Aviva and Swiss Re both launched a judicial review of the legislation establishing the Compensation Recovery Unit scheme in early 2020. On 14 January 2022, the Court of Appeal handed down judgment finding that the CRU scheme does not infringe the claimant insurers’ rights under Article 1 of the First Protocol (A1P1) of the European Convention of Human Rights (ECHR).
The Social Security (Recovery of Benefits) Act 1997 established the following general framework:
1 There is a requirement to pay CRU benefits but only when a payment was made in respect of the accident or disease.
2 The relevant period for assessment is five years from the date following the accident or from when benefits are first claimed.
3 Section 8 permits deduction of an amount equal to particular beneficial in three categories of loss; compensation for earnings lost during the period, for care during the period and for loss of mobility. MESO and PWCA benefits are a special category capable of offset against general damages awarded for pain, suffering and loss of amenity.
4 An appeals system was put in place with a ground of appeal that “listed benefits which have been, or are likely to be, paid otherwise than in respect of the accident, injury or disease in question have been brought into account".
5 There could be more than one compensator in any given claim.
The predecessor system applied to settlements over £2,500 and did not make the link between compensation awarded under the different heads of loss and benefits received. Therefore, a claimant could lose general damages once CRU was deducted from the agreed gross sum.
The 1997 Act created a link between particular heads of loss and the benefits paid. By way of illustration, in disease claims the following benefits are often paid and deducted from damages (if claimed) and compensators/defendants liable to re-ay the full extent of the benefits:
PWCA / MESO
Attendance Allowance / PIPL / DLA Care / Exceptionally Severe Disablement Allowance
Mobility Allowance / PIPM / DLA Mobility
Past Lost Earnings
Past costs of mobility
High Court’s decision
The High Court’s judgment was handed down on 20 November 2020 and found that the following scenarios where incompatible with the claimants’ A1P1 rights to enjoy peaceful enjoyment of possessions:
- Given the requirement to pay 100% of the recoverable benefits even where the employee’s own negligence also contributed to the damage sustained.
- Given the requirement to repay 100% of the recoverable benefit even where the employees “divisible” disease is, in part unconnected with the insured’s contribution.
- Where others would also be liable for an indivisible disease but they or their insurers cannot be traced.
Henshaw J also considered two other scenarios, coming to the conclusion that they did not fall foul of A1P1:
- When the insurer is required to repay to the CRU benefits which do not correspond to a recognised head of loss in a negligence claim.
- When the insurer has to pay 100% of the recoverable benefits despite the element of compromise present in most settled claims.
Interestingly, the High Court accepted that due to the complexity of the matter, further submissions from both parties were required. The parties retuned to court on 12 January 2021 and Henshaw J found:
Henshaw J was prepared to read down the 1997 Act to give an effect compatible with A1P1, gave permission for the claimants to quash a certificate, and sought further submissions on the financial remedies.
The Secretary of State appealed to the Court of Appeal to overturn Henshaw J’s judgment on all grounds. The insurers cross-appealed on the fourth ground rejected by Henshaw J (where a CRU certificate does not match heads of loss).
The court found that Henshaw J had fallen into error by concluding that the aim of the 1997 Act was not to increase public resources as an end in itself, without regard to the fault of the compensator/insurer from whom contributions were made. Further, the court found that he had not properly accounted for the pre-1997 system and the aims of the 1997 changes to move the burden away from a claimant. As a result, Henshaw J’s conclusions in respect of the four scenarios where not rationally connected to the aim of the legislation when including the pre-1997 aims.
The court then carried out its own assessment, as follows:
The court allowed the Secretary of State’s appeal and dismissed the cross-appeal.
With recoverable benefits increasing generally, the insurers’ challenge had the potential to result in substantial savings for insurers and (re)insurers. This is particularly so if one could effectively pay an apportioned amount to CRU rather than all damages.
Whilst both the High Court and Court of Appeal’s judgment are well reasoned, it seems that some of the Court of Appeal’s arguments appeal are somewhat weaker, for example, when considering the balancing exercise where the court made broad assumptions on the historic pricing of EL/PL policies seemingly without the assistance of evidence or guidance from actuaries or underwriters.
It is widely considered by insurers as unfair given its wide ambit, effectively bringing benefits such as Housing Benefit (not previously a recoverable benefit) into the scheme of recoverable benefits, thereby significantly increasing the overall benefits burden on insurers. The Secretary of State’s success will be seen as a double blow to insurers who may now have to rethink how and whether they seek to challenge Universal Credit.
With this in mind, it remains to be seen whether this case will be appealed to the Supreme Court. With the potential sums at stake given the historic issues and how far the claim has come to date, an appeal would have the benefit of finally settling the issue, especially since it seems unlikely, although not impossible, that parliament will intervene to address the imbalance.