of the peak of mesothelioma deaths around 2015. Once more, we must be pragmatic and recognise what can be achieved.
The cost of the scheme in the first year will be considerably higher than in subsequent years because of the number of cases dating back to 25 July 2012. To avoid the first period’s levy being unaffordable and risking costs being passed on to current employers through higher premiums, the costs will be spread over four years.
Existing government provision is available for those who are unable to claim damages or receive payments from elsewhere. Where a person has received government benefits or lump-sum payments for diffuse mesothelioma and subsequently becomes eligible for a payment under the new scheme, the benefits recovery legislation will apply. This is because people should not be compensated twice for the same condition or compensated in excess of their loss. This means that an eligible applicant will receive a scheme payment after the deduction of relevant social security benefits and lump-sum payments, which the scheme administrator will repay to my department through its compensation recovery unit. Similarly, the Bill includes amendments to the existing lump-sum payments legislation to prevent an individual receiving such payments after they have received a payment under this new scheme.
I hope that noble Lords can agree today that the principles driving the Bill are right and just; that it is right that we legislate to provide for people with diffuse mesothelioma who are unable to claim civil damages from an employer for negligence or breach of statutory duty; that it is right that the insurance industry bear the cost; and that it is right that we establish the scheme with the greatest possible speed.
The measures contained within this Bill will mean that people with diffuse mesothelioma or their eligible dependants will be supported financially at this most stressful time. Quick access to payments will allow victims to afford care and treatment costs so that they can die at home with dignity.
The Bill marks great progress and strikes a careful balance in a fair and lawful way between the rights of victims and the active insurers funding the scheme. Several active insurers funding the scheme will not have even existed at the time when the exposure to asbestos occurred. Several of these insurers will have also maintained good records for the periods when they were providing insurance services. The Bill demonstrates the commitment of the insurance industry to correcting a terribly damaging market failure, and I thank the Association of British Insurers for this commitment. I am encouraged by the support of the industry, and look to the Financial Conduct Authority to support this work further through vigorously pursuing any insurer that fails to comply with requirements relating to EL record tracing.
The Bill is timely and necessary. It is something that I believe we should all welcome, and I commend the Bill to the House. I beg to move.
Lord Freud
My Lords, I have been in this House long enough to have an expectation that this would be a high-quality debate. I can confirm that my expectations have been exceeded. This was a very good debate which showed that noble Lords have focused on the issues and is the precursor to a valuable process being undertaken as we go through Committee and subsequent stages of the Bill.
Clearly, the Bill deals with what I called a very damaging historic market failure. Various noble Lords, such as the noble Lords, Lord Avebury, Lord Alton and Lord Browne, implied that it might have been rather more than that. Indeed, it was implied that there might have been reckless behaviour. Observations have also been made about the way in which the paperwork was dealt with. To be blunt, many people in the insurance industry would admit that that was the case.
This is not the Bill I wanted to bring to the House. I will explain why that is the case because it is very important that noble Lords should understand that. I wanted to find a way of allocating responsibility to the companies that had engaged in the relevant business in the year in question so that we could levy a specific charge on those companies for the business for which they were responsible over the relevant period. We would thus have allocated the responsibility where it should lie. I spent a lot of time and, indeed, some of the DWP’s money, researching that proposition. However, I came to the conclusion that such a course of action was legally too risky in a most litigious environment. Therefore, we have moved to a second-best position, the implications of which are driving many of the shortfalls that noble Lords have pointed out vigorously tonight, because it is one thing to say that there is a moral imperative to look after the individuals suffering from this terrible disease and their dependants but it is another to pin the responsibility on companies which, frankly, had nothing to do with it. We are looking to insurers in the employers’ liability market to fund this provision through the levy and we are looking at the appropriate level of levy in that marketplace when direct blame cannot necessarily be attributed. That is why the scheme is designed in the way that it is and why various constraints are in place.
I think that I heard support for the principles of the scheme. We can get money to the sufferers regardless of whether the insurance records have been lost. In general terms it is right that we look to the insurance industry to provide this support, not least because this situation is a horrific blemish on its reputation which it will, and does, want to correct and mitigate.
