Coal Health Compensation Schemes

Transcription

1 Coal Health Compesatio Schemes REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 608 Sessio July 2007

2 The Natioal Audit Office scrutiises public spedig o behalf of Parliamet. The Comptroller ad Auditor Geeral, Sir Joh Bour, is a Officer of the House of Commos. He is the head of the Natioal Audit Office, which employs some 850 staff. He, ad the Natioal Audit Office, are totally idepedet of Govermet. He certifies the accouts of all Govermet departmets ad a wide rage of other public sector bodies; ad he has statutory authority to report to Parliamet o the ecoomy, efficiecy ad effectiveess with which departmets ad other bodies have used their resources. Our work saves the taxpayer millios of pouds every year. At least 8 for every 1 spet ruig the Office.

3 Coal Health Compesatio Schemes LONDON: The Statioery Office Ordered by the House of Commos to be prited o 16 July 2007 REPORT BY THE COMPTROLLER AND AUDITOR GENERAL HC 608 Sessio July 2007

4 This report has bee prepared uder Sectio 6 of the Natioal Audit Act 1983 for presetatio to the House of Commos i accordace with Sectio 9 of the Act. Joh Bour Comptroller ad Auditor Geeral Natioal Audit Office 12 July 2007 The Natioal Audit Office study team cosisted of: Daisy Hodgso, Adrew Packer ad Simo Reaso, uder the directio of Peter Gray. Additioal assistace was provided by Jo Cable, Ady Diig, Wifgi Gebrial, Satosh Gora, Clare Rapkis ad Marti Welsh. This report ca be foud o the Natioal Audit Office web site at For further iformatio about the Natioal Audit Office please cotact: Natioal Audit Office Press Office Buckigham Palace Road Victoria Lodo SW1W 9SP Tel: [email protected] Natioal Audit Office 2007

5 CONTENTS SUMMARY 4 PART ONE Backgroud to the schemes 8 Establishmet of the schemes 8 The applicatio process 9 The outcome 9 Exteral reviews 10 Scope of report 10 PART TWO The plaig of the schemes 11 Estimatig the potetial umber of claimats 11 ad liabilities Desigig the schemes 12 PART THREE Implemetatio 15 PART FOUR Completio 26 Targets for completio 26 The Departmet s outstadig liability 28 APPENDICES 1 Study methods 29 2 The diseases ad related 31 compesatio arragemets 3 Timelies 35 4 Process maps 38 5 Best practice 42 6 Cotractors 44 7 Fees paid to claimats represetatives 45 8 The Boys Smith report 46 The settlemet of claims 15 The cost of admiisterig the schemes 21 Photographs courtesy of Mary Evas/Hery Grat

6 SummARy 1 I Jauary 1998 the Departmet of Trade ad Idustry, restructured ad reamed i Jue 2007 the Departmet for Busiess, Eterprise ad Regulatory Reform (the Departmet), took over resposibility for the accumulated persoal ijury liabilities of the British Coal Corporatio (the Corporatio). The High Court foud the Corporatio egliget i Jauary 1998 i respect of lug disease caused by coal dust, kow as Chroic Obstructive Pulmoary Disease (COPD). Ad i July 1998 the Court of Appeal cofirmed a earlier High Court decisio of egligece i respect of had ijuries caused as a result of usig vibratig equipmet, kow as Vibratio White Figer (VWF). 2 The Departmet, i egotiatio with the Claimats Solicitors Groups 1 ad subject to the approval of the High Court, itroduced two schemes, oe for COPD ad oe for VWF, to compesate former miers. Potetial claimats could make applicatios for compesatio via their legal represetative. The Departmet cotracted iitially with IRISC, ad sice 2004 Capita Isurace Services, to admiister ad assess claims. It also cotracted with idepedet medical assessors to carry out medical examiatios. The Departmet met the cost of the claimat s legal represetatio, where these claims were successful. 1 The Claimats Solicitors Groups are steerig groups each led by the same three firms of solicitors, whose role is to represet the iterests of claimats. 4 COAL HEALTH COmPENSATION SCHEmES

7 summary 3 The two schemes remai uder the jurisdictio of the High Court i Eglad ad Wales, which cotiues to require regular updates of progress, usually aroud three times a year. The Court also cotiues to rule o matters where the claimat ad the Departmet caot agree. 4 By March 2007 the Departmet had received over 591,000 COPD claims ad 169,000 VWF claims. These greatly exceeded its iitial forecasts of 173,500 ad 45,000 respectively ad it had to icrease sigificatly the resources applied to process applicatios as the schemes evolved. Difficulties i dealig with the umber of claims ad the complexities posed by some of them also led to log delays i payig compesatio for some claimats. By the ed of March 2007, just over 168,000 COPD claims ad 27,000 VWF claims remaied outstadig; the media settlemet uder the COPD scheme was aroud 1,500, takig some 29 moths to process claims; ad for the VWF scheme 8,300, ad some 20 moths. 2 The media settlemet for COPD claims reflects the fact that settlemets are discouted to take accout of the effects of smokig ad impairmet caused by ormal levels of dust i the air, for which the Corporatio was ot resposible. 5 I 2005, the Departmet set a target to achieve effective closure to processig VWF claims by 31 October 2007 ad COPD claims by 16 February Whe all the claims are settled the Departmet expects to have paid some 4.1 billio i compesatio. It is also likely to have spet some 2.3 billio i admiistratio costs, i the form of paymets to miers legal represetatives, the cost of its cotractors 3 ad its ow legal costs. Overall coclusio ad mai fidigs 6 The Departmet always faced a formidable challege i establishig two schemes o this scale to compesate people who were ofte elderly, ill, ad axious to receive the compesatio rightfully due to them. The schemes were large ad raised challegig issues reflectig the complexity of the coal idustry, the ature of the illesses ivolved, ad the log time period over which the Corporatio had bee foud egliget. The task was sigificatly complicated by the commo law ature of the schemes where each rule ad procedure must be egotiated with the claimats solicitors ad where ay differeces of opiio are resolved through the courts. From the start, the Departmet was uder pressure from all parties to get the schemes up ad ruig. 7 Whe the fial claims have bee discharged the Departmet will have settled more tha three quarters of a millio cases. This would be i itself a major achievemet, but the Departmet might have bee able to deliver the schemes more quickly ad more costeffectively had it bee better prepared at the time of the Court ruligs ad more particularly i the period of trasitio of resposibility from the Corporatio. The Departmet produced limited strategic oversight or forward plaig o how it would hadle ay resultig liability ad isufficiet resource was allocated to the task. This lack of preparatio was to make the Departmet s task sigificatly more difficult to admiister, require substatial effort to put right, ad cause frustratio ad upset to some claimats. These schemes illustrate vital lessos that should be leared should Govermet departmets be required to establish other compesatio schemes i the future. 8 Whe developig the schemes, the Departmet relied primarily o Corporatio estimates util These estimates sigificatly uderestimated the umber of potetial claimats. They also failed to recogise that the liability would iclude claims o behalf of the estates of deceased miers, ot just widows. A actuarial assessmet at the time the schemes were beig developed would have helped idetify where the ucertaities lay ad would have allowed these to be take ito accout whe desigig ad egotiatig the details of the schemes. However, as the Departmet s 2001 review of the assumptios uderlyig the estimates o COPD demostrated, the spectrum of results is likely to have bee very broad, still givig rise to cosiderable ucertaity. 9 The Departmet set out to pay compesatio without a systematic i-depth optio appraisal beig cosidered at more seior levels withi the Departmet. There is evidece that some optios were cosidered at workig level, for example the possibility of puttig the schemes o a statutory footig, but by the time of the court judgemets the rage of optios ope to it had already arrowed sigificatly. Also, i order to esure equity betwee claimats, combied with the eed to egotiate with parties represetig claimats, the Departmet made the process complex without testig the practical implicatios of the rules beig draw up, particularly where the amouts of compesatio might be small. 2 The moetary figure for VWF icludes geeral damages ad services compesatio; it does ot iclude wage loss compesatio. The duratio figure applies oly to geeral damages claims. See Appedix 2 for a explaatio of the types of compesatio available. 3 Icludig claims hadlers, medical specialists ad records maagemet. Coal Health Compesatio Schemes 5

