§ Mr. Tony Worthington (Clydebank and Milngavie)It is a joy to be under your tutelage, Mr. Winterton, although you mispronounced my constituency.
I thank the Minister for meeting me and my hon. Friend the Member for Barnsley, West and Penistone (Mr. Clapham) last week about this matter, which has caused immense anger and disgust among sufferers of asbestos-related diseases and their relatives, and in communities such as mine, where there has been a long record of abuse caused by the appalling poisoning of people due to the use of asbestos. Clydebank has had the highest rates of asbestos-related diseases in the United Kingdom, because we had shipbuilding and ship repair industries and an asbestos works. We also had employers who poisoned their workers long after the health hazards of asbestos were known.
Earlier this year, Chester Street Insurance Holdings Ltd went bankrupt. That company held the employers liability insurance for more than 2,000 firms—often long dead—many of which worked with asbestos. Therefore, its collapse threatened the prospects of compensation for many people who will die from asbestos-related diseases. Many such people will not currently know that they will contract a disease such as mesothelioma because its incubation period may be many decades.
Frank McGuire, the most prominent lawyer in Scotland dealing with such cases, calculates that about 5,000 people in Scotland are affected by the issue, and around 50,000 people affected in the UK. Thompsons solicitors, the largest legal firm in the field, has calculated that Chester Street held about two thirds of employers liability claims relating to asbestos in the country.
The appalling occurrence is that the solvent part of Iron Trades Holdings Employers Insurance Association Ltd. was sold to QBE International Insurance Ltd., an Australian firm. The loss-making element of that company, which included the mounting asbestos claims, was retained as Chester Street Holdings. I contend that that company was knowingly set up to fail and to deprive sufferers from the compensation to which they are entitled. I back up that contention with the 2000 annual report of Iron Trades Holdings' auditor, Ernst and Young, which, only two months after the deal had gone through stated:
Considerable uncertainty exists as to whether the undertaking can continue as a going concern.Sure enough, the company collapsed at the beginning of this year. The liquidators, PricewaterhouseCoopers, found that Chester Street's assets of £30 million were dwarfed by liabilities of £250 million.Incredibly—I say that carefully—the Financial Services Authority, which was set up by the Government to safeguard the consumer, had approved that company restructuring. The deal went through in February 2000, following approval from the FSA. Two months later, Ernst and Young raised totally justified doubts about the viability of Chester Street. Why was the approval given? Why did the FSA not protect the interest of people who will inevitably die from asbestos- 43WH related diseases? Why did it act on the side of Robert Hardy, the former chief executive of Iron Trades, whose income rose from £204,000 in 1998 to £668,000 the following year? That is a difference of almost £450,000. A mesothelioma case might be expected to obtain between £50,000 and £100,000 in compensation. I hope that Mr. Hardy realises that he has taken the compensation of between six and 12 people who are dying from mesothelioma. He ought to be ashamed of himself. Those are immoral earnings, but his chairman congratulated him on his "outstanding achievement" as he pocketed the money and left the firm before the collapse that he had set up.
The FSA seems to be washing its hands of the matter. Thousands of seriously ill clients will lose out. The insurance industry must act to protect its name. The essence of insurance is that one wins on many occasions and loses on a few. We insure ourselves against things that we hope will not happen, but the insurance company has to pay out in the minority of cases in which the worst has occurred. Cases concerning asbestos-related diseases are the worst, so what kind of scurrilousness is involved when insurance companies renege on those policies?
Lawyers have written to me expressing concern about the domino effect with regard to other insurance businesses. Field, Fisher and Waterhouse suggested that regulations be put in place to prevent other insurance companies from dividing the profitable from the unprofitable parts of their businesses in the way that Iron Trades and Chester Street have done.
The insurance industry must give a lead and face up to its responsibilities. To its credit, the Insurance Times is forcefully pointing out the damage that such cases are causing to the industry. The Government must act to ensure that not a single victim loses out due to the appalling behaviour of Chester Street and Iron Trades. The Government acted to secure restitution for people who had been conned due to pensions mis-selling in the financial services industry. They must act again in this case.
The Government must give an immediate assurance that people who are dying from asbestos-related diseases will not suffer at all financially. That assurance must be extended to their relatives, because in many cases it is the dependants of the victims who receive the insurance money. There must be 100 per cent. restoration. Imagine what it must be like for someone who is dying from mesothelioma to hear that the chance of securing compensation for their relatives has been shattered by this deal.
