HC Deb 30 April 2001 vol 367 cc723-30

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dowd.]

8.47 pm
Mr. Stephen Hepburn (Jarrow)

Like many Members of Parliament, over the past few years I have been contacted by constituents about asbestos and the terrible diseases that it causes within communities. Members need no information about asbestos-related diseases, because their constituents will have described in graphic detail their true horrors, so I shall not waste time discussing them. However, in recent months a great deal of concern has been caused by the appalling case of Chester Street Holdings, the insurance company that collapsed under the weight of compensation claims for asbestos-related diseases. I know that the mailbags of many of my colleagues have been swelled by letters about the matter and many constituents have visited their surgeries to discuss it.

For some sufferers, that collapse has not caused a problem, as a claim can still be pursued against individual employers if they can be traced, or against the insurance industry if the claim is post-1972 and made through the Policyholders Protection Board. However, many victims find themselves without cover owing to the fact that their claim is pre-1972, or because the company for which they were working when they contracted a disease cannot be traced or does not have the assets to handle such a large claim. It has been estimated that there are some 10,000 such victims in Tyneside and 50,000 nationally.

Tens of thousands of men find themselves in such a position following the scandalous collapse of Chester Street Holdings. I shall give a brief history. Chester Street Holdings was previously Iron Trades Holdings Ltd. That company had been the employers' liability insurers for the shipyards and other sectors of heavy industry throughout the country. In 1989, the Iron Trades Employers Association dumped all its pre-1990 policies, most of which were asbestos related, in Chester Street Holdings. The most solvent part of the business—the post-1990 policies—stayed with lion Trades.

Once freed from its liabilities for asbestos, Iron Trades was bought in January 2000 by an Australian company, QBE International Insurance Ltd. The whole deal was set up by a character called Robert Hardy, the former chief executive of Iron Trades, who—to put it in a nutshell—bought an off-the-shelf company in 1997 called Chester Street Holdings. He then deliberately set it up to fail by loading it with Iron Trades' asbestos liabilities. He sold the profitable side of the business that was left to QBE Insurance for £75 million less than its value and, in the process, earned himself an annual pay increase of £460,000 a year—an amount equivalent to the compensation for between six and 12 of the people who die of mesothelioma each year.

To add insult to injury, the liquidators have decided that Chester Street has the assets to cover only 5 per cent. of the tens of thousands of asbestosis compensation claims that should have been compensated in full over the next 40 years or more. Even worse, the first people who have a claim on the assets under the scheme drawn up by the liquidators are Chester Street's very own solicitors.

It is worth putting, the scandal of Chester Street into context, because it is fundamentally not about money but about people's lives. The TUC has estimated that a victim dies of an asbestos-related disease every 10 days in my area of south Tyneside. For example, Mr. Garrett of Cedar grove, Hebburn is a sufferer. He has mesothelioma, and that means that he is condemned to die. He is not interested in the money for himself; it is for those who have nursed him. He would like to live. He contracted the disease in the shipyards where he worked as a blacksmith and his claims has been accepted. However, as the situation stands at the moment, he will end up with nothing.

Mr. Ronnie Campbell (Blyth Valley)

A widow came to see me in my constituency the other week after the long battle that she and her husband, who died a horrible long and lingering death because of asbestos, had had in the courts. The courts awarded her £200,000 but, as my hon. Friend said, she will unfortunately only receive 5 per cent. of that if she is lucky. That is the horror of the story. People die horrible deaths and are awarded compensation but those who survive them do not see a penny of it.

Mr. Hepburn

My hon. Friend highlights one case, but there are 50,000 of them nationally. That shows just how important this debate is.

I asked for this debate to highlight the scandal and to ensure that the victims are not forgotten. With that in mind, I have two basic demands. The first is that the Government and the, insurance industry will undertake that the victims of asbestos-related diseases will get nothing less than the 100 per cent. compensation to which they are entitled. The second is that there should be a full public inquiry into the Iron Trades and Chester Street Holdings scandal.

