Executive summary

7 When the final claims have been discharged the Department will have settled more than three quarters of a million cases. This would be in itself a major achievement, but the Department might have been able to deliver the schemes more quickly and more cost effectively had it been better prepared at the time of the Court rulings and more particularly in the period of transition of responsibility from the Corporation.

The Department produced limited strategic oversight or forward planning on how it would handle any resulting liability and insufficient resource was allocated to the task.
This lack of preparation was to make the Department’s task significantly more difficult to administer, require substantial effort to put right, and cause frustration and upset to some claimants. These schemes illustrate vital lessons that should be learned should Government departments be required to establish other compensation schemes in the future.

8 When developing the schemes, the Department relied primarily on Corporation estimates until 2001. These estimates significantly underestimated the number of potential claimants. They also failed to recognise that the liability would include claims on behalf of the estates of deceased miners, not just widows. An actuarial assessment at the time the schemes were being developed would have helped identify where the uncertainties lay and would have allowed these to be taken into account when designing and negotiating the details of the schemes. However, as the Department’s 2001 review of the assumptions underlying the estimates on COPD demonstrated, the spectrum of results is likely to have been very broad, still giving rise to considerable uncertainty.

9 The Department set out to pay compensation without a systematic in-depth option appraisal being considered at more senior levels within the Department.
There is evidence that some options were considered at working level, for example the possibility of putting the schemes on a statutory footing, but by the time of the court judgements the range of options open to it had already narrowed significantly. Also, in order to ensure equity between claimants combined with the need to negotiate with parties representing claimants, the Department made the process complex without testing the practical implications of the rules being drawn up, particularly where the amounts of compensation might be small.

11 It has taken years of intensive effort for the Department and its contractors to get to a position where it is addressing more effectively the factors inhibiting the processing of remaining claims and reducing the claims outstanding.

13 The Department’s approach to negotiating the original fees tariffs with solicitors in 1999 was weak. Whilst this was not a standard procurement matter where the Department could select its suppliers, its preparation lacked the depth of analysis that might ordinarily have been expected to support its negotiations in a commercial setting……… At the time, the Department believed that the closure of the schemes to new claims would happen within around two years. The Department was therefore in a weak position once the assumptions underpinning its initial analysis proved to be erroneous.

14 An analysis prepared by a Cost Judge – in connection with a recent challenge by the Department of costs payable under the fast-track COPD scheme – has suggested that the costs payable under the original tariff were in excess of the levels that would be awarded following a conventional detailed assessment based on data currently available. We have calculated that, had costs payable to solicitors been in line with the findings of the Cost Judge several years later, the total amount payable by the Department to solicitors would have been £295 million less. We are not suggesting that the Department was able to negotiate an agreement from the outset at the levels identified by the Cost Judge as only limited information was available. This reinforces the desirability of introducing a review clause in such instances, although such a clause can work to the advantage of either party. There are no comparable figures available for VWF general damages claims. Drawing on lessons learnt throughout the schemes, the Department is currently negotiating the tariff to be paid for VWF services claims.

Lessons for the future (selected highlights)

Put sufficient resources in place sufficiently early to enable the necessary analyses to be completed to support the decisions to be taken during the planning stage.

From the start, have a strategy in place for managing the expectations of likely claimants and other stakeholders. As soon as the liability is decided, the department will be under intense pressure to begin payments quickly.

In tandem with drawing up the scheme rules, departments should test the practicality and cost of what is being proposed by reviewing the quality of evidence likely to be available to support eligibility and the likely impact of the arrangements on claimants, particularly where they may be elderly or ill.

Consideration of the scope for allowing individual claimants, or their representatives, access to progress information on their case via the internet, subject to assessment of the likely costs and benefits.

In communicating with claimants, departments should explain decisions clearly, and keep claimants informed if processing times are long. If claims cannot be settled quickly, departments should consider making interim payments, especially if the basic eligibility is not in dispute.

Part 2 – planning if schemes

2.5 The Department was able to draw upon the Corporation’s estimates but its March 1998 figures were not an actuarial estimate, simply a very broad ‘best guess’ of the population of mineworkers potentially exposed; the proportion of applicants likely to claim, based on previous health claims experience; and medical advice on the possible nature of injuries. The Corporation’s estimates had indicated a significant level of uncertainty attached to the likely number of claims, but there is no indication that the Department took this into account in its planning. At no point during the planning for these schemes did the Department seek actuarial advice on the potential population, the likely number of claims including the likely range of uncertainty, their likely composition or the cost.

2.6 The Department did not appreciate at this point (in early 1998) that under general legislation an entitlement to compensation could be passed to the estate of the miner upon death and to subsequent estates if entitlement had still not been claimed. It had previously considered that the liability would extend only to direct dependants, particularly widows, and it became aware of this wider scope to the liability only in late 1998. The Corporation had not factored this wider entitlement into its earlier estimates. The Department did not, however, commission a further investigation of its likely impact on the number of claims or the level of compensation.

