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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'
Liability cover becomes more expensive.
Influence of the Re-Insurance Markets
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
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