I do not want a vague assurance from the Minister that there will be investigations. I want a commitment that those who are suffering from asbestos-related diseases will not lose out in any way. I also want an independent inquiry conducted by an independent person or body, rather than by the FSA, which is already tarnished by its approval of the deal.
The inquiry must focus primarily on the conduct of Iron Trades and Chester Street, but there is also a wider issue. Firms and insurance companies in the United States of America are being brought to their knees and bankrupted by the rising tide of asbestos-related cases. 44WH The inquiry must ensure that the interests of the victims of asbestos-related diseases are safeguarded. In particular, the interests of people who were in contact with asbestos before 1972 must be examined. There are many such people and they have been left without any protection. After 1972, victims receive some statutory protection from the Policyholders Protection Board, which has been backed by the insurance industry and is supervised by the Department of the Environment, Transport and the Regions. However, that has limitations; the figures are calculated on a percentage basis.
Can the Minister confirm that victims who contracted their illnesses while working at a publicly owned firm will be protected? I also need to know why Iron Trades was sold by Chester Street for £77 million less than the valuation of its accountants. The sale price of £175 million was £50 million less than the valuation of the company, and the Australian firm QBE held back £27 million in an escrow account. Why was it sold for less than its value, when that extra money could be used to pay claims? Is it true that Iron Trades Management Services is receiving money for helping in the winding-up of Chester Street Holdings? It is still receiving income, but not meeting its liabilities. There are so many questions to be asked about that shady deal.
The inquiry also needs to look at the confusing involvement of the Treasury, the Department of Trade and Industry and the Department of the Environment, Transport and the Regions. I and others have been trying to extract from the Government a coherent statement on the matter, but although Chester Street Holdings collapsed in January, not one word has come from the Government voluntarily. Two months ago, Chester Street Holdings announced that it was insolvent. I hope that the Minister's statement will show that the Government are on top of this issue.
I am trying to get through my speech as quickly as possible in the hope that my hon. Friend the Member for Barnsley, West and Penistone, the chair of the all-party asbestos group, may attract your eye, Mr. Winterton.
In urging that a statement be made on the matter, I am conscious that we should not have to rely on a Member's luck in winning a raffle for an Adjournment debate. Such issues are of serious concern to my constituents. There is much anger about what has been done by Chester Street Holdings. I hope that the Government will recognise that and ensure that no one loses out. We can afford it. We acted strongly on the pensions mis-selling and we must act strongly now. It is absolutely wrong for someone dying from mesothelioma to lose the compensation for his family because of the shady actions of Chester Street Holdings.
§ Mrs. Margaret Ewing (Moray)rose—
§ Mr. Nicholas Winterton (in the Chair)Order. Before I call the hon. Member for Barnsley, West and Penistone (Mr. Clapham), it is the usual custom that a Member who wishes to speak in a half-hour Adjournment debate receives the permission not only of the hon. Member 45WH who initiated the debate, but of the Minister and the occupant of the Chair. I am not sure whether the hon. Gentleman has the permission of the Minister to speak.
§ The Economic Secretary to the Treasury (Miss Melanie Johnson)I am happy for my hon. Friend to contribute to the debate. However, the more contributions that are made, the less time I shall have to respond.
§ Mr. Nicholas Winterton (in the Chair)Indeed. I hope that the hon. Member for Barnsley, West and Penistone heard what the Minister has said. I am happy to use my discretion in this case and call the hon. Gentleman, who happens to be the chairman of the all-party asbestos group.
§ Mr. Michael Clapham (Barnsley, West and Penistone)Thank you, Mr. Winterton. I will be brief.
My hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) clearly pointed out that this matter reflects the unacceptable face of the insurance industry. The decision in 1990 to hive off the liabilities between the two companies was taken in a calculated way. I regard such action as a dumping of the liabilities for asbestos-related diseases into Chester Street Holdings in 1990. To do so without ensuring that those liabilities were covered clearly shows that there was some callousness in the decision that was made at the time.
Will the Minister institute a Department of Trade and Industry inspectors' inquiry under section 432 of the Companies Act 1985? My hon. Friend suggested a completely independent inquiry, but I have legal advice that it is possible for a DTI inspectors' inquiry to be set up under that Act. Is it possible to call the insurance industry together to review the policy protection scheme to ensure that a better scheme could be instituted, which would cover the pre-1972 cases, so that we are not again likely to encounter a similar situation?
