In this edition of the Legacy Quarterly Update we will focus on developments and trends likely to occupy insurers in the legacy arena over the coming 12 months.
In particular we will consider:
- The upcoming legislative agenda
- Discount rate changes
- Fixed costs are coming
- Appeal cases to watch
- Nanomaterials– the next wave of legacy claims?
- Idiopathic Pulmonary Fibrosis claims
- Diesel fumes litigation
- Bereavement damages changes
- Historic abuse claims to expand significantly in Scotland and elsewhere
- The rise of civil 'revenge porn' claims
- Alternatives to litigation opportunities
Upcoming legislative agenda
Despite the Treasury Select Committee identifying the insurance sector as a priority for Brexit negotiations, it is perhaps the impact the Brexit agenda will have on the rest of the legislative timetable that will be of most concern for insurers in the next 12 months.
Several key Bills proposed in the Queens Speech have a somewhat uncertain future in light of the competing interests of Brexit legislation, which is undoubtedly going to take precedence over the next 18 months.
The first casualty is likely to be the Civil Liability Bill, which is still yet to be published. It is expected to include a tariff for reduced motor claims compensation and a ban on insurers making offers before victims have had a medical. It is anticipated that the Government is unlikely to push through these reforms before October 2018. Indeed this may be extended further, as it is not universally supported and is likely to receive a rocky journey through the Commons.
Whilst the recent Justice Committee hearings on the increase of the small claims track is an encouraging development, (particularly as the Government previously pledged to implement these reforms with the Civil Liability Bill), there is still much to resolve to prior to either initiative being completed.
Claims Management Company regulation is to be addressed in the Financial Guidance and Claims Bill which is presently being debated in the Commons, having started life in the House of Lords. The Bill proposes to transfer regulatory responsibility from the MOJ to the Financial Conduct Authority. However, despite proposals in the House of Lords, the Bill does not ban cold calling for personal injury claims or bring Medical Reporting Organisations within the scope of the FCA. Such regulation would be beneficial particularly following the implementation of the Civil Liabilities Bill which is likely to increase CMC presence in lower value personal injury claims.
The Automated and Electric Vehicles Bill may fair better. The draft legislation, which sets out the first wave of regulation and insurance provisions for driverless vehicles, has already been published and is appearing to have a smooth journey through parliament. The Bill appears to have cross party support and the risk to consumers if the legislation is not enacted is likely to see it become law sooner rather than later.
2018 could be the year that insurers put their discount rate woes behind them. The new draft legislation presents a clearer and fairer framework for setting the discount rate that should halt the chronic overcompensation recently acknowledged by the Ministry of Justice as occurring under the current -0.75% rate.
Insurers are expecting a change to a positive discount rate to be implemented in the next 6-12 months, although what the rate will be is still up in the air. Interestingly the Government has jumped the gun somewhat by indicating the discount rate would likely increase to between 0–1% under the new proposals. The vagaries in the methodology for setting the rate in the Bill (which gives the Chancellor the final decision) suggests this is probably the level the Government is aiming to reach, whatever the final legislation ends up looking like.
Although the provisions are predominantly good news for the market, there remains the possibility the Lord Chancellor will not go far enough, particularly as the recent increase in interest rates provides fresh evidence for the discount rate to be increased further. Moreover the Justice Select Committee's calls for further evidence on claimant investment behaviour may result in yet further argument on the correct approach.
Despite a potential further 12 month wait for this necessary legislative change, neither insurers or claimant representatives are delaying the payment of proper and fair compensation to injured parties. Rather, a sensible and pragmatic approach is being taken by the vast majority to compromise claims now on a positive discount rate in the interests of those claimants.
Fixed costs are coming
Following Jackson's long awaited review of fixed recoverable costs, which recommended fixed costs for all fast track cases and the creation of a new intermediate track for claims up to £100,000 (excluding mesothelioma and other asbestos related lung diseases), the momentum seems to have slipped somewhat. The anticipated consultation has not yet begun; indeed there has yet been no word from the Government on when consultation on the reforms would begin. It seems likely that the initial touted implementation date of October 2018 will now be pushed back to at least April 2019 or possibly later given the current uncertainty with the legislative timetable.