8 summary 10 Oce the scale of the problems bega to become clear, the Departmet took actio to address the challeges posed. I 2001 it brought i a seior secodee with experiece of programme maagemet. It improved strategic oversight ad programme maagemet; recruited a broader rage of skills oto its team; ad further work with cotractors, such as the computerisatio of some records, helped to speed up processig ad deliver efficiecy gais. I 2004, as part of a wider study of risk maagemet i govermet, the Natioal Audit Office 4 foud that the Coal Liabilities Uit had demostrated effective risk maagemet, makig it a itegral part of day-to-day project maagemet ad commuicatio with all parties. 11 It has take years of itesive effort for the Departmet ad its cotractors to get to a positio where it is addressig more effectively the factors ihibitig the processig of remaiig claims ad reducig the claims outstadig. Some of this has reflected the sheer size of these schemes, for example the eed for the Departmet s medical cotractors to employ large umbers of specialist staff which were ot available i the umbers required. The Departmet has sought to simplify some procedures. Most otably, workig with solicitors ad the Court, it took actio to reduce the volume of outstadig COPD claims, which had reached 400,000 i 2004, by itroducig a fast-track optio i 2005, kow as the Optioal Risk Offer Scheme. Some 170,000 claimats have ow chose this optio. 12 The COPD scheme has bee particularly costly to admiister. We estimate that, at 31 March 2007, aroud 69 per cet of all claimats paid compesatio have received less tha the average cost of admiisterig the claims ( 3,200 per claim up to March 2007). For the VWF scheme the equivalet figure is aroud seve per cet. The fast-track optio for COPD, which the Departmet developed from its experieces admiisterig the scheme, has helped to reduce both admiistrative costs ad the timescale for claim settlemets. 13 The Departmet s approach to egotiatig the origial fees tariffs with solicitors i 1999 was weak. Whilst this was ot a stadard procuremet matter where the Departmet could select its suppliers, its preparatio lacked the depth of aalysis that might ordiarily have bee expected to support its egotiatios i a commercial settig. The egotiatios took place i the midst of pressure to reach agreemet, ucertaity over the likely umber of claims ad the practicalities of operatig the schemes, yet the Departmet tied itself ito a agreemet which made o provisio for the tariff to be reviewed i the light of experiece. At the time, the Departmet believed that the closure of the schemes to ew claims would happe withi aroud two years. The Departmet was therefore i a weak positio oce the assumptios uderpiig its iitial aalysis proved to be erroeous. 14 A aalysis prepared by a Cost Judge i coectio with a recet challege by the Departmet of costs payable uder the fast-track COPD scheme has suggested that the costs payable uder the origial tariff were i excess of the levels that would be awarded followig a covetioal detailed assessmet based o data curretly available. We have calculated that, had costs payable to solicitors bee i lie with the fidigs of the Cost Judge several years later, the total amout payable by the Departmet to solicitors would have bee 295 millio less. We are ot suggestig that the Departmet was able to egotiate a agreemet from the outset at the levels idetified by the Cost Judge as oly limited iformatio was available. This reiforces the desirability of itroducig a review clause i such istaces, although such a clause ca work to the advatage of either party. There are o comparable figures available for VWF geeral damages 5 claims. Drawig o lessos leart throughout the schemes, the Departmet is curretly egotiatig the tariff to be paid for VWF services claims. 15 Although still tied to the origial agreemets, the Departmet has sought to egotiate dow the costs associated with subsequet chages to the schemes. It cotested, for example, the fees payable o the fast-track COPD procedure because of the lower level of solicitor iput. The Court ruled i April 2007 that the fees for the fast-track procedure should be set at levels lower tha those where a claim ivolves a full medical assessmet. The reductio i fees arisig from this rulig is likely to reduce the cost to the taxpayer by up to 100 millio. 16 The Departmet has set aspiratioal dates for the effective completio of both schemes. A sigificat proportio of the remaiig claims, however, raise complicated issues. The Departmet has mapped out the risks it ow faces, icludig the eed to work effectively with its cotractors ad solicitors, ad has sought to put i place arragemets to maage these issues. Closure of the schemes will ot, by itself, fially discharge all liabilities ad will ot prevet future coal health related claims beig brought agaist the Departmet. The Departmet is aware of these risks ad applyig its experiece from the COPD ad VWF schemes i maagig them. 4 Maagig Risks to Improve Public Services, Natioal Audit Office, (HC 1078). 5 See Appedix 2 for defiitios of the damages available uder each scheme. 6 Coal Health Compesatio Schemes

9 summary Lessos for the future These schemes illustrate the sigificat admiistrative challeges that ca be posed whe operatig o this scale. The followig poits highlight some of the key issues to be take ito accout should departmets be asked to take forward similar compesatio schemes i the future. It should be read i cojuctio with forthcomig guidace due to be published by HM Treasury. Pre Start-up/start-up Whe a potetial ew liability is idetified it must be moitored regularly ad, takig accout of how likely it is to come to fruitio, sufficiet actio should be take to maage the risks. As soo as a liability looks likely to crystallise departmets should: establish a project board, with idepedet iput, preferably by the Chair, with suitable seiority ad skills to take a strategic view of how the liability should be maaged. coduct a full optios appraisal based o how the liability might be discharged. This should be based o all available data icludig, where the liability could be large, a actuarial aalysis. The optios appraisal should explicitly assess the costs of alterative delivery mechaisms. put sufficiet resources i place sufficietly early to eable the ecessary aalyses to be completed to support the decisios to be take durig the plaig stage. From the start, have a strategy i place for maagig the expectatios of likely claimats ad other stakeholders. As soo as the liability is decided, the departmet will be uder itese pressure to begi paymets quickly. Departmets should take actuarial advice at a early stage ad draw upo actuarial advice throughout the scheme before key decisios are take, for example settig the dates for scheme completio. The actuarial aalysis should seek to idetify, amogst other aalyses, the likely umber, value ad type of claims, ad cosider the likely profile of payouts to help iform the scheme desig ad fiacial maagemet. I tadem with drawig up the scheme rules, departmets should test the practicality ad cost of what is beig proposed by reviewig the quality of evidece likely to be available to support eligibility ad the likely impact of the arragemets o claimats, particularly where they may be elderly or ill. Implemetatio The implemetatio pla should iclude: idicative service stadards, icludig target processig times for differet types of claim. a procuremet strategy, settig out the optios for admiistratio of the scheme icludig, where appropriate, out-sourcig ad the reasos for the preferred approach. a resource pla, coverig the umbers of staff likely to be eeded to deliver the scheme, icludig specialist skills. a pla of the data recordig, hadlig ad reportig requiremets icludig that eeded for maagemet reportig ad fiacial cotrol. a project timetable for procuremet, publicity ad lauch activities, scheduled reviews ad audit activity ad target dates for key milestoes i hadlig claims. a commuicatios pla coverig the publicity to be geerated i coectio with the lauch of the scheme, the equiry hadlig capacity to be put i place at lauch ad subsequetly. cosideratio of the scope for allowig idividual claimats, or their represetatives, access to progress iformatio o their case via the iteret, subject to assessmet of the likely costs ad beefits. a outlie closure pla settig out the expected time lie for the scheme ad how closure might be hadled. a procedures ad operatios maual for case officers, supervisory ad maagemet staff. explicit plas for dealig with appeals, icludig idepedet adjudicatio where appropriate. appropriate arragemets to deal with ay policy questios that might arise affectig the scope of the scheme. a outlie of the potetial closure strategy icludig the criteria dictatig whe closure might be aouced, ad the factors that might eed to be cosidered. I workig with their delivery parters, departmets should draw upo best practice to develop a effective partership that draws o the skill ad experiece of cotractors i developig schemes ad problem solvig. Examples of good practice ca be foud i the NAO publicatio Drivig the Successful Delivery of Major Defece Projects: Effective Project Cotrol is a Key Factor i Successful Projects, HC 30, May 2005 available at I commuicatig with claimats, departmets should explai decisios clearly, ad keep claimats iformed if processig times are log. If claims caot be settled quickly, departmets should cosider makig iterim paymets, especially if the basic eligibility is ot i dispute. Departmets should have effective ad timely performace maagemet arragemets i place to esure that emergig performace issues are cosidered at the appropriate level. I additio where there is a level of ucertaity cotracts should iclude a provisio to review certai performace idicators icludig remueratio. Departmets should evaluate progress shortly after the scheme begis to assess performace ad idetify areas for improvemet, with a further evaluatio after it has closed. Coal Health Compesatio Schemes 7

10 Part Oe Backgroud to the schemes 1.1 Whe the workig pits of the British Coal Corporatio (the Corporatio) were privatised i 1994, the Govermet at that time decided to retai resposibility for meetig ay potetial persoal ijury liabilities arisig as a result of publicly-owed miig activities. This icluded diseases for which the Corporatio had already accepted liability or was i the process of settlig, for example for oise iduced hearig loss, ad other claims where the Corporatio was cotestig liability. This liability trasferred to the Departmet i Jauary I the same moth, the High Court i Eglad ad Wales foud the Corporatio egliget i respect of lug disease caused as a result of coal dust, kow as Chroic Obstructive Pulmoary Disease (COPD), see Appedix 2. The disease has varyig severity, ragig from chroic brochitis to emphysema, which seriously affects quality ad logevity of life (see box). Uder the judgemet, the Corporatio, ad hece the Departmet, was liable for disablemet caused by coal dust as a result of workig for the Corporatio after 1954 (1949 i Scotlad) but ot for the effects of smokig or impairmet caused by ormal levels of dust i the air. Chroic Obstructive Pulmoary Disease (COPD) COPD is a medical coditio that affects the lugs. The mai symptom is breathlessess, which results from the lugs beig uable to get sufficiet oxyge ito the blood, ad hece to the muscles, to allow ormal exertio. Severity depeds o the extet of lug damage. A mild form of COPD is chroic brochitis, which is o-disablig ad reversible. Emphysema is a severe form that is life-shorteig due to a permaet arrowig of the airways. Smokig is the primary cause of chroic brochitis ad emphysema i the geeral populatio. I 1993, chroic brochitis ad emphysema were added to the list of idustrial diseases that qualify for the paymet of State disablemet beefit. 1.3 I July 1998, i a separate group actio, the Court of Appeal cofirmed the High Court fidig that the Corporatio was egliget i respect of had ijuries caused as result of usig vibratig equipmet, kow as Vibratio White Figer (VWF), see Appedix 2. The coditio is irreversible ad utreatable (see box). As a result of the litigatio, the Departmet was liable for disablemet caused by service after 1 Jauary Vibratio White Figer (VWF) VWF ivolves damage to blood vessels, which causes parts of the figers to go white due to the reduced flow of blood, ad damage to erve edigs, resultig i umbess ad tiglig. The severity of the coditio varies. I its mild form there is temporary umbess. As it becomes more serious there is a progressive loss of dexterity. It ca require amputatio i extreme cases. The disease is irreversible ad utreatable. Discomfort becomes worse upo exposure to cold. Practical problems iclude difficulty i doig up buttos or holdig small objects. Establishmet of the schemes 1.4 For both COPD ad VWF liabilities the High Court ordered the Departmet to agree, with the claimats solicitors, schemes for assessig idividual levels of compesatio. These arragemets applied to claims already registered ad to idividuals who wished to itroduce a claim. The High Court cotiues to moitor progress ad be available to resolve disagreemets betwee the claimats solicitors ad the Departmet. 1.5 The Departmet, i egotiatio with the claimats solicitors, drew up plas for separate schemes for COPD ad VWF. The purpose of these schemes is to replicate for each claimat, as closely as possible, the outcome if they had goe through a full court process. For each scheme the solicitors were represeted by a Claimats Solicitors Group, 8 Coal Health Compesatio Schemes

