13 July 2001

CRU Test Cases

On the 15th May 2001, judgement was given by the Tribunal of Social Security Commissioners ("TSCC") in the four lead cases concerning the recoupment of benefits under the Social Security (Recovery of Benefits) Act 1997.

The judgment, in favour of the "compensators", represented a significant victory for the insurance industry. In excess of 2,000 appeals are currently waiting to be heard (having been stayed pending the outcome of the test cases). The amount at issue in each case will vary (some involving sums in excess of £30,000). The financial ramifications are therefore manifest. At the heart of this litigation was the Secretary of States power to include benefits in certificates of recoverable benefits and the extent to which those certificates ("CRU certificates"), are susceptible to challenge.

In particular, it was contended by the four insurers (Royal & Sun Alliance, Zurich Municipal Insurance, Iron Trades Insurance Co and Zurich Commercial Insurance) that the Secretary of State was not entitled to recover benefits from a compensator, in circumstances where the claimant had not been entitled to the award of those benefits in the first place. In a detailed judgement, the TSCC (made up of 3 senior Commissioners) concluded that it could not have been the intention of Parliament to require compensators to reimburse the Secretary of State for benefits mistakenly paid. The importance of the decisions to the practicing personal injury lawyer cannot be overstated. CRU certificates will be susceptible to challenge whenever there is a dispute as to the cause or duration of disability. In the following passages I seek to address the practical effect of the CRU provisions in the context of the recently decided case law.


The current recoupment regime is contained within the Social Security (Recovery of Benefits) Act 1997 ("the 1997 Act") which came into force on 6th October 1997. At the second reading, the Bill was introduced to Parliament by the then Secretary of State for Social Security in the following terms: "The purpose of the Bill is to ensure that victims get proper compensation, those responsible for causing injury pay that compensation and the taxpayer neither subsidises the negligence of others nor doubly compensates victims." (25th February 1997) The "old regime" Its predecessor, enacted under the Social Security Act 1989 (later consolidated as Part IV of the Social Security Administration Act 1992. The old regime was simple. The compensator deducted from the settlement an amount equal to the benefits that had been paid. It sent that amount to the Secretary of State's department and paid the balance to the victim.

If the compensation was £2,500 or less, benefits were not recovered. Unfortunately, it soon became apparent that the old regime lead to injustice. Although it prevented double recovery (receiving benefits and damages to meet the same need) and reduced the expense to the taxpayer (to the tune of £130,000,000 per annum), it had two undesirable consequences: firstly, in some cases the victim did not retain all of his or her damages intended to compensate for pain, suffering and loss of amenity; and secondly, in actions where recoverable benefits exceeded the value of the claim a compromise could be agreed at £2,500 thereby depriving the taxpayer, benefiting the compensator and causing consternation to the victim.

In answer to these perceived injustices, in 1995, a Select Committee was set up to: "...inquire into the policy and practice of the compensation recovery unit, and the legislation on which it is based..." That Select Committee reported in July 1995 stating: "...We cannot accept that the general taxpayer should be reimbursed out of damages awarded for an individual's pain and suffering..." The difficulty presented by exempt payments (below £2,500) was however more difficult to address.

A number of interested bodies (the TUC, the Association of British Insurance, the Association of Personal Injury Lawyers, the Law Society and Clydeside Action on Asbestos) were involved in the consultation process. The product of those consultations was a new regime, which later became the Social Security (Recovery of Benefits) Act 1997.

The 1997 Act Compensator's liability The main plank of this legislation is the compensator's liability to pay to the Secretary of State an amount equal to the total amount of recoverable benefits (section 6(1)). Recoverable benefits are those defined within section 1(1)(b) of the Act as those benefits which have been, or are likely to be, paid ... in respect of the accident, injury or disease. Accordingly, the compensator could be liable to repay benefits far exceeding the value of the claim. Compensator's right to reduce the compensation payment The theory underlying the 1997 Act was that the taxpayer should not have to fund the compensator but also, the victim should not be advantaged by receiving damages (from the compensator) and benefits (from the taxpayer) to meet one need.

