Liability for no damages – Scottish experience

It is self-evident that the right of one person, the injured party, to sue another, the defendant, and receive compensation requires that the injured party actually suffers injury. Without injury, after all, the injured party cannot be conceived as being an injured party.

The rule that injury is required to receive compensation for an injury is older than recorded history itself and can be found even in the Old Testament. So, it is recorded in Exodus 21:18-19 as:

“If men quarrel and one hits the other with a stone or with his fist and he does not die but is confined to bed, the one who struck the blow will not be held responsible if the other gets up and walks around outside with his staff; however, he must pay the injured man for the loss of his time and see that he is completely healed.”

And so for thousands of years the principle laid down in this verse has been applied in the courts of law around the world. To claim for damages, damage must be proven. That is a self-evident fact.
In more recent history this fundamental principle is being forgotten. Two reasons for this amnesia can be suggested: Socialism and the American contingency fee system.

Socialism has given rise to the notion of entitlement; entitlement without cause. If a person can become entitled to financial transfers without cause in one field then one becomes entitled without cause in all fields. So, little reason is needed to become entitled. In America, personal injury lawyers receive a substantial proportion of any award made to their clients, the so-called injured party. All they have to do is convince a jury to make that wonderful multimillion dollar award and they become instant multimillionaires – it is just like winning the lottery except the payouts are much greater and repeatable. This has proved to be a very corrupting influence.

Compensation without damage came to a head, first, in cases of occupational diseases but is increasingly migrating to other fields of law. Take for example an American case involving asbestosis, which started off as in the field of occupational diseases. A man was awarded millions of dollars in an asbestosis case. Now, one would have expected to find him at death’s door but, in fact, he was in excellent health. His health was legendary. He had a reputation for good health, clean living and lots of exercise. He suffered no disability. So why was he awarded millions of dollars? He claimed that he suffered anxiety that one day he may contract asbestosis. Now one can imagine how many people will be quite happy to suffer an anxiety attack for a couple of millions of dollars and how convincing a contingency fee lawyer can be to persuade a jury that his client should be paid the millions of dollars. In one case, at least, the lawyer succeeded.

The possibility of claiming without damages, suffering any form of disability, was first raised in South Africa with the Nieuwenhuizen Commission in 1981. Going back to the silicosis crisis of the early 1900s a statutory system of compensation was introduced for silicosis, an occupational disease. At what stage then does a person become entitled to compensation?

In terms of the legal principle, the answer is when that person can demonstrate he suffers from a disability caused by the occupational disease. However, the presence of lung diseases can be detected via x-rays. And so compensation became payable once the presence of the disease could be detected and not when disability is manifested.

X-rays did not exist in the time of the Old Testament and so the Old Testament laws required external evidence of injury, disability in the case of a disease. Many persons could have x-ray evidence but not suffer any external manifestation of the disease. There could be manifestations on the lungs but the person could be perfectly healthy.

As technology improved so did claims for compensation. What happened for example if the manifestations could be detected by an electron microscope but not x-rays? Well, they too became entitled to the statutory compensation. The problem with electronic microscopic examinations was that the examination was better carried out once the person was dead. A deceased miner’s lungs could be removed and sent for examination and even if only one nodule was detected with the benefit of the electron microscope, dependants of the miner would be entitled to compensation.

Miners were unhappy with this arrangement. They could not enjoy the benefits of the payout once they were dead and in any event since they would be entitled to benefits without disability, why wait until death to get the benefits? So they reasoned they should not wait until death but be automatically entitled to these benefits after working on a mine for a given number of years.

They then approached the Nieuwenhuizen Commission with the recommendation that there should be a presumption that all miners, having worked on a mine for a specified period, have a lung disease. Also since compensation was not due because of disability caused by the disease there was no reason to limit the compensation to miners who were exposed to disease-causing conditions. In logic, all miners who worked above and below ground should eventually become entitled to these benefits. In that way all miners could get their entitlement and enjoy the entitlements before they died.

The commission correctly identified the economic nature of this recommendation. It was a lump-sum payment to all on reaching retirement age. This, the Commission pointed out, was a fringe or employee benefit, a retirement benefit and the best place to deal with this was via negotiations for employee benefits. It had nothing to do with occupational diseases. If the person suffered no actual disability in some outward manifestation of the disease, it was not an occupational disease matter.

The issue of compensation without disability as raised by the Nieuwenhuizen Commission took some time to arise in other parts of the world.
In the United Kingdom it became common practice for courts to award damages once the existence of an occupational disease became manifested, despite there being no disability. The UK courts had entered the era of liability without damage. Awards in the absence of disability for occupational diseases became established in the courts without any real thought or understanding of the legal principles involved. Claims for damages were being awarded without any actual damages being proven.

Eventually the penny dropped and matters came to a head. In October 2007 the House of Lords decided in Rothwell v Chemical Insulating Co Limited in a case decided by majority vote that mere “pleural plaques, either of themselves or ‘aggregated’ with the risk of developing other asbestos-related diseases and the consequent anxiety, did not cause damage and did not therefore constitute an injury giving rise to an action in tort”. The mere physical signs of disease was not enough; damage itself had to be proven. In essence the House of Lords (now replaced after a history of hundreds of years by the Supreme Court) restored the law to its historical position.

Scotland, however, was unhappy with the restoration to the historical position and passed the Damages (Asbestos-related Conditions) (Scotland) Act 2009, which came into force on 17 June 2009 to neutralise the effect of the House of Lords decision. This decision is in any event not binding in Scotland. A group of insurance companies operating in Scotland challenged the validity of this Act and the Scottish Court ruled against the insurers. The insurers took the matter on appeal and on
12 April 2011, a panel of judges at the Court of Session in Edinburgh refused the appeal. The ruling thus went against the insurers. The insurers have indicated they would take the matter on a further appeal to the Supreme Court.

So in one country at least (outside of the United States that is), the anomaly of damages without damage exists. The outcome of the progression to the Supreme Court is awaited, with interest.

This instalment of Legally Speaking was contributed by Professor Robert W Vivian, a leading authority on insurance and risk management. He has written a number of books on South Africa’s business history.