11 part oe draw from the group of over 300 solicitors represetig all claimats. The rules for assessig claims were set out i Claims Hadlig Agreemets 6 (the Agreemets), see box below. The agreemets for each scheme were subject to approval by the High Court. The VWF scheme Agreemet was fialised i Jauary 1999, ad the COPD scheme i September of the same year. Each Agreemet icludes a tariff of fees for remueratig claimats legal represetatives. There are separate Agreemets for Scotlad. 1.6 Sice sigig the Agreemets, a umber of additioal elemets have bee agreed betwee the parties. These iclude, for example: a settlemet for Services claims uder the VWF scheme to compesate for assistace with tasks such as gardeig which the disease sometimes prevets claimats udertakig (see Appedix 2); ad for COPD the itroductio of a fast-track scheme kow as the Optioal Risk Offer Scheme (see Chapter 3, paragraph 3.18). Claim Hadlig Agreemets After the coclusio of each set of litigatio the Departmet prepared a Claims Hadlig Agreemet (for VWF this was titled a Arragemet) i egotiatio with the Claimats Solicitors Group 7, settig out: the tariff of damages; the procedures to be followed i processig claims, icludig measurig idividual disability; how etitlemet to damages would the be calculated, icludig for COPD the weightig of smokig, dust ad years of employmet; istructios ad guidace to medical staff; the various forms that claimats ad medical staff would be required to complete depedig o the circumstaces of the claimat, otably whether the mier was still alive or deceased; the arragemets for dealig with claimats who died while their claims were processed; some of the stadard letters to be used by the Departmet s claims hadlig cotractor; ad the fees payable to solicitors. Both Agreemets had to be agreed i detail with the solicitors. I Eglad ad Wales, for COPD, these egotiatios bega i February 1998 ad were cocluded i September The correspodig dates for VWF were July 1998 ad Jauary A Agreemet specifically coverig COPD claimats i Australia ad New Zealad was siged i Jauary There are separate Agreemets for Scotlad which were egotiated o behalf of all Scottish claimats by the Scottish area of the Natioal Uio of Mieworkers (NUM) ad their solicitors. They were siged i Jauary 1999 (VWF) ad Jue 2000 (COPD) ad are idetical to those coverig Eglad ad Wales save where there are variatios i the law betwee the legal systems. This pricipally arises i relatio to posthumous claims. The Agreemets are ope to all Scottish claimats irrespective of NUM membership. The Departmet egotiated separate Hadlig Agreemets with the Uio of Democratic Mieworkers (UDM), siged o 28 Jauary 1999 (VWF) ad 17 November 1999 (COPD). Except for fees these Agreemets are idetical. The applicatio process 1.7 The Departmet has employed a umber of cotractors to admiister the Agreemets. Iitially, it took over the Corporatio s existig cotracts: IRISC for processig health claims; Nabarro Nathaso (ow called Nabarro) for legal support; ad Hays Commercial Services ad Busiess Healthcare for records maagemet. The Departmet let further cotracts maily for medical services. IRISC was purchased by Ao 8 i 1997, which i tur was purchased by Capita Isurace Services i 2004 ad which wo a subsequet retederig of the cotract i The cotractors are listed at Appedix Applicats were required to register their claim with the Departmet s processig cotractor through a advisor, usually a solicitor. Potetial applicats icluded the estates of deceased miers. Claimats who were still alive would be asked to atted a medical examiatio or have a medical examier visit them. A outlie of the broad process for each scheme is show i Appedix The COPD scheme was closed to ew applicatios i March 2004; VWF closed to ew applicatios i October 2002 for live claims ad Jauary 2003 for posthumous claims. A summary of the umber of claims made i Eglad, Scotlad ad Wales is give i Figure 1 overleaf. I 2005, the Departmet set a target to achieve substative completio 9 of processig VWF claims by 31 October 2007, ad COPD claims by 16 February The outcome 1.10 By the ed of March 2007 some 430,000 COPD ad 145,000 VWF claims had bee settled. This icluded the deial of 6,500 COPD ad 1,600 VWF claims. Ad the withdrawal by the claimat of a further 44, COPD ad 33,000 VWF claims. The remaider remai to be settled. 6 The Agreemet coverig VWF was titled a Arragemet. 7 Some solicitors represetig claimats are ot members of the Claimats Solicitors Groups ad were ot ivolved i these egotiatios. 8 Ao cotiued to use IRISC as its tradig ame. 9 I the case of the COPD scheme, substative completio is defied as less tha 500 cases outstadig ad, i the case of VWF, less tha 300 cases outstadig. 10 If a claimat s represetative accepts otificatio of deial the claim is reclassified as withdraw. Coal Health Compesatio Schemes 9

12 part oe Exteral reviews 1.11 Two reviews have bee coducted o the Coal Health Compesatio Schemes to date: I March 2005 the Trade ad Idustry Committee of the House of Commos reported o the Coal Health Compesatio Schemes. It focused o the positio of the schemes at the time immediately precedig the report ad the future risks to scheme completio. I July 2005 the Miister for Eergy aouced a further review of the schemes with a differet locus. It had two objectives: first, to review the itegrity of the admiistratio of the schemes; ad secod, to cosider whether the arragemets for dealig with fraud were adequate. It was udertake by Stephe Boys Smith, a former seior official i the Home Office, with the support of secodees from the Departmet. The fidigs, published i November 2005, are summarised at Appedix 8. Scope of report 1.12 This report examies: i) the Departmet s plaig for the schemes, icludig the iitial forecasts (Part 2); ii) iii) the implemetatio of the schemes, icludig the cost of admiistratio (Part 3); ad the Departmet s strategy for closig the schemes (Part 4) This review was prompted by requests from Members of Parliamet to augmet the reviews already coducted, i particular to draw out potetial lessos that might aid the admiistratio of future schemes. The objective of this review is to examie the extet to which the Departmet has maaged the schemes effectively ad efficietly. The study methods are summarised at Appedix 1. 1 Breakdow of COPD ad VWF claim umbers by coutry (at 31 March 2007) Total COPD claims received Eglad Scotlad Wales Total Overall 443,681 50,826 97, ,706 Miers 189,570 43% 18,185 36% 34,804 36% 242,559 41% Widow ad Estate claims 254,111 57% 32,641 64% 62,395 64% 349,147 59% Total VWF claims received Overall 137,166 11,521 20, ,617 Miers 118,845 87% 9,280 81% 17,686 85% 145,811 86% Widow ad Estate claims 18,321 13% 2,241 19% 3,244 15% 23,806 14% Source: The Departmet s claims moitorig statistics 10 Coal Health Compesatio Schemes

13 Part two The plaig of the schemes 2.1 This Part examies the Departmet s preparatios for lauchig the ew schemes, icludig its arragemets for forecastig the potetial umber of claimats ad its appraisal of the optios for meetig its liabilities. Estimatig the potetial umber of claimats ad liabilities 2.2 The Departmet eeded properly researched estimates of the likely liabilities ad the umber of claims to iform the desig of the schemes, esure adequate resources were i place to process applicatios quickly ad iform public expediture plaig. Eve if the ucertaities associated with the figures were great, the Departmet eeded to kow the limits withi which it should pla. Our work suggested that there were serious shortcomigs i the Departmet s approach at this early stage. 2.3 I March 1998, just after takig over resposibility for the liabilities, the Departmet forecast that the umber of claims durig the life of the schemes would be of the order of 220,000, comprisig 173,500 for Chroic Obstructive Pulmoary Disease (COPD) ad 45,000 for Vibratio White Figer (VWF). It oly forecast forward the fiacial liability util 2003, whe it the believed a sigificat majority of claims would be settled; the combied liability of the two schemes was expected to be some 614 millio. There was o sesitivity aalysis coducted o these estimates. These estimates were to fall sigificatly short of the evetual umber of claims of 591,706 for COPD ad 169,617 for VWF, ad the evetual liability, ow expected to total up to 4.1 billio (Figure 2). 2.4 The Corporatio had previously wared the Departmet that the compesatio liability could be sigificat. The Corporatio s fial estimate (Jue 1997) had assessed the COPD liability at betwee 500 millio ad 2 billio, with VWF at 50 millio to 250 millio but possibly more. The supportig estimates suggested that the most likely umber of claims for VWF would be i the rage of 25,000 to 50,000; ad for COPD betwee 75,000 ad 300,000. These estimates were highly sesitive to the uderlyig assumptios. 2 Summary of claims estimatio coducted by British Coal Corporatio i 1996 compared to the Departmet s forecast at March 1998 ad outtur estimate at March 2007 VWF COPD Total Claims Liability Total Claims Liability British Coal Estimate (1997) 25,000 to 50,000 50m to 250m(+) 75,000 to 300, m to 2,000m DTI estimate (March 1998) 45, m 1 173, m 1 DTI estimate (March 2007) 169,617 1,632m 591,706 2,416m Source: Natioal Audit Office aalysis of the Departmet s papers NOTE 1 The Departmet s March 1998 fiacial estimates were projectios to scheme completio (2003 for COPD ad 2001 for VWF). Coal Health Compesatio Schemes 11