§ Mr. Nicholas Winterton (in the Chair)I call the hon. Member for Moray (Mrs. Ewing), who I hope will speak for no longer than about 60 seconds.
§ Mrs. Margaret Ewing (Moray)I will literally take one minute. I shall check. The clock now shows 44 minutes past.
When I was first elected to this Parliament in 1974 to represent the adjoining constituency to that of the hon. Member for Clydebank and Milngavie (Mr. Worthington), the issue was raised with me. I have pursued the matter in the Scottish Parliament, too, because of health board responsibilities for diagnosis and treatment.
I fully support the points made so eloquently by the hon. Gentleman about Chester Street. The distress of the disease is enough without the additional distress caused by lack of compensation and insurance.
§ The Economic Secretary to the Treasury (Miss Melanie Johnson)I congratulate my hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) on having secured the debate and on the energy with which he pursues the issues that he outlined. The Government understand the anxieties expressed in today's debate, which has been triggered by the news of the insolvency of Chester Street Insurance Holdings Ltd. In particular, the Government understand the anxieties, revealed by today's debate, of those suffering from asbestos-related diseases as a consequence of employment in firms whose employers' liability insurance is provided by Chester Street. It is for that reason that I welcome the opportunity to respond to today's debate.
It may help if I clarify several issues raised today. There are three main aspects—first, the company's history, secondly, employers' liability insurance policies, and, thirdly, arrangements for protecting policyholders of insolvent insurance companies.
The history of Chester Street is of much interest to people, judging from the letters that we recently received. Chester Street Insurance Holdings is an insurance company that is authorised to do business in the United Kingdom. As hon. Members will be aware, there is a general principle in law that employers are required to take out insurance policies to cover their liabilities towards their employees. That requirement is specified in the Employers' Liability (Compulsory Insurance) Act 1969.
Chester Street's main line of business was the provision of employers' liability cover. Its main customers were therefore in the business sector rather than individual retail customers. The history goes back much further than the 1969 Act, however. Indeed, Chester Street is the new name of an insurance company that had its origins at the end of the 19th century.
As a mutual, Iron Trades, which was founded in 1898, could write insurance business only for customers who were members of that mutual organisation. In the 1940s, that feature of the mutual status of the organisation was recognised as unhelpful and constraining business freedom by not allowing business to be written to nonmembers as well as members. The association therefore created a new subsidiary that it used to write business to non-members, and that subsidiary was called the Iron Trades Mutual Insurance Company Ltd.
In the late 1980s, association members agreed to restructure the Iron Trades group further. In view of rapid changes in the insurance market, it decided that all the group's insurance business, whether for members or non-members, should in future be written in the subsidiary company. The original association would no longer write new business itself but would remain the owner of the subsidiary and run off outstanding contracts. The changes took effect at the beginning of 1990, and the subsidiary was renamed Iron Trades Insurance Company Ltd. As the subsidiary was 100 per cent. owned by the association, all the benefits from its performance in writing new business accrued to the benefit of the association in run-off.
47WH Further restructuring took place in 1997, at which point all the association's assets and liabilities, including ownership of the subsidiary insurance company, were transferred from the association to a new company, Iron Trades Holdings. The transfer had no effect on the underlying position of either the run-off business or the continuing subsidiary.
In early 2000, Iron Trades Mutual Insurance Company was sold to QBE International Insurance Ltd. The sale converted the asset represented by the subsidiary into cash that could be invested and from which claims payments could be made. As part of the deal, the name Iron Trades was sold to QBE and that is how Iron Trades Holdings Ltd. became known as Chester Street Insurance Holdings Ltd.
Claims for asbestos-related diseases incurred before 1990 are likely to continue to rise for many years. The management of Chester Street received information on claims developments earlier this year that indicated that the company had become insolvent. That triggered the decision to appoint provisional liquidators on 9 January 2001. The scheme of arrangement was unanimously agreed on 5 February at the creditors meeting. The scheme ensures that the assets of Chester Street are protected for the benefit of all outstanding and future claims on Chester Street and it has been sanctioned by the court. The provisional liquidators are assessing the available information about existing and potential claims.