These objectives are achieved by section 8 of the 1997 Act under which the compensator is entitled to reduce the victims compensation payment by deducting benefits for which it is liable against certain heads of damage. A list of which benefits can be offset against which heads of damage is provided within Schedule 2. Potential for injustice Although "recoverable benefits" are limited to those paid over a period of 5 years (section 3(2)) or up to the date of payment of compensation (whichever is shorter), the extent of the compensator's liability (under section 6) can rise to far exceed the final compromise or award of damages.

The factual basis of a settlement or judgment may differ from the basis upon which he or she has been awarded benefits. Illustration: The Claimant sustains a back injury at work. The agreed medical evidence is that he sustained a soft tissue injury which has fully resolved. Continuing symptoms (beyond 1 year) are attributable to a pre-existing degenerative condition. The claim is settled four years post accident for £15,000 (£3,000 general damages and £12,000 loss of earnings). The CRU certificate includes the following benefits which have been paid over 4 years: Incapacity Benefit "IB" (deductible against loss of earnings) : £20,000 (@ £5,000 p.a) Disability Living Allowance "DLA" (deductible against care) : £10,000 (@ £2,500 p.a) Total: £30,000 If the case were to be concluded upon the basis of the current certificate (4 years), the result would be as follows: Calculation 1 The Defendant's CRU liability amounts to £30,000 (section 6). However the Defendant is entitled to reduce the Claimant's compensation (section 8) by deducting the IB (£20,000) against the loss of earnings claim (£12,000), reducing it to nil.

The Defendant's total outlay is therefore £33,000 (general damages £3,000 and CRU £30,000) and the Claimant recovers only £3,000. This is illustration shows that both the Defendant's and the Claimant's expectations have not been met. The injury for which the Defendant is liable and for which the Claimant falls to be compensated gave rise to: one years pain, suffering and loss of amenity; one years loss of earnings; and, one years receipt of benefits. If the calculation is adjusted to reflect the true position (i.e. a certificate including only 1 year's receipt of benefits) the following result is achieved: Calculation 2 The Defendant's CRU liability amounts to £7,500 - representing one year's benefits (section 6). However the Defendant is entitled to reduce the Claimant's compensation (section 8) by deducting the IB (£5,000) against the loss of earnings claim (£12,000), reducing it to £7,000. The Defendant's total outlay is therefore £17,500 (General damages £3,000; loss of earnings £7,000 and CRU £7,500) and the Claimant recovers £10,000. This illustration shows that the both the Defendant's and the Claimant's expectations have been met. While the Defendant has had an outlay of £17,500 (rather than £15,000 - the settlement figure), this is merely because the Claimant did not choose to make a care claim against which the extra DLA of £2,500 could have been deducted. Similarly, the Claimant has suffered a reduction in his damages of only £5,000.

Since this was the sum he received in benefits from the Secretary of State, by reason of his incapacity to work for one year, there can be no complaints. Finally, the taxpayer has recovered £7,500 representing the amount of benefits that had to be paid by reason of the Defendant's negligence. Appeal/review of Certificates As the example above clearly illustrates, in order to achieve a just result, the certificate must be susceptible to challenge. It is this aspect of the 1997 Act which has given rise to hard fought litigation between insurers and the Secretary of State, culminating in the test case litigation. Although the 1997 Act provides for an appeal against a certificate recoverable benefits, its wording is ambiguous: Section 11 (1) An appeal against a certificate of recoverable benefits may be made on the ground: (a) that any amount, rate or period specified in the certificate is incorrect, or (b) that listed benefits which have been, or are likely to be, paid otherwise than in respect of the accident, injury or disease have been taken into account.