14 part two 2.5 The Departmet was able to draw upo the Corporatio s estimates but its March 1998 figures were ot a actuarial estimate, simply a very broad best guess of the populatio of mieworkers potetially exposed; 11 the proportio of applicats likely to claim, based o previous health claims experiece; ad medical advice o the possible ature of ijuries. The Corporatio s estimates had idicated a sigificat level of ucertaity attached to the likely umber of claims, but there is o idicatio that the Departmet took this ito accout i its plaig. At o poit durig the plaig for these schemes did the Departmet seek actuarial advice o the potetial populatio, the likely umber of claims icludig the likely rage of ucertaity, their likely compositio or the cost. 2.6 The Departmet did ot appreciate at this poit (i early 1998) that uder geeral legislatio a etitlemet to compesatio could be passed to the estate of the mier upo death ad to subsequet estates if etitlemet had still ot bee claimed. It had previously cosidered that the liability would exted oly to direct depedats, particularly widows, ad it became aware of this wider scope to the liability oly i late The Corporatio had ot factored this wider etitlemet ito its earlier estimates. The Departmet did ot, however, commissio a further ivestigatio of its likely impact o the umber of claims or the level of compesatio. 2.7 This omissio, ad the failure to follow-up, was to prove sigificat. I 2001 the Departmet commissioed PricewaterhouseCoopers LLP (PwC) to review its assumptios to determie the provisio for COPD claims. PwC cocluded that the umber of miers workig udergroud betwee 1954 ad 2000 was of the order of 1.3 millio. It highlighted there was much ucertaity aroud the chaces of a udergroud worker cotractig COPD ad his subsequet propesity to claim; its best estimate was 200,000 to 300,000 claims, but it highlighted the risk that this figure might be a severe uderestimate. I terms of the future claimat profile it highlighted that there might be a surge i claims o behalf of deceased miers towards the latter part of the scheme s life cycle. Compared to the Departmet s iitial estimates, much of the subsequet rise i the umber of claims ca be ascribed to the impact of estate claims o the overall total. Estate claims were to accout for 44 per cet of COPD claims ad eight per cet of VWF claims. Desigig the schemes 2.8 The Departmet s plaig prior to the High Court judgemets o COPD ad VWF i Jauary ad Jue 1998 was limited. The legal defece of the COPD ad VWF litigatio was led by the Corporatio. The Departmet took the view that the Corporatio was better placed tha itself to hadle the legal defece the Corporatio s seior maagemet, officers, lawyers, claims hadlers ad records staff were judged to have kowledge ad experiece uavailable withi the Departmet. Resposibility for the liabilities was therefore ot trasferred to the Departmet util Jauary I February 1998 the Departmet started the arragemets to deal with the COPD ad VWF liabilities. It formed a Eergy Liabilities Committee, appoitig officials to oversee the liabilities. 12 I November 1998 it established a dedicated Coal Health Claims Uit, comprisig three officials, icludig for the first time a dedicated seior member of staff. Much of the time of the ew Coal Health Claims Uit, ad the deliberatios of the Eergy Liabilities Committee, was immediately occupied i completig the egotiatio of the Agreemets The Govermet had aouced i July 1995 its decisio to trasfer the COPD ad VWF liabilities to the Departmet by the ed of There is evidece that durig this period, ad precedig the Court judgemets, the Departmet stood back to assess its optios for dischargig the liabilities. At workig level it did cosider some of the possible optios icludig offerig the liability to reisurace ad the possibility of puttig the schemes o a statutory footig where Parliamet rather tha the Court would determie the scheme rules. We could fid o evidece, however, of a more systematic i-depth optio appraisal beig cosidered at more seior levels. Oce the courts had reached their decisio, most of the optios previously ope to the Departmet would have become much more problematic to implemet without beig draw ito a commo law process. It is ot possible for the Natioal Audit Office to say whether the other optios would have bee viable. 11 This also icludes the type of exposure, for example for COPD, the quatum of damage by dust varies amog collieries; it was ot util a dust model was fialised i 2001 that this could be quatified. 12 This was reamed the Coal Liabilities Committee i Jauary 1999 ad is ow called the Coal Liabilities Strategy Board. 12 Coal Health Compesatio Schemes

15 part two 2.11 At the time of the Court judgemets the Departmet did ot have the iformatio that would be eeded to iform the desig of a ew scheme. I particular, it did ot kow the likely level of compesatio to be paid across the populatio of claimats ad, for COPD, it had o iformatio to quatify the profile of severity of COPD ad the extet to which smokig would reduce compesatio etitlemet. I may respects, much of this iformatio would oly have become available oce cases bega to be assessed. Recogisig that such iformatio might be eeded, ad usig actuarial expertise to idetify sigificat ucertaities, could have helped the Departmet take a broader view of the optios available. This could have icluded groupig differet types of claimats so that admiistratio costs reflected more closely the level of compesatio payable, for example by usig less itesive procedures to process claims where the mier smoked ad had a short period of qualifyig service (see Case Example 1). Obtaiig such iformatio, for example from samples of cases, however would have take time at a poit whe the Departmet was uder pressure to get the schemes up ad ruig Previous persoal ijury claims i the coal idustry, such as those for peumocoiosis ad oise iduced hearig loss, though o a smaller scale, might have offered some useful lessos to be leared or highlight potetial risks (see box). The cost of commo law claims, for example, uder the Noise Iduced Hearig Loss Scheme had suggested that admiistrative costs could be comparable to the amouts of compesatio paid out. case example 1 A example of the effect of smokig ad short qualifyig service take from the COPD claims hadlig database Ms A submitted a COPD claim i Jue 2001o behalf of her father, who died i the 1980s. He had worked as a coal face worker i three differet mies for some 50 years util mid 1960s. Ms A recorded that her father experieced breathlessess whe walkig short distaces ad eeded help with tasks which might cause exertio, such as gardeig. His cause of death was show o the death certificate as brochopeumoia ad peumocoiosis: he was a light smoker for 60 years ad was judged to be 30 per cet disabled at the time of his death. Due to the mier s smokig history, ad oly 11 years of qualifyig employmet, the Departmet was liable oly for seve per cet of his disability: Ms A received approximately 800 i damages i The Coal Workers Peumocoiosis Scheme 1974 The Coal Workers Peumocoiosis Scheme is a o-fault scheme set up i 1974 as a private agreemet betwee the British Coal Corporatio ad: the Natioal Uio of Mieworkers; the Natioal Associatio of Colliery Overme, Deputies ad Shotfirers; ad the British Associatio of Colliery Maagemet. The scheme provides compesatio to mieworkers (or their families) who have certai respiratory diseases, but pricipally peumocoiosis, by 1) lump sum paymets partly for disability but also for the claimat waivig his right to a commo law claim through the Court, 2) weekly or mothly beefits to compesate for loss of earigs. The Departmet assumed the liability o 1 Jauary 1998; the scheme is admiistered by Capita Isurace Services. Eligibility is depedet o (a) 10 years employmet i a Corporatio mie, (b) paymet of Idustrial Ijuries Disablemet Beefit for peumocoiosis (for lump sum paymets) ad (c) paymet of Icapacity Beefits (for weekly/mothly loss of earigs paymets). Sice 1974 there have bee some 90,000 claims ad approximately 150 millio i lump sum paymets ad some 45 millio of loss of earigs paymets. Sice 2000, claims have averaged 100 per moth. The average lump sum paymet is 2,700. There are curretly some 95 Loss of Earig claims receivig, o average, 1,000 per moth. It takes, o average, some 23 moths to settle a peumocoiosis claim. A major factor affectig this average is the practice of claimats delayig their acceptace of the Departmet s offers util their applicatios for the relevat State beefits, listed above, have bee completed. Noise Iduced Hearig Loss Idustrial hearig loss is also kow as oise iduced hearig loss (NIHL). It ca be defied as irreversible damage to the ears caused by exposure to high levels of oise. Miers claims are brought agaist the Corporatio; the Departmet assumed this liability o 1 Jauary The Corporatio egotiated the settlemet of claims o a idividual basis. It did so iitially by egotiatig a tariff with the pricipal miig uios, eterig ito agreemets with the uios directly, ad their appoited legal represetatives. As miers left the idustry, may of them left the uio ad whe they later became aware of their hearig loss they brought claims through high-street firms of solicitors. The chage i the profile of cases led the Corporatio to eter ito arragemets for the settlemet of oise claims ot oly with trade uios, but with those firms that had large volumes of claims. I geeral, the Departmet has cotiued with those agreemets. Noise iduced hearig loss claims are ot hadled uder a specific scheme. There are two types of claim, oe settled uder the Iro Trade Tariff ad the other through commo law. The average settlemet uder the Iro Trade Tariff is approximately 1,500 with costs ad disbursemets ragig from 485 to 800. Claims uder commo law have a average settlemet of betwee 3,000 ad 3,500. Negotiated costs rage from 2,000 to 4, Sice 1997 there has bee some 40,000 hearig loss claims totallig 70 millio i compesatio. Aroud 1,400 remai to be settled. The rate at which claims are received is slowig ad stads at 100 per moth. The average settlemet is i the order of 1,750 ad takes some 18 moths. Source: The Departmet (March 2007) 13 Aswer to a Parliametary questio 11 July Coal Health Compesatio Schemes 13