I will now deal with employers' liability insurance—the main type of business that Chester Street wrote—the impact of insolvency and, in particular, one key area of potential misunderstanding. The general position is that employers are required to take up such insurance under the Employers' Liability (Compulsory Insurance) Act 1969. The employer, rather than the employee, would have taken out a policy. That an employer has such a policy does not affect the fact that employers remain liable for any valid claim brought against them by a current or former employee. A claim might relate to an injury sustained or an illness contracted in the workplace, and an employer can turn to the policy in the event of a successful claim against them.
However, the insolvency of the insurer with which an employer has placed its employers' liability risk does not affect the liability of the employer to its employees or former employees. Therefore, despite the insolvency of Chester Street, employers who placed their risk with the company remain liable for claims made against them by employees or former employees. That is the case for all employers, whether they are in the private or public sector.
On the arrangements for ensuring the protection of policyholders when an insurance company becomes insolvent, as in other areas of financial services, specific statutory arrangements exist to protect the interests of financial services customers. The Policyholders Protection Act 1975 was established to protect the interests of policyholders of insolvent insurance companies. In the case of compulsory insurance policies, and to the extent that the insolvent insurer is unable to meet the claim, the Act provides for 100 per cent. protection for eligible claims. The cost of protection is 48WH met by levies on the insurance industry under a scheme administered by the Policyholders Protection Board, which was created under the 1975 Act. The Government expect the board to work closely with the provisional liquidators and others to ensure that eligible claims are processed promptly and that the provisions of the Act are fully implemented. To the extent that Chester Street is unable to meet the terms of the insurance contract in full it is for employers to establish whether any protection is due to them under the 1975 Act.
Today's debate has rightly raised the position of employees whose employer no longer exists. We are investigating their position carefully. It is not correct that no arrangements exist to protect workers suffering from asbestos-related diseases whose employers have gone out of business.
Initially, many sufferers will be eligible for industrial injuries disablement benefit and other related Department of Social Security benefits. Above and beyond that, the Government have recognised the case for making further compensation arrangements for workers unable to claim damages from their former employers. The Pneumoconiosis etc. (Workers' Compensation) Act 1979 exists to compensate those workers. Since 1980, the scheme has compensated around 8,500 workers and their families with approximately £10.5 million.
Several concerns have also been raised about the management of Chester Street, its predecessor organisations and the reorganisation of the Iron Trades Holdings Employers Insurance Association Ltd. Concerns about the management of Chester Street are a matter for the provisional liquidators, who are required to review the company's affairs and the actions of the directors and other parties. I understand that the issues that my hon. Friend the Member for Barnsley, West and Penistone (Mr. Clapham) raised in relation to company law could be a spin-off from the liquidators' investigation into the insolvency.
Finally, questions have been asked about the role of the regulator. As an insurance company authorised to do business in the UK, Chester Street has been supervised by insurance regulators to ensure that it meets the requirements of the Insurance Companies Act 1982. Since 1 January 1999, the FSA has been responsible for the prudential supervision of insurance companies. The Treasury is in touch with the FSA about both the reorganisation and the concerns that I mentioned earlier.
§ Mr. WorthingtonI asked the Minister for two basic assurances. First, I asked that no sufferer from asbestos should suffer further by loss of compensation because of the actions of Chester Street. Will the Government give an assurance that the goal that they are pursuing is for no one to lose out, which would mean that the insurance industry would have to contribute? Secondly, I asked for an independent inquiry because the FSA has lost our trust by approving a failing firm.
§ Miss JohnsonOn the latter question, I understand my hon. Friend's argument, but the liquidators are examining the issues surrounding the insolvency. When that information is publicly available we will be able to see which further issues emerge.
49WH On my hon. Friend's earlier question, I reiterate that the Government understand the concerns that have been expressed in debate. It is obviously desirable that people should receive the compensation that they seek. Treasury officials are in close contact with other Departments, the Policy Holders Protection Board, the FSA and the relevant parts of the remainder of the financial services industry to ensure that the concerns raised by the insolvency of Chester Street are dealt with as quickly as possible. I assure hon. Members that the Government are monitoring the situation carefully in the interests of those affected by the insolvency of this insurance company.
§ Mr. Nicholas Winterton (in the Chair)We can move on to the next debate, which has been initiated by the hon. Member for Runnymede and Weybridge (Mr. Hammond).