2.7 This omission, and the failure to follow-up, was to prove significant. In 2001 the Department commissioned PricewaterhouseCoopers LLP (PwC) to review its assumptions to determine the provision for COPD claims. PwC concluded that the number of miners working underground between 1954 and 2000 was of the order of 1.3 million. It highlighted there was much uncertainty around the chances of an underground worker contracting COPD and his subsequent propensity to claim; its best estimate was 200,000 to 300,000 claims, but it highlighted the risk that this figure might be a severe underestimate. In terms of the future claimant profile it highlighted that there might be a surge in claims on behalf of deceased miners towards the latter part of the scheme’s life cycle. Compared to the Department’s initial estimates, much of the subsequent rise in the number of claims can be ascribed to the impact of estate claims on the overall total. Estate claims were to account for 44 per cent of COPD claims and eight per cent of VWF claims.

Part 3 implementation

The causes of long processing times

3.3 The complexity of the scheme rules, which were a negotiated outcome, contributed to the difficulty of clearing claims, placing significant demands on all parties to bring together the information needed to process applications. To protect the interest of taxpayers, the Department needed sufficient information to verify claims but, in some instances, the information was either not easily available or incomplete. The schemes, for example, required the applicant to complete a questionnaire and, for COPD, signed mandates allowing access to: General Practitioner records, hospital records, Benefits Agency records, Social Security (Local Office) records, pension scheme records, British Coal medical records, colliery workers pneumoconiosis records, redundancy records and, in the case of estate claims, the post mortem record. For estate claims, copies of the deceased’s death certificate, marriage certificate (if appropriate), Grant of Probate or Letters of Administration and, if available, evidence of funeral expenses also had to be furnished.

3.4 For applicants with valid claims the process could be frustrating and time consuming. Miners’ representatives interviewed by us believed that the information required was not always proportional to the amounts of compensation at stake. Appendix 4 illustrates, in simplified form, the information flows necessary to successfully process a claim.

3.6 As the Agreements were applied, considerable bottlenecks began to occur and these delayed settlement of the claims and caused frustration for applicants (see Case Examples 2, 3 and 4). Regional monitoring groups were set up by Ministers in 1999 – comprising Members of Parliament, solicitors, trade unions and the Coal Industry Social Welfare Organisation – to monitor progress on the settlement of COPD claims and to consider how the processing of these claims might be speeded up.

3.7 The Department, and its contractors, faced a number of challenges: (selected highlights)

The processes for capturing the primary data (notably the application forms) were largely paper based, resulting in significant amounts of paperwork for transfer to the computerised database. With the introduction of the password protected Coal Claims website in 2002, solicitors could submit new details electronically about their clients although most preferred not to at that stage. In addition, some medical reports were submitted electronically by contractors, including 110,000 VWF general damages medicals.

3.16 The Department did not seek actuarial advice on the likely number of outstanding claims when end dates were being considered. These dates were agreed with the Claimants Solicitors’ Group and ratified by the Courts on condition that the Department conducted a national advertising campaign to make potential claimants aware of the cut-off. The Department expected its advertising campaign to increase the rate at which claims were lodged but not to the extent it experienced. Our analysis at Figure 7 shows that the increase can be ascribed in part to a significant rise in the number of estate claims as potential applicants began to realise that claims could be made. This was encouraged in the advertising carried out by some solicitors and other claimants’ representatives.

Other charges made to claimants by solicitors

3.29 When negotiating the original VWF tariff structure the Department assumed that the amounts paid to solicitors would meet all their costs in successful cases and that claimants would not face additional charges. Subsequent wider developments alerted the Department to the risk that it might have to meet the cost of additional charges should they be levied. To address this risk the Department ensured that the COPD Agreement limited its liability to sums payable under the tariff of fees in the Agreement, while making it clear its anticipation that these fees would represent the total sum charged by solicitors.

3.30 In 2000, the Department became aware that some solicitors’ firms were indeed deducting fees from the compensation paid under the schemes in addition to the fees being paid by the Department. The Department has no figures available on the extent of this practice and how much has been deducted. These arrangements remain a private matter between individual solicitors and their clients and the Department has no legal responsibility for them. In 2001, the Law Society, the regulatory body for solicitors, took the line that additional charges were not improper provided the amounts concerned were not unreasonable and the client had been properly informed as to the charging arrangements. The supporting argument was that such charges were fair as the Department paid no fees for unsuccessful claims.

3.32 In January 2004 the Law Society’s Compliance Board issued a statement that, in making an additional charge to the client, there was likely to be a finding of inadequate professional services unless full information was given to the client at the start of the matter, and the additional charge involved was itself reasonable; it also considered that sufficient information (for cases started after April 2000) included the solicitor advising the client that many other solicitors did not make any additional charge.
The Law Society subsequently wrote to all solicitors handling COPD and VWF claims reminding them to review all cases handled.