16 part two 2.13 Our work has suggested that the weakesses i the Departmet s iitial maagemet of these liabilities, especially its forecastig, were exacerbated by: Lack of resources. It devoted isufficiet staff to maagig the COPD ad VWF liabilities. After privatisatio of most of the collieries i 1994 the Departmet s overridig objective was to miimise its ivolvemet with these liabilities, iitially assigig half of oe perso s time. By 1 Jauary 1998, whe these liabilities were legally trasferred from the Corporatio to the Departmet, two staff were assiged, risig to three i November of that year. Departmetal papers as early as 1996 suggest that a lack of resources withi the Departmet impeded udertakig the aalyses required. The timelie at Appedix 3 provides details of the build up of staff over time. Failure to follow some of the routie steps that the isurace sector would take whe plaig for a potetial liability of this ature. While the Departmet had access to the skills ad experiece i hadlig claims eeded to egotiate the Agreemets, 14 it lacked at these crucial early stages the skills ad kowledge to maage liabilities of this scale, icludig actuarial expertise. Appedix 5 of this report highlights some of the steps ofte take ow withi the isurace idustry whe faced with such liabilities. 14 Whe the liabilities were legally trasferred to the Departmet i 1998 it took over the Corporatio s cotract with Nabarro for legal services ad the cotract with IRISC for hadlig health claims. The legal support provided to the Departmet by Nabarro was supplemeted by the Departmet s i-house legal team. Later the Departmet also deployed cosultats from PwC ad Deloitte with experiece i isurace ad claims hadlig, together with risk maagemet. 14 Coal Health Compesatio Schemes

17 Part three Implemetatio 3.1 This Part looks at the Departmet s implemetatio of the Coal Health Compesatio Schemes. It cosiders: the speed at which claims were settled; the Departmet s respose to the emergig challeges; ad, the costs of admiisterig the schemes. The settlemet of claims 3.2 The media time take by the Departmet, its cotractors ad claimats represetatives to process claims uder the Vibratio White Figer (VWF) scheme has bee 20 moths ad for those goig through the full assessmet process uder the Chroic Obstructive Pulmoary Disease (COPD) scheme 29 moths (Figure 3). Some claims have take sigificatly loger, ad some remai to be cleared. Others were hadled more quickly. I part this is due to the Departmet s early agreemet with the Claimats Solicitors Group to prioritise claimats by cohort, with claims from livig miers ad widows hadled first followed by estates. 15 Where possible, this resulted i claims from livig miers with the most pressig health eeds beig cosidered first. Iterim paymets were also made. Usig the fast-track route for COPD claims, itroduced i its curret form i 2005, the Departmet ad its cotractors have reduced average processig times to 19 moths for claims processed via this route (Figure 4 overleaf). The causes of log processig times 3.3 The complexity of the scheme rules, which were a egotiated outcome, cotributed to the difficulty of clearig claims, placig sigificat demads o all parties to brig together the iformatio eeded to process applicatios. To protect the iterest of taxpayers, the Departmet eeded sufficiet iformatio to verify claims but, i some istaces, the iformatio was either ot easily available or icomplete. The schemes, for example, required the applicat to complete a questioaire ad, for COPD, siged madates allowig access to: Geeral Practitioer 3 Processig times1 for COPD ad VWF claims to post-medical offer at 31 March 2007 VWF processig time for Geeral Damages offers made after a medical assessmet Cohort Average 2 Maximum 3 50 per cet (moths) (moths) of claims dealt with i less tha: 4 Source: Natioal Audit Office aalysis of data from Capita Isurace Services (moths) Miers Widows claims Estate claims All claims COPD processig time for offers made after a medical assessmet Cohort Average 2 Maximum 3 50 per cet (moths) (moths) of claims 4 dealt with i less tha: (moths) Miers Widows claims Estate claims All claims NOTES 1 All duratio figures are rouded dow to the earest moth. 2 This is the mea duratio. The calculatio is based o the duratio of claims i the schemes betwee the date of registratio ad the date of last kow offer; it does ot iclude cases litigated outside of the schemes or those which were withdraw or deied. 3 This excludes cases litigated outside of the schemes, those which were withdraw or deied ad those still to receive offers after 31 March This is the media duratio. 5 This table does ot iclude VWF services claims which were made by aroud oe quarter of all claimats. The media settlemet time for the services compoet of these claims is a additioal 36 moths. 15 For example, while the COPD Claims Hadlig Agreemet was beig egotiated, the Departmet bega its programme of spirometry medical tests (see Appedix 2) to help rak claimats by disability. It also used this test to make iterim paymets. Coal Health Compesatio Schemes 15

18 part three records, hospital records, Beefits Agecy records, Social Security (Local Office) records, pesio scheme records, British Coal medical records, colliery workers peumocoiosis records, redudacy records ad, i the case of estate claims, the post mortem record. For estate claims, copies of the deceased s death certificate, marriage certificate (if appropriate), Grat of Probate or Letters of Admiistratio ad, if available, evidece of fueral expeses also had to be furished. 3.4 For applicats with valid claims the process could be frustratig ad time cosumig. Miers represetatives iterviewed by us believed that the iformatio required was ot always proportioal to the amouts of compesatio at stake. Appedix 4 illustrates, i simplified form, the iformatio flows ecessary to successfully process a claim. 3.5 The operatioal implicatios, especially the ifrastructure requiremets, of the Agreemets were ot fully cosidered by the Departmet durig the iitial egotiatios with the Claimats Solicitors Group. The Agreemets set out exactly how claims would be assessed with the aim of achievig a similar outcome for the claimat had he progressed his case through the courts; cosequetly, the Agreemets are very detailed. The COPD Agreemet rus to 625 pages ad has sice bee supplemeted by 13 protocols dealig with specific aspects of claim hadlig, for example smokig history. Similarly, the VWF Agreemet rus to 747 pages ad is supplemeted by two protocols. 4 COPD processig time i moths1 for fast-track offers to livig claimats Cohort Average 2 Maximum 50 per cet (moths) (moths) of claims 6 dealt with i less tha: (moths) Fast-track Fast-track aloe Expedited Source: Natioal Audit Office aalysis of data from Capita Isurace Services NOTES 1 All duratio figures are rouded dow to the earest moth. 2 This is the mea duratio. 3 Live Optioal Risk Offer Scheme for mier claimats oly, available from 28 February These figures represet the total time the claimat was i the COPD compesatio scheme. 4 These figures represet the total time the claimat was i the fast track procedure. 5 The Expedited Scheme was available from September This is the media duratio. As far as we could determie, the Departmet did ot, whe i the midst of egotiatios, assess the practicality ad cost-effectiveess of the proposed processes. Neither did the Departmet, followig the egotiatios, pilot the processes from ed-to-ed to test the overall robustess of each scheme ad to address uforesee problems before committig resources. The Departmet was uder sigificat pressure from all parties to get the schemes up ad ruig. 3.6 As the Agreemets were applied, cosiderable bottleecks bega to occur ad these delayed settlemet of the claims ad caused frustratio for applicats (see Case Examples 2, 3 ad 4). Regioal moitorig groups were set up by Miisters i 1999 comprisig Members of Parliamet, solicitors, trade uios ad the Coal Idustry Social Welfare Orgaisatio to moitor progress o the settlemet of COPD claims ad to cosider how the processig of these claims might be speeded up. CASE EXAMPLE 2 Shortage of iformatio delayed the process Mr B is a 55 year old who worked as a labourer for the Corporatio, ad other employers, over some eight years. He made a VWF claim i July 1998 ad filed a completed questioaire i May Because of Mr B s work with differet employers the claims hadler, Capita, had difficultly obtaiig a complete picture of his employmet history; it was ot util July 2002 that his employmet records were cofirmed. Followig a request for further iformatio, i December 2004 Mr B s solicitor submitted a witess statemet to cofirm the type of tools he used i his job. I March 2006 Capita requested Mr B s GP records, ad these uderwet medical review i October 2006, over eight years after the claim was first filed. Our examiatio foud little evidece o file to explai some of the sigificat delays. As at 31 March 2007 this claim is ot settled. CASE EXAMPLE 3 There were delays i providig medical assessmets Mr C is a 76 year old who worked udergroud for 42 years from the age of 17 for both the Corporatio ad other, smaller, mie operators. He filed his COPD claim i March Some 20 moths of Mr C s total claim duratio was due to delays i medical assessmets. Departmetal files do ot explai the causes of these delays. His iitial medical was requested by the claims hadler, IRISC, i March 1999 ad it was ot udertake util Jauary With the help of his solicitor, Mr C completed his claim questioaire i July Receipt of this questioaire at IRISC triggered a request for a full medical assessmet. Agai, a delay meat this was ot completed util May A further delay i locatig the claimat s employmet history at a mie ot operated by the Corporatio meat a iterim paymet was ot made util Jue 2004, over six years after the claim was first submitted. As at 31 March 2007 this claim is ot settled. 16 Coal Health Compesatio Schemes