The implementation of fixed costs in Noise Induced Hearing Loss claims also looks set to be some way off, despite the publication of the Civil Justice Council's final report (which is complementary to Lord Justice Jackson's proposal to include NIHL claims in the fixed recoverable costs regime). The Ministry of Justice consultation on the proposals has not yet been published, again meaning implementation is likely to be delayed until possibly as late as October 2019.
Fixed costs for holiday illness claims looks set to be implemented sooner than the rest following the MoJ Consultation at the end of last year and a flurry of other activity including the Solicitors Regulation Authority issuing a formal warning notice outlining its concerns about certain behaviours in this sector and the Claims Management Regulator stripping a claims management company of its licence after it was found to have encouraged holidaymakers to fabricate symptoms to get compensation.
The MoJ has recently requested further information from stakeholders about the specific issues raised in handling holiday illness claims, as well as seeking views on behalf of the Civil Procedure Rules Committee (required for deciding wording for CPR and protocol amendments). It should be noted that it is not currently proposed that such cases will be run through the Claims Portal. In light of these developments, it is anticipated fixed costs could be implemented in the first half of the year, perhaps even in time for next CPR update in April.
Appeal cases to watch
Greenway and others v Johnson Matthey Plc – Supreme Court
On appeal by the Claimants, the Supreme Court will consider whether an actionable injury in tort arose from claims that former employees of the defendant had developed sensitivity to platinum as a result of exposure to complex halogenated platinum salts. Although the Claimants had suffered no physical injury, they did suffer financial losses stemming from physiological changes short of physical injury.
The High Court and Court of Appeal decisions made it clear that claimants will not be permitted to claim for harmless injuries, even where financial consequences (loss of earnings) are sustained.
The case was heard on 27 and 28 November 2017; judgment is awaited.
In a widow's claim for damages following her husband's death from mesothelioma, the Court of Appeal will consider whether it is bound by their previous decision in Williams v University of Birmingham. At first instance it was held that the widow's claim failed as it could not be proved that the levels of her husband's occupational asbestos exposure exceeded that set out in the Factory Inspectorate Technical Data Note 13 of 1970.
The Court of Appeal heard the appeal on 23 January 2018, judgment is awaited.
Various Claimants v Barclays Bank Plc – Court of Appeal
The Court of Appeal will consider the appeal of the Defendant challenging the first instance finding that they were vicariously liable for the conduct of Dr Bates during employees' pre-employment medical examinations during his period of independent consultancy.
The appeal is currently scheduled to be heard on 27 / 28 June 2018.
Nanomaterials– the next wave of legacy claims?
Nanotechnology is predicted to place higher up insurers' list of emerging risks in 2018. Several new studies have called into question the safety of the developing technology, despite being heralded by many as the next miracle material. The parallels with asbestos are there to be seen.
A recent study has provided strong evidence that certain carbon nanotubes used in manufacturing could pose the same cancer risk as asbestos, namely mesothelioma. Whilst the immune system is able to recognise shorter, thicker, nanotubes, it struggles with longer, slimming nanotubes.
Human exposure to nanoparticles is increasing. The technology is routinely incorporated into the entire food processing chain, as well as other products such as paints; sports equipment, boats, aircraft and vehicles. The nanotechnology industry is estimated to employ two million people worldwide in the next few years, creating a potentially large cohort of future claimants.
This improved understanding should inform manufacturers and regulators about safer options and will hopefully contribute to a 'safe by design' approach to manufacture. Insurers must continue to monitor these developments in order to fully understand the risks from both an underwriting and claims perspective.
Idiopathic Pulmonary Fibrosis - Second Wave of Asbestosis Claims?
IPF is commonly identified by a diagnosis of exclusion; essentially a diagnosis of lung fibrosis of unknown cause. The incidence of IPF is much higher than the incidence of asbestosis, and has risen steadily in the UK in recent decades. Current annual death rates of 6,000 are seen. IPF can affect people of all ages, but around 85% of diagnoses are made in patients over 70 years of age.