The victims of this scandal have never been big earners. They earned an honest living in the shipyards—unlike the morally deficient boards of directors who have caused such heartbreak. The victims helped to build the wealth of Tyneside and Britain. Many of them even helped to build the defences the nation when that was needed during the second world war when they worked all sorts of shifts—at the very time when there were air raids and their lives were threatened—to make sure that ships were repaired and built to go out to fight the Nazi menace. In return, they were poisoned in their thousands by employers who did not care about anything other than their shareholders' profits. We cannot let those victims down.

8.53 pm
The Economic Secretary to the Treasury (Miss Melanie Johnson)

I congratulate my hon. Friend the Member for Jarrow (Mr. Hepburn) on securing the debate and thank other hon. Members for their interest in the topic.

The Government fully understand the concerns that my hon. Friend has raised. We are sensitive to the anxieties of those most affected, not least because of the meetings and representations that we have received. I have had representations from hon. Members, including my hon. Friend, and the Government have also received significant correspondence on this issue. Furthermore, we very much understand the concerns of those suffering from asbestos-related diseases, especially where their condition is the result of employment in firms whose employers' liability insurance is provided by Chester Street.

I welcome the opportunity to respond to the issues raised, and to update my hon. Friend on progress on this matter. I should like first to explain the Government's approach to asbestos in the workplace, then to give an explanation of the different sorts of compensation available and to conclude by discussing the issues raised to do with Chester Street Holdings.

For many decades, asbestos was used by many employers, especially those involved in heavy industries and manufacturing, as my hon. Friend the Member for Jarrow has said. Those industries that had an extended reliance on the use of asbestos in the production process included shipbuilding, drop forging, steel production and insulation manufacturing. During that time, the substantial risk to the health of employees who handled asbestos was unknown.

Asbestos is made up of many particles that can cause considerable damage if they enter people's lungs. The most common conditions related to exposure to asbestos in the workplace include pleural plaques, asbestosis and mesothelioma. Those conditions can be extremely unpleasant and are often fatal; and for those reasons, the Government were committed to addressing the dangers of asbestos as soon as we came to office.

In 1999, we fulfilled that commitment by banning the importation, sale and use of all forms of asbestos. Unfortunately, we are only now seeing the damage that years of inaction by previous Governments has caused. We have addressed the problematic source by removing the threat of asbestosis for future generations, but we as a society need to care for those who are ill and their families.

I should like to stress that the Government have in place two well established no-fault schemes to provide some financial support for those who were exposed to asbestos by their employers and have now developed one of the conditions that I have mentioned. First, there is the industrial injuries disablement benefit, which is administered by the Department of Social Security. The scheme provides an allowance payable to people depending on the level of disability caused by the exposure to asbestos.

Over and above those arrangements, the Pneumoconiosis etc. (Workers' Compensation) Act 1979 provides compensation for sufferers of certain dust-related diseases, or for the dependants of sufferers who have died, to the extent that they are not able to claim damages from their employers because the latter have gone out of business or there is no realistic chance of pursuing a court action. The scheme provides for a variable lump sum payment, again depending on the level of disability caused by exposure to asbestos in the workplace. Since 1980, that scheme has provided compensation to around 9,300 workers and their families, at a cost of approximately £83.4 million.

On employer liability: if the employer still exists, it is important to remember that the employer remains liable for the employee if the exposure to asbestos occurred as a result of that employment. The employee can therefore bring a civil case against his or her employer if the exposure to asbestos and the development of an asbestos-related condition were caused through employment with that employer.

Mr. Michael Clapham (Barnsley, West and Penistone)

My hon. Friend will be aware that only very small amounts are payable under the scheme when an employer cannot be traced. Will she consider how the scheme may be run? For example, would it be possible to consider including the insurance industry in the scheme to make the lump sums a little better? I accept that, generally, people who have asbestosis or mesothelioma cancer also have a disablement assessment; nevertheless, the lump sums paid under the scheme are very small, and that needs to be considered.