19 part three 3.7 The Departmet, ad its cotractors, faced a umber of challeges: Key elemets of the processig procedures did ot work as iteded. The mai medical assessmet process for each scheme required the Departmet to develop bespoke processes which required specialist medical staff. Iitially, these staff were ot available i the umbers required. The scale of the COPD scheme, for example, was such that it was difficult to fid the umber of respiratory specialists required i the UK. This shortfall took time to resolve, icludig usig retired doctors ad recruitmet overseas. Medical ad employmet records took loger to obtai, ad were ofte icomplete, did ot exist, or were volumious. Some solicitors ad other claimat represetatives were slow i dealig with their tasks ad returig fully completed claims questioaire forms. The Agreemets placed few deadlies o solicitors. To CASE EXAMPLE 4 The evidetial requiremets took time to fulfil Mr D is a 49 year old who worked as a fitter for the Corporatio for some five years i differet roles. Whe he filed his VWF claim i August 2000 his solicitor provided what it felt was sufficiet evidece of Mr D s work history. The claims hadler, IRISC, eeded additioal evidece of the type of fittig work performed by Mr D to assess whether he used vibratig tools. By April 2001 IRISC had ot bee able to validate Mr D s work history with iformatio from the solicitor or the Departmet s cotractors so it asked the claimat to provide witess statemets; these were ot forthcomig ad were requested agai i September The claimat s solicitor wrote to IRISC to complai about the delay i processig the claim. Evetually, i July 2003, Mr D s claim was passed to the IRISC s dedicated ivestigatio team which cofirmed the employmet group but tured dow the claim due to isufficiet time exposed to vibratig tools. After a appeal ad further ivestigatio i April 2005 the claim (ow hadled by Capita) was reistated ad a medical assessmet requested. A offer was made i December 2005 for geeral damages but was rejected pedig the outcome of a services claim applicats ca make a separate claim i respect of impairmet to their ability to perform everyday tasks, kow as a service claim. Iformatio to support this services claim was provided by the solicitor i December I April 2006 Capita cotacted Mr D s helper to assess his services eeds. The geeral damages ad services claims were settled i July help esure that all those still wishig to register a claim could do so i the ru-up to scheme closure, the Departmet relaxed the iitial claimat iformatio required of solicitors. This caused some later bottleecks whe delays occurred i supplyig the required remaiig iformatio. The processes for capturig the primary data (otably the applicatio forms) were largely paper based, resultig i sigificat amouts of paperwork for trasfer to the computerised database. With the itroductio of the password protected CoalClaims website i 2002, solicitors could submit ew details electroically about their cliets although most preferred ot to at that stage. 16 I additio, some medical reports were submitted electroically by cotractors, icludig 110,000 VWF geeral damages medicals. Certai claims bega to raise issues ot covered i the iitial Agreemets, despite their legth. Referred to as policy issues, these ecessitated further egotiatios with Claimats Solicitors Group so that chages ad additioal elemets could be agreed. Some issues remai to be resolved ad are covered i Part 4. The Departmet s respose to the delays 3.8 By March 2001 there were some 97,000 VWF ad 133,000 COPD claims outstadig, ad these figures were risig. The Moitorig Group i Eglad idetified that a blame culture betwee the cotractors, together with a adversarial relatioship betwee the Departmet ad the Claimats Solicitors Group that could be traced back to the origial litigatio with the Corporatio, was hamperig progress. 3.9 I September 2001 the Departmet brought i a seior secodee from Shell UK Limited with programme maagemet experiece to stregthe its review of iteral procedures to improve performace. His report made a umber of recommedatios, summarised i the box overleaf. As a result of this ad chages already beig itroduced by the Coal Claims Uit team, a ew project board was established for both COPD ad VWF to exert greater project maagemet cotrol. I additio, the umber of Departmetal staff was icreased from some 20 to about 40 ad further secodees 17 with experiece i project maagemet ad the settlemet of isurace claims were egaged to provide professioal iput. 16 Solicitors ca also view the progress of their cliets claims ad 94 per cet of solicitors have used this facility. 17 From PricewaterhouseCoopers ad latterly Deloitte & Touche. Coal Health Compesatio Schemes 17

20 part three 3.10 The Departmet also took steps to improve, over time, the scope ad format of the iformatio it receives from its claims hadlig cotractor to eable it to track progress. Iformatio was eeded to try to meet the eeds of various stakeholders, icludig the Courts, Members of Parliamet, ad claimats The Departmet also oversaw a series of iitiatives aimed at improvig quality ad productivity. Solicitor Liaiso Maagers were appoited at Capita to tackle operatioal difficulties more effectively. I additio to the Coal Claims website ad the submissio of medical records electroically (paragraph 3.7), greater use of computerised procedures icluded the scaig i of employmet records at the various archive facilities ad, at Capita, the scaig of over 30 millio sheets of primary documetatio, leadig to the more efficiet processig of claims. The Departmet reported that the work at Capita had resulted i a savig of 5.2 millio for the taxpayer. Review of COPD ad VWF schemes (Jauary 2002) Summary of recommedatios Strategy Clarify the objectives ad timeframe, stregthe the delivery orgaisatios, revisit the cotract strategy, refocus the workig arragemets betwee the Departmet ad the plaitiffs solicitors, stregthe feedback procedures. Plaig Build a ed-to-ed capacity pla for each scheme for the ext three years. Support this with resource plas for each cotractor, a commuicatios pla, a IT pla, ad small project plas. Put i place a sigle project maagemet methodology. Maage all projects more rigorously. Operatios Stregthe the cotractors capability to maage ad to operate processes ed-to-ed. Defie more clearly the accoutability of each party, stregthe the decisio makig capability. Cotrol Stregthe both operatioal cotrol ad the periodic review processes so that progress agaist pla ad upcomig issues are regularly moitored. Stregthe the feedback to ad from those o the groud. Report by the Secodee from Shell UK Limited 3.12 I 2004, as part of a wider study of risk maagemet i govermet, the Natioal Audit Office used the Coal Liabilities Uit as a case study ad highlighted specific areas of good practice i the use of risk maagemet: to set up ad maage large ad ovel projects with multiple parters by thikig about risk so that it became a itegral part of day-to-day project maagemet ad commuicatio with all parties; to establish positive ad ope relatioships with key stakeholders; to allow time ad sufficiet resources for risk maagemet; ad to be prepared to take calculated risks. Addressig the claims outstadig o the VWF scheme 3.13 To address the claims outstadig o the VWF scheme, the Departmet asked its cotractors to expad the capacity to coduct medicals from 2,300 to 3,600 a moth durig 2000 ad to 4,600 a moth by August IRISC, the Departmet s claims hadler at that time, also improved its capacity by icreasig VWF scheme staff from 271 i December 2001 to 354 i July These efforts bega to icrease the umbers of claims which had received a Geeral Damages offer steadily from 2003 owards (Figure 5). Addressig the claims outstadig o the COPD scheme 3.14 Problems persisted with the COPD scheme. From 2002 to 2004 there was a sigificat uder-utilisatio of the capacity available to complete the mai COPD medical. This was due, iitially, to isufficiet completed applicatios from claimats via their represetatives; without a completed claims questioaire the claim could ot eter the medical assessmet process. Oce these questioaires were logged delays bega to occur i performig the iitial spirometry testig (see Appedix 2) ad i claimats attedig full medical assessmet appoitmets The claims outstadig experieced o the COPD scheme were, however, to be sigificatly exacerbated by the surge of applicatios received by the Departmet followig its aoucemet i March 2003 that the Scheme would close to ew applicatios i March I 12 moths, the claims at the pre-offer stage rose from some 150,000 to over 400,000 (Figure 6). This had bee i cotrast to the Departmet s experiece o VWF where the forewarig of closure for September 2002 had caused a much smaller ad maageable receipt of applicatios ad hece had less impact o the claims outstadig (Figure 5). 18 Coal Health Compesatio Schemes

21 part three 5 Vibratio White Figer claims awaitig a Geeral Damages offer Claims pre-geeral Damages offer (000s) Pre Applicatio ed-date aouced Applicatio ed-date Fiacial year (to 31 March) Source: Natioal Audit Office aalysis of data from Capita Isurace Services NOTES 1 This chart shows by fiacial year the umber of claims received less: the umbers of Geeral Damages offers made; the umber of claims settled by deial; ad the umber of claims withdraw. 2 Claims which have received a offer or have bee deied are ot cosidered settled util either the outcome is formally accepted by the claimat s represetative or the claimat accepts paymet for the claim. 3 This chart does ot iclude data o the umber of claims for Services damages. Oly claimats who have received a Geeral Damages offer are eligible to claim for Services. As at 31 March 2007, there were some 17,000 claims that had received a Geeral Damages offer but were awaitig the outcome of their Services claim. 6 Chroic Obstructive Pulmoary Disease claims awaitig a offer Claims pre-offer (000s) Pre Source: Natioal Audit Office aalysis of data from Capita Isurace Services Applicatio ed-date aouced Fiacial year (to 31 March) Applicatio ed-date LOROS itroduced DOROS itroduced NOTES 1 This chart shows by fiacial year the umber of claims registered less: the umber of offers made after a full-medical; the umber of offers made to miers through the fast-track process; the umber of paymets made to widow ad estate claimats through the fast-track process; the umber of claims settled by deial; ad the umber of claims withdraw. 2 Claims which have received a offer or have bee deied are ot cosidered settled util either the outcome is formally accepted by the claimat s represetative or the claimat accepts paymet for the claim. Coal Health Compesatio Schemes 19

