Insurers Applaud U.K. Asbestos Claims Ruling

The U.K. insurance industry has welcomed the U.K. Court of Appeal's decision to overturn a High Court ruling on pleural plaques, an asbestos-related lung condition.

The high court ruled in February 2005 that people with pleural plaques – a scarring of the lungs – should be entitled to compensation. But two U.K. insurers, the U.K. division of Swiss insurer Zurich and Aviva-owned Norwich Union, appealed the following month, arguing that the scars are benign and sufferers are not entitled to compensation.

The Court of Appeals agreed with the insurers, and has overturned the High Court's ruling, pending a final decision by the House of Lords. A conclusion is expected by this summer.

Insurers believe the decision clears up the uncertainty surrounding pleural plaque claims, which could have cost them billions of pounds, and gives a warning to those encouraging people to file compensation claims.

"We are pleased that it has brought some legal clarity to the issue of pleural plaques," says Malcolm Tarling, senior spokesman at the Association of British Insurers. "Pleural plaques are completely asymptomatic. They do not impair health and so they are not compensatable."

Compensation cases for pleural plaques have cost the insurance industry about £1.4 billion ($2.65 billion) in the past 20 years, according to the ABI. The average payout for a claim has been between £12,000 and £17,000.

Steve Thomas, U.K. technical claims manager at Zurich, says the decision is a warning to firms that encourage people to file personal injury claims against insurers by offering them no-win no-fee deals.

"This judgement sends a strong message to claims farmers from whom we've seen the worst excesses of behaviour," says Thomas. "They have been encouraging claims with x-ray scan vans, causing anxiety and worry to people who felt none before."

Claims farmers are largely unregulated. Thomas hopes this will soon change. "Claims farmers are a big challenge for us," he says. "They encourage people to bring insurance claims against us. They then sell those claims for a referral fee to lawyers. Their methods have been criticised for some time and we would like to see their behaviour finally regulated."

Regulation of claims farmers could be on the way. Thomas says the U.K. government is discussing a compensation bill. "It is being designed because the government recognises that the behaviour of claims farmers is a big problem," he says. "I hope it comes to fruition as soon as possible."

Others agree that the system should be reformed. Dominic Clayden, director of technical claims at Norwich Union says: "I absolutely believe insurance companies exist to pay compensation to people who have suffered. But I do have a problem paying out money to lawyers. And that cost is then absorbed by our premium-paying customers."

On average, 40 pence of every £1 paid in personal injury claims goes to lawyers. But in smaller cases, legal costs can be higher – sometimes as much as 80 pence for every £1. Some say the legal costs can even be greater than the amount claimed in certain cases.

The ABI also wants to see changes. "We want to see the compensation system improved and streamlined," says Tarling. "It's too slow, expensive and adversarial."