Miss Johnson

I cannot give my hon. Friend an undertaking on that this evening, but I will certainly consider the subject further as a result of his representations.

Of course, to be able safely to provide for their employees if one falls ill or is involved in an accident while working, employers regularly take out employers' liability insurance policies. Indeed, the Employers' Liability (Compulsory Insurance) Act 1969 made it mandatory for certain firms to take out such policies. In return for a premium to an insurance company, such an insurance policy decreases the financial risk to employers of claims that may be made against them by their employees.

The easiest way to envisage that arrangement is to imagine two relationships—the first between the employer and the employee; the second between the employer and the insurance company. If the second relationship is broken as a result of the insolvency of an insurance company, the first relationship—between the employer and the employee—remains intact. The liability of the employer to the employee thus still exists, irrespective of whether the insurance company is insolvent. Hence the employer remains liable for any claims made against them by employees or former employees; that is the case for all employers, whether in the private or public sector.

The commercial compensation schemes provide protection in the form of a compensation scheme for policyholders whose insurance company remains insolvent. I shall now turn to the arrangements under that scheme—

Mr. Hepburn

I mean no disrespect to my hon. Friend, but what we want tonight are answers. Are these people going to be compensated? Are we actually going to get together with the insurance industry and threaten it with regulation unless they receive their money? They need their money; they understand that the insurance companies are to blame and that those companies should pay. Furthermore, will there be a full public inquiry to find out how that board of directors could set up that scam and put people in that position?

Miss Johnson

As I explained at the beginning of my speech, I shall come to that point in due course; I hope that my hon. Friend will be patient. I reiterate the comments of my right hon. Friend the Secretary of State for Scotland on the topic—the Government are making it clear to the insurance industry that it cannot merely walk away from this matter. I shall return to that point in a moment.

The Policyholders Protection Act 1975 was established to protect the interests of policyholders of insolvent insurance companies. For a few specific types of insurance, including compulsory employers' liability insurance policies where the policyholder is the employer, the 1975 Act provides 100 per cent. protection for eligible claims, to the extent that the insolvent insurer is unable to meet the claim in full.

The costs of protection provided to such policyholders under the Act are met by a levy on the insurance industry, and are administered by the Policyholders Protection Board—set up under the 1975 Act. It is important to stress that if the employer no longer exists and the claim relates to a compulsory insurance policy, the individual who had a claim against the employer can take the claim to the insurer, or in this case, to the PPB direct.

It is in the context of the compensation available for those suffering from asbestos-related conditions that Chester Street has been raised by my hon. Friend. I shall not go into the history of Chester Street in too much detail—my hon. Friend has already touched on several aspects—but it was complicated, involving several subsidiaries.

By the 1980s, the company was subsidiary to the Iron Trades Employers Association. In the late 1980s, it was decided that it would be preferable to write all new policies in the subsidiary of the Iron Trades Employers Association. Those employers who had previously taken out policies with the association renewed their policies with the subsidiary. The association stopped writing new business but remained 100 per cent. owner of the subsidiary, with all profits accruing to the benefit of the policyholders of both the Iron Trades Employers Association and the Iron Trades Mutual Insurance Company. The subsidiary also took that opportunity to simplify its name to Iron Trades Insurance Company Ltd.

The change took effect from the start of 1990, and from that point onward I understand that the subsidiary made good progress, with two results. The first was that the subsidiary made profits and could pay dividends to the association. Secondly, as the business expanded, the value of the subsidiary as a fixed asset to the association also grew.