22 part three 3.16 The Departmet did ot seek actuarial advice o the likely umber of outstadig claims whe ed dates were beig cosidered. These dates were agreed with the Claimats Solicitors Group ad ratified by the Courts o coditio that the Departmet coducted a atioal advertisig campaig to make potetial claimats aware of the cut-off. The Departmet expected its advertisig campaig to icrease the rate at which claims were lodged but ot to the extet it experieced. Our aalysis at Figure 7 shows that the icrease ca be ascribed i part to a sigificat rise i the umber of estate claims as potetial applicats bega to realise that claims could be made. This was ecouraged i the advertisig carried out by some solicitors ad other claimats represetatives The Departmet ad the Claimats Solicitors Group, with approval from the Court i 2005, respoded to the rise i claims outstadig o the COPD scheme by proposig a fast-track meas of processig applicatios. Although a expedited claims route formed part of the origial Agreemet it had ot bee extesively used; of the 430,000 claims processed by 31 March 2007, oly 24,000 had bee dealt via this route. The expedited optio was ope to all claimats but was primarily desiged for those with a shorteed life expectacy whose medical evidece idicated that higher tha average amouts of compesatio would be payable. It was a opt-i scheme Itroduced at the ed of February 2005, the later fast-track scheme, kow as the Optioal Risk Offer Scheme (OROS), with separate procedures for live (LOROS) ad estate (DOROS) claims, was aimed at cases likely to attract smaller amouts of compesatio. The eligibility criteria were less striget tha the expedited route ad the compesatio offered reflected the amouts paid to claimats i a similar positio based o experiece, icludig medical evidece, of over 100,000 COPD compesatio paymets. All livig COPD applicats who had ot yet atteded a full medical examiatio were automatically added to the Optioal Risk Offer Scheme, uless they opted-out to joi the full assessmet process usually where the idividual was advised by their legal represetative that they might have a larger claim The fast-track process had a immediate ad sigificat impact o the processig of applicatios ad o reducig the claims outstadig (Figure 6). By 31 March 2007, some 75,000 LOROS offers had bee made, 96 per cet of which were accepted. The DOROS scheme is a opt-i arragemet; some 99,000 of these offers had bee accepted by the same date. 7 The aoucemet of cut-off dates led to a rise i the umber of COPD claims Number of COPD claims received (000s) Pre Claims Hadlig Agreemet siged. September 1999 Applicatio ed-date aouced. March Fiacial year (to 31 March) Applicatio ed-date. March 2004 Estates claims Widows claims Claims by miers Source: Natioal Audit Office aalysis of data from Capita Isurace Services NOTES 1 Litigatio completed Jauary The above chart is based o claim status as at 31 March Coal Health Compesatio Schemes

23 part three The cost of admiisterig the schemes 3.20 At the ed of March 2007, our estimate of the total forecast cost of admiisterig 18 the COPD ad VWF schemes was 2.3 billio. Our aalysis shows that the average cost of processig a claim up to the ed of March 2007 was 3,200 for COPD ad 2,600 for VWF (Figure 8). I compariso to the compesatio paid out, the admiistrative costs are sigificat. Figure 9 overleaf shows the profile of compesatio paymets paid out for COPD ad VWF. For the COPD scheme, at 31 March 2007, aroud 69 per cet of claimats paid compesatio have received less tha the average cost of admiisterig claims. For the VWF scheme, the equivalet figure is aroud seve per cet. 19 Based o the iformatio available it is ot possible to idetify separately the scheme costs associated with each cohort withi each scheme, for example the uit cost of dealig with fast-track claims uder the COPD scheme. 8 Estimates of admiistrative costs per claim Type of expediture COPD VWF Allocated costs up to 31 March 2007 Estimated fial outtur Up to 31 March 2007 Estimated fial outtur m m m m Solicitors costs , Medical costs Other allocated Sub-total 1,283 1, Apportioed costs 2 Claims hadlig Record extractio Legal services Sub-total Total 1,540 1, Claims completed 431, , , ,617 Average cost per claim 3, ,100 2,600 2,600 Source: Natioal Audit Office aalysis of Departmetal data NOTES 1 Icludes fees paid to the Claimats Solicitors Group ad the Uio of Democratic Mieworkers. 2 The Departmet does ot breakdow by scheme its cotractor costs. Its cotractors receive composite paymets coverig work doe o all types of health claim, icludig COPD, VWF ad other residual claims. I additio, the Departmet has ot separately idetified its i-house costs by scheme. For the purposes of this aalysis we have apportioed costs based o our aalysis of applied resources. See also Appedix 1. 3 Costs allocated to both schemes iclude pre-paymets agaist claims which have yet to be settled; for example the Departmet has icurred expeses for medicals i the period up to 31 March 2007 which have ot yet led to settled claims. Where possible we have removed the pre-paymet to idetify the average cost for each settled claim. 3,200 should be see as the upper boudary. 4 The Departmet does ot capture its ow resource costs applied to the Coal Health Compesatio Schemes. 5 Figures do ot cast due to roudig. 18 Figure 8 outlies the compoets of admiistrative costs ad is based o the assumptios oted i the figure ad the limitatios outlied i Appedix This icludes geeral damages ad services compesatio paymets but excludes wage loss settlemets; see Appedix 2 for defiitios. Coal Health Compesatio Schemes 21

24 part three 9 Spread of compesatio paymets to 31 March 2007 Chroic Obstructio Pulmoary Disease (000s) N = 375,362 1 Compesatio Data Maximum 374,361 Miimum Average admiistratio cost per claim, 3,200 Medias All Settlemets 1,500 Followig Full Medical 2,000 LOROS 1,500 DOROS 1,100 Expedited 3,800 0 Up to to to ,000 to 1, ,000 to 2, ,000 to 3, ,000 to 4, ,000 to 7, ,500 to 9, ,000 to 14, ,000 to 19, ,000 to 29, ,000 to 49, More tha 50,000 Vibratio White Figer (000s) Average admiistratio cost per claim, 2,600 N = 107,935 2 Compesatio Data Maximum 120,432 Miimum Media 8, Up to to to ,000 to 1, ,000 to 2, ,000 to 3, ,000 to 4, ,000 to 7, ,500 to 9, ,000 to 14, ,000 to 19, ,000 to 29, ,000 to 49, More tha 50,000 Source: Natioal Audit Office aalysis of the database of Capita Isurace Services NOTES 1 This is the umber of settled COPD claims which received a paymet uder ay head of damages, excludig those which were litigated outside of the scheme. 2 This is the umber of settled VWF claims which received a paymet of either Geeral Damages oly or Geeral Damages ad Services, excludig those which were litigated outside of the scheme. 3 The high umber of COPD settlemets i the rage 1,000 1,999 is sigificatly iflueced by the take up of Optioal Risk Offers. 4 Sice November 2006 a Miimum Paymet Scheme is i operatio. Claimat s offers of 500 or less are icreased to 500 by their solicitors from its ow fuds. The solicitor cotiues to receive paymet from the Departmet as defied by the Agreemets. 22 Coal Health Compesatio Schemes

25 part three Solicitors costs 3.21 The cost of meetig claimats solicitors, ad other represetatives, fees is expected to accout for aroud 61 per cet of the expected admiistrative costs for COPD ad 39 per cet for VWF. This expediture has fuded some importat services, particularly cosiderig the age ad ifirmity of some of the cliets. The legal represetatives were expected to provide: iformatio about the schemes, for example details of the process ivolved ad the criteria goverig etitlemet; advice, for example, i the case of COPD claims of whether to pursue a fast-track settlemet or opt for the full medical assessmet; assist with the completio of various forms; advise the cliet o ay offers made ad, i some cases, pursue issues ot evisaged i the origial claims hadlig agreemet (covered i Part 4 of this report) The cost of legal represetatio has bee reimbursed accordig to the fees tariff structure agreed, i egotiatios, betwee the Departmet ad the Claimats Solicitors Group at the start of the COPD ad VWF schemes, ad icluded i the Agreemets. 20 Broadly, there is a basic fee that depeds o the mai characteristics of the claim (for example a claimat udergoig a full COPD medical assessmet) ad additioal sums to cover specified situatios that give rise to extra work (for example mediatio). Claimats, or their solicitors, bear their ow costs of represetatio if their claim is deied or withdraw, which mirrors what would happe i a private legal actio. 21 Claimats are ot, however, at risk of payig ay costs to the Departmet, which would be the ormal practice uder commo law. At 31 March 2007 claimats represetatives, maily solicitors, had received 1,045 millio i fees, 61 per cet of which was paid to 10 orgaisatios (Appedix 7) The mai egotiatios over the tariff for solicitors fees took place i 1998 ad 1999, as part of the egotiatios over the Agreemets. The egotiatios for each scheme were hadled separately. VWF scheme (geeral damages): The iitial egotiatios with the Claimats Solicitors Group were hadled o the Departmet s behalf by its claim hadlig cotractors, at that time, IRISC, with assistace from the Departmet s legal adviser, Nabarro. IRISC based its opeig positio o its experiece of costs i other compesatio schemes ad Nabarro s uderstadig of labour rates i the legal market: estimates were draw up o how much parter ad other staff would be eeded based o a assumptio of 50,000 cases. It was ot util September 1998 that the Departmet, via its legal team, took a active ivolvemet i egotiatios ad drew upo assistace from the Treasury Solicitor s Departmet. Serious cosideratio was give to the costs provisios oly i November By this poit, however, the Departmet was uder pressure to complete the egotiatios over the Agreemet ad the tariff. Without a Agreemet, icludig settlemet of the fees issue, large scale processig of claims could ot commece. Agreemet was reached i Jauary COPD scheme: Drawig upo its experiece of VWF, the Departmet was ivolved from the start of egotiatios i March The Claimats Solicitors Group developed a cost model i March 1999 to estimate the fees it would eed to process each idividual case. Based o a estimated workload of 70,000 COPD claims ad followig advice from IRISC ad the Treasury Solicitor s Departmet, the Departmet made attempts to egotiate dow the level of fees sought by solicitors. These egotiatios ofte proceeded lie by lie ad took some moths to fialise. The Departmet, however, did ot develop its ow cost model ad foud itself arbitratig betwee advice from the Treasury Solicitor s Departmet ad the sums sought by the Claimats Solicitors Group. Agai, the Departmet was uder pressure from solicitors to reach agreemet There were weakesses i the Departmet s approach to egotiatig the origial tariffs. Give the amouts likely to be at stake, the Departmet s preparatio lacked the depth of aalysis that might ordiarily have bee expected to support its egotiatios i such cases. The estimates prepared for the Departmet o both VWF ad COPD, for example, had cosidered the processig of each claim as a discrete piece of work ad had take o accout of the potetial ecoomies of scale to be gaied from processig large umbers of claims withi the firms The commercial egotiatios over the tariff structure also took place i the midst of great ucertaity over the likely umber of claimats ad, despite the Agreemets, ucertaity over how the practicalities of operatig the processes would work out. Oce egotiated, the tariffs were expected to operate for the lifetime of the schemes with fees icreased i lie with iflatio each year. The Departmet had egotiated o provisio to allow the tariff to be reviewed i the light of experiece. At the time, the Departmet believed the closure date for receivig ew claims uder both schemes would happe 20 Due to policy issues the Agreemets are ot exhaustive, where claims arise which are ot covered by the Agreemet fees are cosidered separately ad may lead to Court ivolvemet. 21 Usuccessful claimats may still claim their travel costs to medical cetres; ad the Departmet also bears all its ow admiistratio costs, otably the medical processes. I private litigatio these costs would be claimable by the defedat. Coal Health Compesatio Schemes 23

