What is a long-tail EL claim?
Long-tail employers’ liability (EL) claims usually relate to diseases that manifest themselves a long time after their original cause. They are often caused by things like exposure to excessive noise, working with vibratory tools and exposure to asbestos. Unlike EL accident claims, which happen on a particular date, long tail claims can be presented to the insurance company a long time after the occurrence of the trigger event. With disease claims, such as hearing loss, the employee may have been exposed to excessive noise over a long period of time. Costs can be high: payouts for asbestos-related illness claims, for example, can amount to several hundred thousand pounds.
Some of these conditions can take many years to manifest themselves. For example, an employer may be presented with a claim from a worker exposed to asbestos in the 1960s and 1970s who has just been diagnosed with an asbestos related condition. It could even be an ex-worker from an acquired company. So a big challenge is identifying who the EL insurers were at the time of the exposure that caused the illness.
What happens with a liability claim for a historical exposure where you cannot identify the EL insurers?
EL insurance became compulsory in 1972 in England, Scotland and Wales (Northern Ireland 1975). Before this date, many smaller firms did not buy the insurance and, this being the case, the employer may have to meet the cost of any claims made before this date. For claims after 1972 where the insurer is no longer solvent, the Financial Services Compensation Scheme (FSCS) will meet payment, though the scheme only covers up to 97 per cent of any claims and does not apply for any periods where the insurer’s identity is unknown.
What are the challenges in showing that there were sufficient risk controls in place?
Most companies do not have records that go back that far. With an EL accident claim there is a greater onus on the claimant to prove an incident. With a long-tail EL claim the onus rests more heavily with the employer to prove that they did not injure the employee while he/ she was in their employment. It is extremely difficult to prove whether noise breached 85 decibels in 1969, for instance, because companies did not generally undertake noise surveys or provide protective equipment at that time, so liability can be almost impossible to disprove.
What should companies do now?
The insured should be aware of any potential disease and illness exposure, based on the industry in which they work. Companies that operate in shipyards, heavy industry, construction or any other work that typically generates disease claims should try to construct a ‘family tree’. This should detail the various insurers used and related historical documentation for the main company, together with any companies that were bought or sold along the way. Piecing together a complete picture of insurance history can help avoid unpleasant surprises. The Employers’ Liability Tracing Office (ELTO) is a good place to start as this provides a central database of current and historic EL insurance policies, although this is very much a work in progress.
Uninsured employers’ liability (EL) claims can cost companies dearly if they do not know what historic insurance coverage they had at the time of exposure to the injury. The main problem arises as a consequence of long-tail disease claims following exposure to noise, vibration or worst of all asbestos many decades ago. Asbestos-related disease claims can come from an employee who was working as far back as the 1940s. This presents quite a challenge: the company is likely to have changed a great deal over the decades, potentially undergoing several mergers and acquisitions. The exposure, to asbestos dust for instance, could have taken place over years, so the claim could also be spread across several EL policies issued by different carriers. Companies may not know what insurance, if any, they have to cover the claim. Understanding its potential exposure to historic disease claims can help an organisation build appropriate reserves. Documents detailing what insurance was in place at the time an incident or exposure occurred can provide significant protection against future claims costs.
However, many organisations struggle to unpick the often complex paperwork, or find that records are missing. Insurance archaeology, a specialist service that helps companies locate historic liability policies, can help. Where insurance policies do not exist, teams of researchers sift through buildings, files, offices, court records and documents to recover evidence of policies that may have long been hidden. Companies needing this service should discuss with their insurance broker any gaps in coverage and the timeframe they want to investigate.
The evidence gleaned from insurance archaeology can be very useful for companies facing long-tail disease claims, which might otherwise have to be paid for by the company itself. This is a particular issue for companies historically involved in heavy industry, such as construction and manufacturing, because a greater proportion of their employees might suffer from long-tail diseases.
Insurance archaeology can also be useful for a company looking to make an acquisition, if due diligence has indicated that the target company might have particular exposure to disease claims, without showing evidence of appropriate insurance.
The ability to search for old EL insurance policies has also become easier thanks to the Employers’ Liability Database (ELD), launched in 2010 by the Employers’ Liability Tracing Office. This database contains all new and renewed EL insurance policies from April 2011, policies from before April 2011 that have new claims made against them and policies that have otherwise been identified.
M&A and long-tail EL claims
A company buying the assets and liabilities of another business needs to understand its potential exposure to historic employers’ liability (EL) claims. Under TUPE – Transfer of Undertakings (Protection of Employment) Regulations 2006 – the liability for employee sickness or disease claims transfers to the buyer of the company. Potential claims can also erode deal value for both the buyer and seller. Claims can be received many years after an employee has left an organisation. Injuries such as asbestosis, gall bladder cancer, noise induced hearing losses and even work-related upper limb disorder (WRULD) and hand-arm vibration syndrome (HAVS) are typically dealt under EL insurance on a time exposure basis. However, issues can arise where insurers cannot be traced or are insolvent. Companies need to assess insurers, understand the coverage limits and note whether the period of cover was pre- or post-1972.
Under the Limitation Act 1980 a claimant has three years (unless a minor) to bring a claim from the date of knowledge of the injury. However, some claims falling outside of this limitation have been upheld. During an acquisition, the acquirer needs to understand the full trading history of the company being acquired and its disease exposures, including all the business it undertook and the buildings it occupied. It needs a full history of EL insurance and the level of coverage, including details of insurers that may be insolvent, pre- 1972.
If no EL insurers can be identified for the other company, the acquirer might be able to purchase retroactive EL, though the risks must be quantifiable, and it can be very expensive. If only certain assets are being acquired, rather than a whole company, then historic liabilities generally remain with the vendor, though ultimately it will depend on the terms of the acquisition. If the vendor is not in a good financial position, then insurance due diligence becomes even more critical. In either case, the acquirer needs to ask: what evidence is there of a health and safety culture? How far do records go back and how complete are they? This will help gauge the quality of the business’s HR records and its ability to defend a claim.
For more information please contact Pas Mariconda, Claims Executive on +44 (0)20 7558 3774