It should be noted that, prior to the appeal stage, a review of the certificate may be requested from the Secretary of State (section 10). The grounds for review have been extended by the Social Security and Child Support (Decisions and Appeals) Regulations 1999, regulation 9(d), to include, inter alia, "a ground of appeal under section 11 of the 1997 Act". The critical issue which therefore arose was the meaning of section 11(1)(b) of the 1997 Act, and in particular, the words "paid otherwise than in respect of the accident, injury or disease". The test cases: Three of the appeals (Secretary of State for Social Security -v- Trefoil Steel Co .Ltd ("Trefoil"); Secretary of State for Social Security -v- Tarmac Roadstone Northwest ("Tarmac") and Secretary of State for Social Security -v- Oldham Metropolitan Borough Council ("Oldham MBC") were brought by the Secretary of State for Social Security. The remaining appeal (Yorkshire Repetition Castings Limited -v- Secretary of State for Social Security "Yorkshire Repetition Casting") was brought by Royal & Sun Alliance. Trefoil The victim sustained injuries to his head and neck at work on 14/9/94. The Claimant was initially absent from work until 24/9/94. The Claimant then lost his sight and remained off work until the claim was settled on 20/7/98. Over the relevant period he received invalidity benefit, incapacity benefit, industrial injuries disablement benefit and disability living allowance, totaling £45,309.67 The compensator (at first instance) argued, with the benefit of powerful medical evidence, that the loss of vision was in fact coincidental and unrelated to the relevant accident. In what was later described as "a particularly well reasoned decision" Mr Smith, chairman of the Leeds Appeal Tribunal, accepted the compensator's submissions and reduced the certificate to nil. Tarmac The victim sustained injuries to his shoulder, arm, chest and leg arising out of an industrial accident, when hit by an excavating machine on 20/11/93. The Claimant was initially off work until 14/2/94. He ceased work again in April 94. The claim was settled in May 1998. Over the relevant period the victim received invalidity benefit, incapacity benefit and industrial injuries disablement. The compensator (at first instance) argued that the effects of the accident had ceased 12-15 months post accident. The Manchester Appeal Tribunal, having considered the medical evidence, concluded that the Claimant's disability ceased to be due to the accident after 15 months. They did not provide detailed reasons. Oldham MBC The victim sustained back injury arising out of an industrial accident on 10/12/90. He was off work throughout the relevant period (5 years). During this period he received: invalidity benefit, incapacity benefit, industrial injuries disablement benefit and disability living allowance. The claim was settled on 30th November 1997 in the sum of £6,829.86, at which date the CRU certificate stood at £33,064.24. The compensator (at first instance) accepted that the victim had remained disabled throughout the period. However, symptoms continuing after 1 year were attributable to a disc hernia which was constitutional. The Manchester Medical Appeal Tribunal accepted this submission and the certificate was reduced to £4,569.54 (representing benefits paid up to 10/12/91). Yorkshire Repetition Casting The victim contracted pneumoconiosis at work. He was subsequently made redundant for unrelated reasons. On 21st July 1999, the claim was settled for £6,000, upon the basis that the disease had not incapacitated the Claimant and had not lead to any loss of earnings. During the relevant period, the Claimant received: sickness benefit, invalidity benefit, incapacity benefit, industrial injuries disablement benefit amounting to £32,549.28 The compensator (at first instance) accepted that the Claimant was continuing to suffer an industrial disease and therefore he was entitled to industrial injuries disablement benefit.