Claimants who have been unable to establish an asbestosis diagnosis (for example because they cannot establish an exposure history which exceeds the conventional threshold of 25 fibre ml years) are often re-categorised as suffering from IPF which, as a condition of unknown cause, is self evidentially non-compensatable.
However assumptions in this area have been called into question in a paper prepared by members of the Health and Safety Laboratory in Buxton (UK Asbestos Imports and Mortality due to Idiopathic Pulmonary Fibrosis).
The authors of this paper acknowledge that the linear relationship between asbestos imports and the incidence of IPF, whilst statistically significant, fall short of confirmatory of medical causation in individual cases. Nevertheless the fact that the relationship is similar to that seen from mesothelioma mortality will undoubtedly serve to encourage further research in this area. Cases need close scrutiny because it is sometimes possible to challenge causation on the basis of radiology and clinical signs and symptoms.
Accordingly it will also be likely to encourage claimants and their medical experts in challenging the applicability of the threshold on the basis of the emerging evidence based to the effect that an absolute threshold requirement does not take account of individual susceptibility to fibrosis.
Claimants, without alternative explanations, will undoubtedly be encouraged down this route and there is therefore the prospect of significant increases in asbestosis claim numbers if current and future epidemiology supports an asbestosis diagnosis. A risk based matrix would undoubtedly assist claimants seeking to establish an asbestos cause for IPF, particularly where individual case evidence is deficient.
Equally, claimant experts may wish to challenge existing IPF diagnosis even in cases of lower lifetime exposures where other known causes of IPF do not apply. Insurers have seen reducing asbestosis claim numbers in recent years, but this study provides an example of why optimism in this area may be misplaced.
Diesel fumes litigation
Following the reclassification of diesel engine exhaust emissions as carcinogenic to humans in 2012, amidst links to an increased risk of lung cancer, there has been an expectation of a rise in claims for injuries caused by short and long-term exposure to diesel fumes.
Whilst there has not been an increase in reported case law in this area, recent descriptions for the expected volume for claims still liken it to a 'time bomb' akin to asbestos. Any hyperbole aside, Claimant solicitors are alert to the potential for claims in this area, and unions are understood to have become increasingly involved in raising awareness and supporting their members in bringing claims. It may not be long until claims management companies also start moving into this area.
Last year, the Unite union set up a register allowing members to log toxicity levels in their place of work, and the Communications Workers Union disclosed it is supporting an ongoing action by a Parcelforce employee against the Royal Mail.
However, there remains a lack of case law setting out the specific impediments to claims, in particular foreseeability of harm. In addition there remains a lack of unanimity across various studies regarding the level of increased risk of lung cancer that diesel fumes can cause. One study suggested that the HSE had underestimated total lung cancer deaths caused by diesel fumes by up to 1,000 per year. There are also tangential connections to the ongoing Volkswagen emissions scandal, which may prove a stalking horse for claims.
Given the wide range of both illnesses and occupations linked to increased exposure to diesel fumes, insurers may start to identify an increase in claims reported which are linked to diesel exposure, as claimants begin to test the waters of the limits of liability. Employers remain obligated to follow guidelines such as the COSSH Regulations 2002, and insurers would be well advised to ensure that the policyholders are compliant with all relevant regulations.
The Government is expected to legislate on bereavement damages following the recent case of Smith v Lancashire Teaching Hospitals NHS Trust & Ors in which the Court of Appeal found the bereavement damages regime (to the extent that it prevents cohabiting couples of over two years from being entitled to bereavement damages) to be incompatible with the European Convention on Human Rights (ECHR).
Despite the need for legislative intervention, insurers may start reserving for cohabitee claims on a precautionary basis in anticipation of a change, and may even wish to begin to factor this issue into negotiations on relevant cases. Publicity concerns in respect of certain claims, for example mesothelioma, may prompt some insurers to consider compensating claimants prior to any legislative change.