We need to help the insurance industry to impose this levy. It cannot do it on a voluntary basis, which would have been the ideal position and the one which I would have preferred. It needs the legislative support because it is a disparate industry with very many different players in it.
We are clearly going to spend a lot of time going through the detailed questions raised. As I will be going through them in Committee, I do not intend to spend a lot of time going through everything now, but I will try to pick up the main themes. I need to add something that I omitted to do earlier, my thanks—which several Lords have mentioned—to the victims’ groups and the trade unions for all the work they have done and for which I am personally most grateful.
Before I get into the drier stuff of this, I must add that many noble Lords talked about the human stories. Nearly all of us will know someone who has gone through this, and there is an awareness here that in many ways this is one of the worst diseases to get. I acknowledge that. The noble Lords, Lord Giddens and Lord Monks, and many other noble Lords made that point and told us some stories to remind us.
One of the key issues raised by virtually all noble Lords—too many to mention individually—was about setting the figure at 70%. There was a real juggling act about what the right level of levy is, and that is something we can spend more time in Committee debating. If we set the levy too high, in practice what will happen is that it will just raise the amount to be paid and the insurers will pass on virtually all of it to British industry, which is something I was very keen not to see. There is a lot of economics around this, but if you set a small level in a reasonably competitive market, most of it will probably be absorbed by the insurance industry, which should do so, rather than by British industry, which should not be required to absorb it. There is a real balancing act in the amount of money that it is sensible to raise this way to get to the victims, and that is the main driver here. It is not, I want to emphasise, the behavioural incentives that have been floating around. That is not what we are doing here. We are trying to get a balance of funding.
The second issue is, because we went early—theoretically one can start doing a levy like this only at the time at which it becomes law—we have gone from the date of the formal announcement, from which point the insurance industry can start to reserve. However, one of the issues coming from that is that in the first year, we effectively have to make over three years’-worth of payments, and noble Lords will see the problem instantly. There is suddenly a very large levy in one year of the kind that is very difficult to absorb. That is the reason that we have worked to smooth that first year over four years, so that we do not get these sudden large amounts, but it is a constraint. I shall not go into the detail tonight of how difficult all this is to do, although perhaps in Committee I could be persuaded to open my heart a little about particular Treasury rules, levies that are treated like taxes and why the Treasury, which collects taxes, should give the DWP any money to make payments.
Lord Howarth of Newport
Even before the noble Lord opens his heart to us in Committee, will he look again at the question of the start date in the light of the figures we have been given? We have been told that the life expectancy of a mesothelioma sufferer following diagnosis is perhaps two years. We are told that around 2,400 people die each year, and that the insurance history can be traced in more than 50% of cases, which means that more than half are able to pursue their case against the insurer. That leaves around only 1,200 people who would benefit if the noble Lord were simply to remove the start date. I would have thought that that ought to be affordable and that the insurance industry ought to accept that quite limited extension of its responsibility. I hope that the noble Lord will think about that and perhaps even amend Clause 2 himself and not just leave it to us.
Lord Freud
Virtually all noble Lords mentioned the start date. The trouble is that, in principle, this is a sheep and goats situation. Any date, wherever it is set, as the noble Lord, Lord Monks, mentioned, is always arbitrary at one level. To pick up on the point made by the noble Lord, Lord Howarth, this concerns dependants as well, so if there was no start date and the date went back indefinitely, we really would be talking about a huge amount of money. We will spend a lot of time talking about this, but let us flesh out the areas of discussion.
I think that we might look in Committee at the point made by my noble friend Lord German and reinforced by the noble Baroness, Lady Taylor, about a cap or a different structure. Noble Lords can see my constraints, but we can look at shaping the structure in different ways. The noble Baroness, Lady Donaghy, asked when we would have the report on payments. It will be ready in the summer. In response to my noble friend Lord Courtown, I will say that we will have the scheme rules ready to be looked at by the time we reach Committee.