3.33 A special report by the Legal Services Ombudsman in April 2006 criticised the Law Society for its failure to investigate miners’ complaints properly. The Ombudsman concluded that the Law Society had let complainants down. The Law Society rejected the Ombudsman’s findings on the basis that the number of cases referred to the Ombudsman was extremely low; solicitors had been told to make repayments; and the Society had advertised in mining areas to inform individuals where to seek help.

3.34 In January 2006 the Law Society established an independent claimant handling arm, the Legal Complaints Service (LCS). The LCS has received 1,671 service complaints related to the Coal Health Compensation Schemes to 31 March 200724, 183 were lodged since January 2007. It has recovered some £570,000 in deductions from 15 law firms and has referred three firms, representing around 130 claims, to the Solicitor’s Regulatory Authority for refusing to make redress.

3.35 In June 2007, Ministers from the Department and the Ministry of Justice wrote to all participating solicitors urging them to return, without further delay, deducted monies where the claimant had not been provided with full information at the outset.

3.36 In some instances additional fees, or voluntary contributions, were also deducted by solicitors on behalf of the National Association of Colliery Overmen, Deputies and Shotfirers (NACODS) and the National Union of Mineworkers. Such deductions have also been made by the Union of Democratic Mineworkers (UDM), but this union registered claim through its in-house claims handling company, Vendside, instead of using solicitors. The UDM handled directly about 17,000 COPD and 12,000 VWF cases.

3.37 Two matters involving the UDM are currently under investigation:
The UDM has passed some of its casework to solicitors, some of whom have subsequently submitted bills at the rates in the main Agreements rather than at the lower rates in the UDM’s Agreement. The Serious Fraud Office is conducting a joint investigation with South Yorkshire Police into a suspected serious fraud in relation to the handling of health claims. The matter was referred to the Office in July 2005 by South Yorkshire Police.

Part 4 – Completion

The Department’s outstanding liability

4.12 Closure of the schemes will not, by itself, finally discharge the liability. This will occur only if all future potential claimants have become ineligible, for example due to the Limitation Act 1980. The Department has sought to close claims where there is no entitlement, together with those where there has been no response to its offer or where the offer has been rejected and not resolved by mediation, by adopting the process known as “Strike Out” (paragraph 4.11 refers). In exceptional circumstances, however, a claim that has been struck out can still be pursued through the courts. It is possible, therefore, that there will additional claims for damages after a scheme is closed.

4.13 In addition to further VWF and COPD claims, it is possible that legal action may be taken in pursuance of other claims. The South Wales branch of the National Association of Colliery Overmen, Deputies and Shotfirers, supported by some areas of the National Union of Mineworkers, is currently funding legal action regarding the alleged acceleration of osteoarthritis and meniscal damage of the knee caused by working conditions in mines. The litigation is still in the early stages of a Court process and, to protect the taxpayer’s interest, the Department’s position is that liability must be demonstrated.

4.14 To inform decisions on the staffing levels of the Coal Liabilities Unit beyond 2009-10, contractor resources and budget implications, the Department commissioned independent actuarial advice in March 2007 on the outstanding liabilities of miscellaneous coal health related claims. This analysis will include those litigated VWF and COPD claims that fall outside the current schemes as well as emerging types of claim. The effect of the co-defendant issue
Case example 5
The Boys Smith report (appendix 8)

Conclusions on competence

7 Although it is unfortunate that there were not originally more accurate estimates of the number of claimants and of the costs, it is not believed that better estimates could have been made at the time, given the paucity of data and the lack of precedent for compensation schemes of this kind and complexity. Better estimates would not have materially altered the nature of the schemes.

8 Solicitor’s tariffs appeared reasonable at that time but do not adequately reflect the more routine nature of the work now being undertaken.

9 Not all solicitors have charged fees of successful claimants and some solicitors who did this in the past have since discontinued the practice. The position the Law Society now takes on this – namely that solicitors should first tell claimants that they are able to receive a similar service elsewhere at no extra cost – should apply retrospectively. This would mean that claimants should now be able to seek the reimbursement of any fees they may have paid in the past if, when they made their claims, they had not been told that they could receive a similar service elsewhere at no extra cost. It should be for the legal profession to take this matter forward.

10 The schemes did not explicitly rule out solicitors charging fees of successful Claimants. The Department acted reasonably in drawing the matter to the attention of the Law Society.

Conclusions on topical issues

12 The practice whereby some solicitors and claims handlers make payments to trade unions out of settlements is not inherently improper so long as the claimant voluntarily agreed to this in advance. There seems no reason why the Department, which was a party to the negotiations and not a regulator, should have insisted that the schemes explicitly disallowed these payments.

21 If in the future an agreement between two parties is set up, similar to those between the Department and UDM/Vendside, designed to regulate the costs payable to third parties, there should be explicit safeguards with a view to binding those parties to the intended arrangements.