In the legacy arena, it appears the impact from a change to the law will be relatively muted. The average age of the claimant in a mesothelioma claim is 72. This average age may reduce further with improved detection rates. The vast majority of the claimants are married or widowed and very few are currently cohabitating with a partner.
It is currently common for a cohabiting couple to marry in the last few months before the claimant dies, although this trend may change. Indeed the likelihood is that cohabitating will increase generally. Statistics show that divorce is driven by those aged 45 and over, with the largest percentages divorced at ages 50 to 64 in 2014.
Historic abuse claims to expand significantly in Scotland and elsewhere
2017 ended with a raft of allegations of sexual abuse across newspapers and the media – most notably in high-profile sectors like politics and the entertainment industry. But behind the headlines lies a large volume of potential claimants who, for decades, felt they could not report the abuse and would not succeed in litigation. 2018 is likely to see many of those victims choosing to come forward.
In Scotland, there are two key drivers behind this change. First, new legislation has removed the time bar defence for abuse occurring after September 1964. An action can now be raised regardless of delays, provided a fair trial is still possible. Second, the costs regime is changing. Qualified one-way cost shifting will increase access to justice, reduce the risk to claimants and broaden the exposure of insurers.
Across the UK, the potential for claims is increasing as the courts have widened the scope of vicarious liability. Once limited to the employer-employee relationship, it now encompasses relationships akin to employment and, more recently, scenarios in which an entity has some control over a sub-contractor – and even a local authority for a foster-parent. Across sectors such as education, charity and local authority, we can expect significantly increased claims levels in 2018.
Rise of 'revenge porn' claims
Two recent cases have set the scene for what is likely to be a rise in civil revenge porn claims in the coming year.
The first case involved Chrissy Chambers, who brought a claim in harassment, breach of confidence and misuse of private information against her ex-boyfriend who had uploaded explicit videos to a porn website. Proceedings commenced in March 2016, following a crowdfunding campaign by the Claimant on the internet, with the case settling out of court in December 2017. In addition to an award for damages, the Claimant received the copyright of the videos meaning she can pursue legal action against any websites who feature the videos.
In another case Facebook were embroiled in legal action over a naked photograph of a 14 year old girl which was posted onto the social media giant. High Court proceedings were launched in Belfast after the image appeared on Facebook between November 2014 and January 2016. The Claimant alleged misuse of private information, negligence and breach of the Data Protection Act.
The case settled out of court with Facebook agreeing to pay undisclosed damages to the Claimant. The landmark ruling serves as a word of warning for social media outlets to ensure they have a robust system for responding to indecent images posted online. The ruling is likely to pave the way for many claims against other social media outlets.
Alternatives to litigation
Alternative Dispute Resolution (ADR) is set for renewed significance in 2018. The Civil Justice Council (CJC) is consulting on the existing role and potential future role of ADR in civil justice. Whilst the CJC is unlikely to recommend mandatory ADR, the courts are already imposing indemnity costs for a party's failure to engage with ADR, making it increasing necessary to consider alternatives to litigation from the outset of a case.
Within this evolving civil litigation arena, we consider there is potential for innovative forms of ADR to become the new norms in personal injury litigation, particularly in relation to higher value claims.
Consensus, for example, is a revolutionary non-binding online system for parties to settle quantum personal injury cases consensually. The platform, utilising piCalculator technology, provides claimants and defendants with the tools to accurately calculate and evaluate quantum and negotiate settlement without resorting to expensive litigation.
Similarly the personal injury claims arbitration service (PIcArbs), brings the numerous benefits of arbitration, such as speed, economy, choice of forum, confidentiality and choice of decision makers to personal injury litigation for the first time.
Both these alternatives to litigation employ electronic systems that are fully paperless, providing future proof initiatives that complement insurers' own impending transitions to digital platforms, well ahead of what we can expect from the civil court system.
We will be piloting both these initiatives in 2018 to assess the full extent of the benefits they can bring. If you would like any further information on either initiative or details of the pilot, please get in touch with your usual Clyde & Co contact.