Extending this to other asbestos-related diseases was the other big issue of concern to virtually all noble Lords. The point about mesothelioma is that if you have it, you will essentially have contracted it doing a job in which there was negligence, and that it is fatal. You can fix a figure with a tariff level and you can go very fast. The objective is to reach a point within five months as compared with a typical period now of two years. Noble Lords will be conscious of the meaning behind those periods, given the prognosis of survival for up to 15 months. Getting something this quickly is really important. There may be schemes for other types of asbestos-related illness, but they could not be set up within this structure. We would have to look at something else; it could not be a simple extension.
My noble friend Lord Avebury and the noble Lord, Lord Alton, asked how many meetings have been held. Out of amusement, I counted them. There were 15 meetings with representatives of the insurance industry, of which seven were held in quite a tight period. You can imagine that they were being held during a time of heated negotiation. A total of 11 meetings were held with representatives of victims’ groups, lawyers and members of the all-party parliamentary group. It is not a complete balance but I took on board as much as I could as we built this.
I will not spend a lot of time tonight on the MoJ process. We will have time to do a bit more. The fundamental point is that the MoJ will launch a consultation shortly. It will go through all these issues and then come up with a scheme on the balance, taking on board all the responses. This is a major process and we will just wait for it to happen.
The noble Baroness, Lady Donaghy, raised the question of the scheme administrator. We are in control of this scheme and the DWP will drive the scheme rules. The scheme administrator will therefore be answerable to the Secretary of State, who will monitor whether it is doing the job that needs to be done. It is not a done deal with the ABI at this stage, though it is setting up a shadow company. If it does this successfully and if it is the administrator, it means that we can go very fast, but it is open at this stage.
My noble friend Lord German raised a key point about the assumption of negligence. What distinguishes mesothelioma from some of the other diseases is that there is no reason for it other than being exposed to asbestos in employment. There has been a general acceptance that if you were exposed to asbestos in the workplace it would be through negligence. The decision has typically been made on a balance of probabilities. We will spend more time in Committee on the important legal context of why one can do such a straightforward and rapid scheme.
I have had good warning from the noble Lord, Lord Alton, that I will get an amendment proposing that some of this levy should effectively go into research. I cannot tell the noble Lord how hard I have tried to produce that result for him. I have failed to do it and we will spend time on this in Committee. There are some really complicated technical reasons why that cannot happen, mainly because, formally, a levy is a tax and it cannot go to anyone but the victims. I have tried every single route round this. If noble Lords are cleverer than me and can work their way through it differently, I will be delighted.
Lord Alton of Liverpool
I am grateful to the Minister, who is obviously coming to a conclusion, for giving us a lot of his time in replying. Has he noticed that the British Lung Foundation proposal is not asking for money from the levy? It is suggesting a membership scheme for every insurance company, who would then contribute £10,000 as part of that scheme. This would raise £1.5 million each year. He will also recall that I made a point about the amount of money coming into the Treasury as a consequence of the proposals before your Lordships tonight.
Lord Freud
My Lords, if it was done on a voluntary basis by the insurance industry itself, that would be one thing. If it is done through legislation that is another thing and that is the problem, but I have not given up on research. There are quite a lot of issues here. The Government do not spend a lot of money in this area and there is a kind of chicken and egg situation because we commission research only if it is of high quality, yet if there is nothing to encourage it you do not get the bids. There is lots more and I am working with my noble friend Lord Howe on trying to get more there. The noble Lord is pushing on an open door, which I am afraid someone else has slammed in all our faces.
I will close by saying that the Bill is a really positive opportunity. It means that we can provide financial support to the sufferers who cannot bring a claim for civil damages. We can do it quickly, with the creation of an industry-supported payment scheme. I am grateful to hear that noble Lords may try to amplify the Bill in different ways but that the determination of the House is to not see a delay. If we achieve that collectively, and pass the Bill in 2013, we can set up the scheme in April next year and get the first payments to people in July, with 300 people receiving, each year, an average of about £100,000. It is an important and essential piece of legislation and I commend the Bill to the House. I again thank everyone who has contributed, in the very high-quality way that noble Lords have, to this debate and ask the House to give the Bill a Second Reading.