The Gazette 1986

GAZETTE

sep T em BER 1986

Employers' Liability Insurance, the Insurance Industry and the Legal System by J o hn Rowa n , Solicitor

T he COURTS BILL, 1986, if passed will abolish the jury system in High Court actions for negligence involving personal injury. The primary reason for the proposed change is that it is claimed that the Irish Legal system, whereby juries decide where the liability for an accident lies and what an injury is "worth", has increased the level of employers' insurance premiums to the point where they are between four and seven times greater than in the U.K. 1 A more extreme example of the difference between Ireland and the U.K. was given to the writer recently. It involved an Irish company with sister companies in both England and Wales, each manufacturing similar products. The U.K. companies are paying from one eighth (1 /8th) to one fifteenth (l/15th) less than the Irish company for employers' liability insurance. 2 It is argued by those in favour of the abolition of the jury system in High Court actions that it causes great uncertainty and inconsistencies through high and unpredictable settlements. It is further argued that the system leads to increased legal costs and delays. The point is made that Ireland, unlike most European countries, deals with accident compensation claims at a very high level of the litigation process. In most other countries such claims are dealt with by expert assessors and lower level magistrates. Intensive examinations of the legal system in Ireland, and in particular the jury system, with a view to reducing the level of insurance premiums have been conducted by various commis- sions, committees, Government enquiries and the press. Size of Jury Awards on Average Constant Most attribute the high level of premiums to exorbitant awards by juries. Yet the size of jury awards on average has remained constant during the past 25 years, after inflation is accounted for. 3 Banner headlines in newspapers giving details of what appear to be exceptionally high awards (often to an unfortunate paraplegic) serve to distort the reality. Quite apart from the further restriction of the right of citizens to participate in the judicial system, the Bill to abolish the jury system seems to have been introduced because of insurance industry and misguided manufac- turing industry pressure. In exploring the problems relating to employers' liability insurance the Barrington Commission, 1983, stated "Concerns expressed about the arrangements for compensation at common law caused us to wonder whether a wide-ranging enquiry was not needed on the present system. Our uneasiness about the present system prompts us to recommend that such a major inquiry should be carried out as early as possible". This statement was based on the Final Report of the Committee of Inquiry into the Insurance Industry 1976 which referred to the "almost total absence of information on the overall position relating to compen- sation." (Barrington Report, p. 167, 169)

No enquiry into Insurance Industry Practices No enquiry has been conducted into the practices of the insurance industry per se. However, in the course of its recommendations the Barrington Commission had this to say: "we feel that the industry has not contributed as much as it might have done to an analysis of accident causation in that it has kept to itself much useful statistical information. It should be directed to provide this information to the appropriate authori- ties." (Barrington Report, p. 170). If the insurance industry is sincere in its desire to reduce premiums it should co-operate in reducing the number of accidents by making available information helpful in doing so. Insurance Companies' Investment Income and Premium Rates Let us look then at the Insurance Industry in action. Insurance Companies sell policies with a view to making a profit. They invest the premiums they collect and hope to make profit from these investments. However, it is not generally realised that the availability or otherwise of Employer Liability cover is influenced for the most part by the state of the investment market. Insurers cut their prices with interest rates, and thus their income from investing the premiums they collect, are high; they raise rates when interest rates, and thus investment income, are low. 4 An extreme example of the insurance industry in action was the Las Vegas MGM Grand Hotel fire in 1981. Insurers wrote policies for those harmed in the fire — after the disaster occurred. 5 They believed they would earn more by investing their premiums immediately than they would lose by paying out claims in the future. In this country we have seen the Insurance Corpora- tion of Ireland (I.C.I.) debacle. I.C.I, insured horses in the U.S.A., jets all over the globe, bush fire cover in Australia and even satellites in outer space. They also involved themselves in the re-insurance business in the U.K. where they lost millions. The hazardous nature of the business they took on can be gauged in relation to horses. No less than three Derby winners have either died or disappeared in the period 1982-1984. Troy and Golden Fleece died and, of course, Shergar disappeared mysteriously. All were multi-million pound animals, variously insured at between £10m. and £20m., largely at Lloyds. 6 As a result of the I.C.I, collapse the Central Bank has placed an annual toll, for up to 15 years, on all other banks (A.I.B. picks up the tab for the bulk of the liabilities). The Banks' customers pay and Employers' The point in mentioning I.C.I, is that its failure is cited by the insurance industry as one of the factors contributing towards increased premium rates. However, the real problem lies elsewhere. The rates charged by Ireland's direct insurers reflect conditions in 239 Liability cover becomes more expensive. Influence of the Re-Insurance Markets