However, the Claimant was capable of work and therefore not entitled to the receipt of the other benefits. The Barnsley Appeal Tribunal rejected the compensator's submissions upholding the certificate. It concluded that it was not entitled to go behind the decision to award benefits and in so doing refused to consider whether or not they were properly paid. Issues: The corner stone of the Secretary of State's submission was that the "paid" (referred within sections 1(1)(b) and 11(1)(b) of the 1997 Act), meant exactly what it said. If the benefits had been paid by the Secretary of State to a victim in respect of accident, it was irrelevant whether or not it could be subsequently established the victim did not fulfill the relevant criteria entitling him to a particular benefit. However, the Secretary of State (quite correctly) made an important concession based upon two earlier decisions (CCR/5336/95 and R(CR) 1/01). He accepted that in cases where non-industrial injury benefits were paid due to "an incapacity" and it later transpired that the incapacity was due to an unrelated condition (i.e. constitutional), then the benefits had been "paid otherwise than in respect of accident" and were therefore not recoverable. This is common sense. The compensator in such a case is not going behind the award of benefits, but simply stating, "while we accept the victim is entitled to benefits, their payment was nothing to do with us". The Secretary of State held his ground in relation to the issues of "entitlement" and "Industrial Injuries Disablement Benefit - IIDB". A distinction must be drawn between what may be "contingent" and "non-contingent" benefits. IIDB is only awarded in the event of an industrial injury and therefore contingent upon the incapacity being caused by an industrial accident, injury or disease. Benefits such as Invalidity Benefit and Incapacity Benefit are payable due to incapacity regardless of its cause ("non-contingent"). Each of the cases "Trefoil", "Tarmac" and "Oldham MBC", concerned industrial accidents. While in the case of other (non-contingent) benefits such as Incapacity Benefit "IB", it could legitimately be argued payment had been made in respect of an unrelated constitutional condition (such as a herniated disc or blindness), the same could not be said of IIDB as such is contingent upon an industrial injury. The Secretary of State argued that in the case of IIDB: "...it was irrelevant whether, in relation to industrial injuries benefits, it was shown after the award that claimant was not in fact suffering disablement as a result of the relevant accident..." The point being, by virtue of the type of benefit awarded, it had to be paid in respect of the industrial accident (rather than a constitutional condition). Furthermore: "...in a case where entitlement to benefit is dependent on the claimant being incapable of work, it is irrelevant in determining whether the benefit was paid in respect of the relevant accident, injury or disease whether the claimant was actually incapable of work as long as the disablement giving rise to the finding of incapacity was attributable to the accident, injury or disease..." Naturally, the compensators' response was that the victim had not been entitled to IIDB after the cut off date or (in the case of Trefoil) at all. Why should the compensators be liable for a benefit which should never have been paid? Decision The Commissioners concluded that the scope of an appeal under section 11(1)(b) of the Act was dependent upon the scope of the Secretary of State's power to include benefits in the certificate. They put the principle as follows: "...If the Secretary of State is entitled to include in the certificate all benefits that have been paid, even if they ought not to have been, then the scope of any appeal is correspondingly narrow. The real issue is whether or not Parliament intended to impose on compensators a liability, that they had not previously had, to recompense the Secretary of State for benefits which ought not to have been paid because either the relevant accident or disease had not caused the relevant disablement or because the claimant had not been as disabled or incapable as the adjudicating authority had found..."

The commissioners concluded that this could not have been the intention of Parliament for a number of reasons but principally because such a construction was manifestly unjust in so far as the compensator would otherwise incur a liability without the opportunity of being heard. They considered a range of arguments put forward by all sides but placed considerable significance upon a reference to the House of Lords Parliamentary debate (HL, vol. 557, col. 114), in which section 12(3) of the Act was being debated by Lord Mackay. During this debate an amendment to the Bill was being considered. The minister sought to amend section 12(3) to the effect that an appeal tribunal "must take in account" rather than "is bound by" the decision of court considering the same issues.

Lord Mackay argued that it would be contrary to principle to bind the Secretary of State by a decision of a court at which he had not been represented and was not a party (res inter alios acta alteri nocere non debet). The compensators argued that "what is sauce for the goose is sauce for the gander". Why should a compensator be bound by the decision of the Secretary of State to award benefits (which later proved to be erroneous), when it was not a party to that decision and seemingly had no right to be heard? If it had been the intention of Parliament to bind them to the Secretary of State's decision to award benefits, without a right of challenge, then such would have been stated in clear terms? The Commissioners concluded: "...in the context of this legislation, benefits that ought not to have been paid at all cannot be said to have been "paid ... in respect of" a relevant accident or disease. It follows that in considering whether payments were "otherwise than in respect of the accident, injury of disease in question", a tribunal is entitled to reach a conclusion which is inconsistent with the award of benefit..."

