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Out-Law News 3 min. read

Government proposes fund of last resort for employers' liability claims


Employees claiming compensation for industrial diseases will find it easier to track down employers' insurance policies if plans for a new electronic database come into force.

The Department for Work and Pensions (DWP) also wants to set up an Employers' Liability Insurance Bureau that would pay claims if no employer or insurer can be found.

Employers' liability (EL) insurance covers employers against liability for injuries or disease sustained by employees during the course of their employment.

Since 1972, it has been compulsory for businesses in Great Britain (other than public bodies and some family-run businesses) to have EL insurance. Failure to do so incurs a fine of up to £2,500 for each uninsured day. Each year, insurers pay out £1.5 billion to around 186,000 successful EL claimants.

Most claimants are able to bring claims directly against their current or former employers without difficulty. But in the case of 'long-tail' industrial diseases, their symptoms may not become apparent for many years. Employees diagnosed with asbestos-related conditions, such as mesothelioma, may have been negligently exposed to asbestos decades ago. And exposure may have occurred at different times, while the claimant was working for different employers.

Because of this, special rules have been developed for asbestos-related claims that allow claimants to claim full compensation from any one negligent employer. That employer's EL insurer can then try to recover what contribution it can from the insurers of any other negligent employers.

But this still leaves the employee with the problem of finding the former employer, who may well no longer exist, and tracing the insurer who provided EL cover at the relevant time.

A voluntary code of practice for tracing EL policies was set up in November 1999 by the Association of British Insurers (ABI) and the Lloyd's Market Association. Insurers signing up to the scheme agree to keep historical data and to maintain records of all current and future policies for 60 years in a format that makes searching easier.

The ABI estimates that only about 4% of EL claimants need to use the tracing code. In 2008, 45% of those who did were successful in their search. But this still left 3,210 people unable to trace a policy.

"These people can miss out on the civil compensation that they deserve through no fault of their own," said the DWP in a consultation paper. "Often it is a matter of loss or destroyed records. This is a simple problem but with sometimes devastating results".

"It is particularly disappointing that the success rate for policies written post-1999 – when the [tracing code] started – are nowhere near the 100% rate that was expected," it said. "This is not acceptable and more needs to be done to improve tracing rates."

The consultation paper, 'Accessing Compensation', was published yesterday. Its proposed solution is twofold: an electronic database of EL policies managed by a new Employers' Liability Tracing Office, and an Employers' Liability Insurance Bureau, which would provide a compensation fund of last resort if no relevant employer or insurer can be found.

New regulations (and, if necessary, new legislation), would require EL insurers to provide tracing information to the database whenever they issued a new policy. Over time, this would become a complete record.

Whether historical information about old policies could also be stored on the system is one of the questions up for consultation. The paper suggests the database could be of help to insurers wanting to trace other EL insurers with a liability towards a particular EL claimant.

The Employers' Liability Insurance Bureau would be based on similar lines to the Motor Insurers' Bureau, which compensates victims of negligent uninsured and untraced motorists.

The consultation asks for views on the scope of the scheme, including whether it should cover all EL claims, all long-tail disease claims, or only mesothelioma claims, and whether it should respond to all such claims, whenever they arose, or only to claims brought (or diseases diagnosed) after the Bureau is in operation.

Funding for both proposals is likely to come from insurers, although the DWP recognises any additional costs would almost inevitably be passed on to employers in the form of increased EL premiums. Charging for access to the database is another possibility, although as the paper points out, in many cases this would simply be added to the EL claimant's costs, which would be recoverable from the EL insurer in any event.

Responding to the proposals, Nick Starling, the ABI’s Director of General Insurance and Health, said it was discussing with the Government whether a centralised tracing office was the best way to help EL claimants trace relevant insurers.

But the ABI is opposed in principle to the idea of an Employers' Liability Insurance Bureau.

"It cannot be right that today’s law-abiding employers should have to pay for their potentially uninsured competitors or firms that now no longer exist, and who may not have had insurance," said Starling.

"Such a fund could also encourage some employers not to bother with insurance, or to take the health and safety of their employees less seriously, knowing that a fund of last resort would pay out. In short, there is a serious moral hazard involved in this proposal," he said.

The consultation closes on 5th May 2010.

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