Mr. Clapham

My hon. Friend explains, in effect, that the scandal was created by Iron Trades dumping its asbestos liabilities in Chester Street Holdings, leaving insufficient assets to meet them. As my hon. Friend the Member for Jarrow (Mr. Hepburn) explained, those liabilities are in respect of the ordinary person who is the victim of asbestos from his workplace. Does my hon. Friend agree that we need to ensure that that cannot happen again? It is clearly a scandal and, if we do not act, it is likely recur because insurers want to get rid of asbestos claims. That is precisely what Iron Trades did—it dumped its asbestos liabilities.

Miss Johnson

My hon. Friend is right to say that, as the pre-1990 claims matured, it was necessary to realise assets other than those from the profits accruing from the subsidiary. As that was the main fixed asset of the organization, the value locked within it, in the form of existing policies and future profits, had to be realised. It was decided that the subsidiary should be sold on as a business to create liquid assets. As my hon. Friend the Member for Jarrow said, that subsidiary was sold to QBE International Insurance Ltd. in early 2000. The money that was made was invested and could be used to meet claims. The names were changed as part of the deal when Iron Trades was sold to QBE, and the remaining holding company changed its name to Chester Street Insurance Holdings Ltd.

Earlier this year, information on developments in asbestos claims showed that, despite all the efforts and the preventive measures, Chester Street could no longer meet its liabilities. The directors announced insolvency and appointed provisional liquidators on 9 January. A scheme of arrangement was drawn up which was agreed unanimously at the creditors meeting on 5 February and sanctioned by the court. The role of a scheme of arrangement is to ensure that the assets of an insolvent insurance company are identified, maximised and protected for the benefit of all outstanding and future claims—in this case, against Chester Street. It is the responsibility of the scheme administrator to ensure that policyholders receive whatever they are due from the insurance company under the scheme of arrangement.

As for an inquiry into the reorganisation of the Iron Trades Employers Association, we are looking closely into the issues raised by Chester Street. Our priority is the plight of the individuals affected by its collapse. It is for those people that the time scales are the most demanding, and we are keen to resolve the issue as soon as possible. However, in the event that information comes to light as we examine the history and circumstances which would suggest impropriety of any sort, I assure the House that the Government will take it very seriously indeed.

The issue of individual claims by employees whose employer no longer exists and whose claim relates to a non-compulsory insurance policy held by their former employer was raised.

Mr. Frank Cook (Stockton, North)

On the insurance company, does my hon. Friend concede that if Iron Trades is allowed to get away with its actions, that will give any insurance company carte blanche to offload its liability and move its assets wherever it wants? That is tantamount to the practice prevalent in the travel industry before the creation of the Association of British Travel Agents, with its reservoir funding for affected companies. Surely we need to impose something similar; we do not need to argue about that. We should engage the industry, in partnership, to establish a similar funding structure.

Miss Johnson

I entirely agree with my hon. Friend that the industry cannot stand by and let individuals suffer as a result of the collapse of Chester Street. However, he will appreciate that his remarks contain assumptions with which I cannot directly agree.

We are considering complex issues with regard to individual claimants. The Government are working with the insurance industry on Chester Street and the position of employees whose claims relate to a non-compulsory insurance policy held by a former employer who no longer exists.

We are currently awaiting further information from the insurance industry, but as I said, we have made it clear, as has my right hon. Friend the Secretary of State for Scotland, that it cannot walk way from Chester Street. We expect the industry to take a constructive approach to the issue. The Government recognise that this is a difficult issue that has to be resolved within demanding time constraints, and I assure my hon. Friend the Member for Jarrow that all those involved are working very hard to resolve the issue as soon as possible.

I repeat that the Government understand the concerns expressed in the debate, especially of those who are suffering from asbestos-related diseases as a result of their exposure in the workplace, and of their families. We are monitoring the situation carefully, in the interests of all who are affected by the insurance company's insolvency. I thank my hon. Friends for their role in making sure that the issue is seriously considered and dealt with.

Question put and agreed to.

Adjourned accordingly at ten minutes past Nine o'clock.