Accordingly the Secretary of State's appeals in Trefoil, Tarmac and Oldham MBC were dismissed. The Appeal brought by the Royal & Sun Alliance in Yorkshire Repetition Casting was allowed and the certificate reduced from £32,549.28 to £2,466.01 The practical application of the Commissioners decision was not as straightforward as one might have expected. In the Yorkshire Repetition Casting case, they accepted that the victim had never been "incapable for work". They also accepted that income support, invalidity benefit and incapacity benefit (which replaced each other as the benefits legislation evolved) depended upon the claimant being actually incapable of work that it was reasonable to expect him to do. However, they pointed out that in certain circumstances a claimant can be "deemed" incapable of work for the purposes of Incapacity Benefit (i.e. if he has an infection disease, is an in-patient, is undergoing chemotherapy etc).

In other cases a claimant is automatically treated as incapable of work if he has a specified severe illness. In cases of this type "actual incapacity to work is irrelevant". Accordingly the decision to award benefits in cases of this type would be unimpeachable, even in the unlikely event that a compensator could adduce evidence that the claimant was in fact capable of work.

Arguably a compensator could attack the award of benefits if it had evidence to show the serious condition had not been caused by the accident (such as the Trefoil case). Of more significance, are the Commissioners comments relating to the deeming provisions under Regulation 28 of the Social Security (Incapacity for Work) (General) Regulations 1995. When a claimant applies for Incapacity Benefit, in normal circumstances, their incapacity is determined over the first 28 weeks by way of the "own occupation test". During this period a claimant is required to submit suitable sick notes (Med 3s).

After that 196 day the claimant is required to submit to a "personal capability test" (which replaced the "all work test from 3/4/00). However, until the assessment is carried out a claimant is treated as incapable of work (Regulation 28). The commissioners concluded that if Yorkshire Repetition Casting had been a case under regulation 28, then they would have been minded to accept the Secretary of States argument that the "actual" incapacity would be irrelevant because the he would have been treated as incapable of work. In fact it is questionable whether or not these comments (obiter) will have much material effect. The deeming provisions under the Social Security (Incapacity for Work) Regulations 1995 are generally confined to cases, which are unlikely to arise in the context of disputed CRU certificates.

However, practitioners should be aware that the test is not simply: is the claimant incapable of work? But rather: ought the benefits been paid? In the majority of cases this will of course amount to the same thing. Conclusion All benefits included within the CRU certificate are now susceptible to challenge on grounds of causation and eligibility.

This has the following consequences: a. In every claim in which causation, existence or the extent of persisting injuries is an issue, careful consideration should be given to review and if necessary the appeal of the certificate. b. If an alternative (i.e. constitutional) cause for continuing incapacity is identified the prospects of a successful review/appeal of all benefits within the certificate are good. c. In cases where the veracity of a Claimant is at issue (malingering), the compensator will (with the necessary corroborative evidence) have some prospect of a success on appeal. The argument being that the Claimant ought not to have been paid the benefits he or she received. d. A working knowledge of the basis upon which benefits are awarded will be required if one is to challenge eligibility (see above).

Notes of caution

This is a new area of the law and some notes of caution should be sounded. i). Claimant solicitors have to proceed with extreme caution. They should be aware that, although a decision does not actually affect the award of benefit, it is open to the Secretary of State to consider whether an award should be superseded or revised, or whether any over payment is recoverable under section 71 of the Social Security Administration Act 1992. ii). Defendants must be cautious in their approach towards payments into court. If, when compiling the notice of payment into court, they choose to deduct the full amount of benefits against damages (under section of the 1997), thereby putting the Claimant at greater risk against costs, they should be aware that, in the event of a successful appeal of the CRU certificate, the compensation is recalculated and any increase paid back to the Claimant (Regulation 11

