Aviva Insurance Limited v The Secretary of State for Work and Pensions

The statutory recovery scheme may require employers’ liability insurers to repay the State’s social security benefits even where the benefits do not correspond exactly to a claimant’s recoverable loss, or where the insured’s contribution to the disease was only partial.

The legislative aim must be identified from the statute itself. Under the Social Security (Recovery of Benefits) Act 1997, full recovery of benefits from tortfeasors or their insurers was a legitimate socio-economic policy. The scheme was rationally connected to that aim, and no less intrusive alternative would achieve the same result. Its retrospective effect on long-tail insurance policies had special justification. The scheme therefore struck a fair balance under A1P1.

Employers’ liability insurers challenged the compatibility of the Social Security (Recovery of Benefits) Act 1997 and regulations made under it with A1P1. The challenge concerned payments required under Compensation Recovery Unit certificates, particularly where contributory negligence, divisible or indivisible industrial disease, missing contributors, or a mismatch between benefits and heads of loss affected the insurer’s liability.

Mr Justice Henshaw declared the scheme incompatible in three situations but rejected the challenge in a fourth: [2020] EWHC 3118 (Admin). The Secretary of State appealed. The insurers cross-appealed on the fourth situation. The central issue was whether the statutory allocation of the recovery burden struck a fair balance between insurers’ property rights and the public interest.

Disposition

1. The Secretary of State’s appeal was allowed. The insurers’ cross-appeal was dismissed, and the claim for judicial review was dismissed. The statutory scheme did not infringe the insurers’ A1P1 rights in any of the challenged situations.
2. The applicable framework was the four-stage proportionality analysis in Bank Mellat v Her Majesty’s Treasury (No.2) [2013] UKSC 38 and 39. The court had to examine the importance of the objective, rational connection, less intrusive alternatives and fair balance. As explained in R(SC) [2021] UKSC 26, review of socio-economic legislation required respect for Parliament’s wide margin of judgment, but not a mechanical application of the formula that legislation was valid unless manifestly without reasonable foundation.
3. The judge below had identified the legislative objective too narrowly by concentrating on Parliamentary materials and the changes introduced by the 1997 Act. The aim had to be derived from the statutory scheme itself. That aim was to recover all state benefits paid in respect of an accident, injury or disease, while shifting the burden of non-matching benefits from the injured person to the tortfeasor or insurer.
4. That objective was rationally connected to all five situations considered. Sections 1(1)(b) and 11(1)(b) of the 1997 Act maintained a link between the benefits and the relevant accident, injury or disease. A matching or proportionate recovery scheme would not have achieved Parliament’s objective of full recovery.
5. The fair-balance assessment favoured the statutory scheme. Its retrospective effect on policies issued before enactment required special justification, but that was supplied by the continuing liability cover, the foreseeable development of industrial disease law, compulsory employers’ liability insurance, the protection of claimants’ compensation, the five-year limit on recovery, and the State’s continuing provision of other benefits and medical care. The different statutory schemes considered in Axa and the Welsh Bill case did not determine the result.
6. Parliamentary materials could be used to identify social policy and assess proportionality without infringing article 9 of the Bill of Rights 1688. If an infringement had existed, both Aviva and Swiss Re could have been victims for Human Rights Act purposes. However, judicial review was subject to the stricter three-month limit in CPR Part 54.5, so it could not be used to reopen historic CRU certificates dating back to 2000 or 2003.

• Court of Appeal (Civil Division): Secretary of State’s appeal allowed; insurers’ cross-appeal dismissed; claim for judicial review dismissed.
• Administrative Court: Mr Justice Henshaw declared the scheme incompatible in three situations but rejected the insurers’ challenge in a fourth: [2020] EWHC 3118 (Admin) .