(5) of the Social Security (Recovery of Benefits) Regulation 1997). iii). An appeal against a certificate of recoverable benefits must be brought within 1 month of: a. the date upon which the compensator discharges his liability under section 6 of the Act (pays the certificate); b. where a certificate is reviewed under section 11(5)(c) of the Act, the date the certificate is confirmed or a fresh certificate issued; or c. an agreement made in final discharge of the claim. (ref: Regulation 31(3) The Social Security and Child Support (Decisions and Appeals) Regulations 1999.) iv. The grounds for an extension of time are severely limited, requiring exceptional circumstances. v. The Appeal Tribunal will happily revisit the issue of the claimant's entitlement to the relevant benefit. However, it will require persuasion and cogent medical evidence in the form of medical reports is vital.

The tribunal will not take kindly to selective use of reports. Outstanding issues The grounds for challenging a CRU certificate are in many respects similar to those raised at common law during litigation between the Defendant and the Claimant, with one important exception. The "but for test". Illustration: The Claimant is out of work and in receipt of "non-injury" benefits at the date of he has his accident. The nature of benefits therefore change (e.g. from income support to incapacity benefit). In such a case, but for the accident, the claimant would have received benefits in any event. Why should the compensator be held liable to repay the benefits in these circumstances? Precisely this situation was considered in Hassal v The Secretary of State for Social Security [1995] 1 W.L.R. 812. The Court of Appeal concluded that in these circumstances, the basis for receipt of benefits had been changed (the claimant no longer being capable of work) and accordingly they were recoverable.

The difficulty however arises in two commonly occurring situations: Pre-existing ill-health related benefits. The claimant is already in receipt of incapacity benefit (for example due to arthritis) but continues, after the accident, to receive the same benefit due in part to the pre-existing condition and in symptoms resultant from the accident. There is no question that the claimant would have remained off work and in receipt of the same benefits had the accident not occurred. Is the compensator now under a duty to reimburse the state for benefits which would have been paid in any event? In CCR/8023/1995 it was held: "It does not matter for this purpose that the claimant's injuries may not have been entirely referable to the accident since the words in the legislation "in respect of that accident" and "in consequence of the accident" require only that there shall be some contribution by the accident in question...."

One wonders whether, in the light of the recent decision, such a construction will survive. Could it have been the intention of Parliament to impose a liability upon a compensator in these circumstances ? Acceleration cases Pure acceleration cases are frequently settled on the basis of expert orthopaedic evidence to the effect that the Claimant suffered a pre-existing degenerative condition in the spine which has been rendered symptomatic by an accident a number of months or years earlier than otherwise would have been the case.

At common law, the Claimant falls to be compensated for the period of acceleration. The logic being that, but for the occurrence of the accident, after the period of acceleration the Claimant would have gone on to develop those symptoms in any event. However, in "Oldham MBC" the initial accident caused a "soft tissue injury" and thereafter an unrelated "disc hernia" occurred, the pathologies of which were quite different.

Can the compensator succeed in cases were the any pre-existing condition has been rendered symptomatic earlier than may otherwise have been the case? The issue of causation had been addressed in (CCR/5336/95 and R(CR) 1/01), both decisions of Commissioner Rowland, who also considered the test cases. However, neither of those cases concerned "acceleration" but rather, subsequent unrelated conditions.

Commissioner Rowland set out his views in the following terms: "...if benefits are to be recovered from a compensation payment made in respect of an relevant accident, the relevant accident must have been an effective cause of the injury giving rise to the payment of benefit throughout the period in respect of which the Secretary of State seeks to recover benefit..." It should be noted that this decision related to the "old regime", hence the suggestion that the benefits are "recovered from a compensation payment" but it was accepted in the test cases that the principle applies to the 1997 Act.

The question is therefore one of medical evidence: is the accident still an effective cause of the incapacity? It would seem sensible to conclude that, with the passage of time, an indexed incident ceases to be relevant in the presentation of symptoms emanating from a degenerating spine but this is a matter to be addressed by medical expert opinion. All one can say, is that those proposing to appeal certificates in this particular type of cases should equip themselves with he requisite expert opinion.