26 part three i aroud two years which iflueced its approach. It was therefore effectively tied to the iitial agreemet, although chages or additios to the schemes would be subject to separate egotiatios as ad whe they arose, ad was cosequetly i a weak positio oce the assumptios uderpiig its iitial aalysis proved to be erroeous The amouts paid uder the COPD tariff egotiated by the Departmet are likely to have bee sigificatly i excess of the actual costs. A report by a Seior Costs Judge i early 2007 prepared i coectio with a recet challege by the Departmet of costs payable uder the fast-track COPD scheme suggested that the fees payable uder the COPD Claims Hadlig Agreemet were i excess of the levels of costs that would be awarded followig a covetioal detailed assessmet (Figure 10). The assessmet was based o a i-depth scrutiy of 57 cases. A separate aalysis prepared for the Departmet prior to the court hearig ivolvig 500 cases, but ot at the same level of detail, also suggested that the fees payable were likely to be i excess of actual costs Based o the umber of COPD claims settled to date, we have calculated that, had costs payable to solicitors bee i lie with the fidigs of the Cost Judge, the total amout payable by the Departmet to solicitors would have bee 295 millio less. I practice the Departmet had limited iformatio at the time of the egotiatio ad it would probably have take time for solicitors to achieve the ecoomies of scale that were subsequetly to arise. Figures were therefore ot available at the time of the egotiatios. This reiforces the desirability of itroducig a review clause i such istaces, although such a clause ca work to the advatage of either party. There are o equivalet figures for VWF costs As the fees i the origial Agreemets were derived from a commercial egotiatio, i the absece of ay review clause, all parties were tied to them. The Departmet has made streuous efforts to egotiate dow the costs associated with subsequet chages to the schemes. Itroductio of the fast-track procedure for COPD claims. The Claimats Solicitors Group argued that the origial solicitors fees tariff should apply to the fast-track scheme, but the Departmet cosidered the level of work ivolved to be lower, due to, ecoomies of scale, ad the grade of staff used, ad that the fees should reflect this. The Departmet referred the matter to the Scheme Judge who iitially ruled i favour of the Claimats Solicitors Group i The Departmet cotested this judgemet o appeal ad wo a review of the iitial judicial decisio. Further legal process esued. The Court s fial review, completed i April 2007, ruled that the fees for the fast-track schemes should be set at levels lower tha those i the origial Agreemets, although ot as much as the Departmet wished. The Court took the origial agreed expedited tariff as its startig poit, i effect the origial cotract, rather tha the more recet estimates of actual costs oted at Figure 10. Nevertheless, the reductio i fees arisig from this rulig is likely to reduce the cost to the taxpayer by up to 100 millio, as at April 2007, compared to the cost bore had it ot cotested the issue, supportig the Departmet s decisio to pursue this matter. VWF Services Claim. The Departmet has also ot bee able to reach agreemet with the Claimats Solicitors Group o the fees payable i respect of the services head of damages of the VWF scheme, which was implemeted i The offer made by the Departmet, which was based o its aalysis of work schedules provided by solicitors for the purposes of calculatig a iterim fee, was rejected. The matter was referred to the Scheme Judge i September 2006, who ordered a sample of 49 ew cases to be assessed. A rulig is expected from the Court i Summer Estimates of COPD legal costs prepared by Seior Cost Judge (February 2007) Category of case Assessmet by Seior Cost Judge Cost payable uder the Claims Hadlig Agreemet Claim followig full medical ,023 Widow ad estate claims followig full medical ,023 Expedited settlemet ,061 Source: Court Judgemet (3 April 2007): High Court of Justice, Quee s Bech Divisio 2 NoteS 1 All figures are give at fiacial year prices. 2 Neutral Citatio Number: [2007] EWHC 672 (QB), Case No: This judgemet ca be foud at QB/2007/672.html 24 Coal Health Compesatio Schemes

27 part three Other charges made to claimats by solicitors 3.29 Whe egotiatig the origial VWF tariff structure the Departmet assumed that the amouts paid to solicitors would meet all their costs i successful cases ad that claimats would ot face additioal charges. Subsequet wider developmets alerted the Departmet to the risk that it might have to meet the cost of additioal charges should they be levied. To address this risk the Departmet esured that the COPD Agreemet limited its liability to sums payable uder the tariff of fees i the Agreemet, while makig it clear its aticipatio that these fees would represet the total sum charged by solicitors I 2000, the Departmet became aware that some solicitors firms were ideed deductig fees from the compesatio paid uder the schemes i additio to the fees beig paid by the Departmet. The Departmet has o figures available o the extet of this practice ad how much has bee deducted. These arragemets remai a private matter betwee idividual solicitors ad their cliets ad the Departmet has o legal resposibility for them. I 2001, the Law Society, the regulatory body for solicitors, took the lie that additioal charges were ot improper provided the amouts cocered were ot ureasoable ad the cliet had bee properly iformed as to the chargig arragemets. The supportig argumet was that such charges were fair as the Departmet paid o fees for usuccessful claims Where additioal fees were charged to claimats the Departmet was ot i a positio to prevet solicitors followig this practice or compel them to repay the additioal fees. I December 2003, the Departmet did, however, write to all solicitors hadlig COPD ad VWF claims requestig a assurace that they would ot impose additioal fees. Those solicitors who did ot were removed from the list of solicitors provided to all potetial claimats, although this did ot preclude claimats usig these solicitors should they wish to I Jauary 2004 the Law Society s Compliace Board issued a statemet 22 that, i makig a additioal charge to the cliet, there was likely to be a fidig of iadequate professioal services uless full iformatio was give to the cliet at the start of the matter, ad the additioal charge ivolved was itself reasoable; it also cosidered that sufficiet iformatio (for cases started after April 2000) icluded the solicitor advisig the cliet that may other solicitors did ot make ay additioal charge. The Law Society subsequetly wrote to all solicitors hadlig COPD ad VWF claims remidig them to review all cases hadled A special report by the Legal Services Ombudsma i April 2006 criticised the Law Society for its failure to ivestigate miers complaits properly. The Ombudsma cocluded that the Law Society had let complaiats dow. The Law Society rejected the Ombudsma s fidigs o the basis that the umber of cases referred to the Ombudsma was extremely low; solicitors had bee told to make repaymets; ad the Society had advertised i miig areas to iform idividuals where to seek help I Jauary 2006 the Law Society established a idepedet claimat hadlig arm 23, the Legal Complaits Service (LCS). The LCS has received 1,671 service complaits related to the Coal Health Compesatio Schemes to 31 March , 183 were lodged sice Jauary It has recovered some 570,000 i deductios from 15 law firms ad has referred three firms, represetig aroud 130 claims, to the Solicitor s Regulatory Authority for refusig to make redress I Jue 2007, Miisters from the Departmet ad the Miistry of Justice wrote to all participatig solicitors urgig them to retur, without further delay, deducted moies where the claimat had ot bee provided with full iformatio at the outset I some istaces additioal fees, or volutary cotributios, were also deducted by solicitors o behalf of the Natioal Associatio of Colliery Overme, Deputies ad Shotfirers (NACODS) ad the Natioal Uio of Mieworkers. Such deductios have also bee made by the Uio of Democratic Mieworkers (UDM), but this uio registered claims through its i-house claims hadlig compay, Vedside, istead of usig solicitors. The UDM hadled directly about 17,000 COPD ad 12,000 VWF cases Two matters ivolvig the UDM are curretly uder ivestigatio: The UDM has passed some of its casework to solicitors, some of whom have subsequetly submitted bills at the rates i the mai Agreemets rather tha at the lower rates i the UDM s Agreemet. The Serious Fraud Office is coductig a joit ivestigatio with South Yorkshire Police ito a suspected serious fraud i relatio to the hadlig of health claims. The matter was referred to the Office i July 2005 by South Yorkshire Police. 22 Mier s Compesatio Claims, Law Society Compliace Board Policy Statemet, 15 Jauary Prior to this the complaits fuctio was part of the Law Society, but decisio makig o idividual cases was wholly idepedet of the Law Society Coucil. 24 This icludes complaits made to the Law Society from Jauary Coal Health Compesatio Schemes 25

28 Part four Completio 4.1 This Part examies the Departmet s exit strategy for completig the Coal Health Compesatio Schemes: its objectives; the arragemets for achievig the objectives; ad the maagemet of outstadig issues. Targets for completio 4.2 The Departmet has set aspiratioal dates for completig each scheme: 31 October 2007 for Vibratio White Figer (VWF) ad 16 February 2009 for Chroic Obstructive Pulmoary Disease (COPD). The Departmet has set a series of milestoe dates, alog with expected actios, leadig up to the achievemet of these dates. The Court is aware of these dates. 4.3 Operatioally, uder the terms of the cotract with Capita ad subject to ay agreed cotract variatios, substatial completio occurs whe there are fewer tha 500 claims remaiig to be settled i the COPD scheme ad 300 claims i the VWF scheme. 25 At March 2007, there were still some 27,000 VWF claims ad some 168,000 COPD claims to be processed; some of these require resolutio of policy issues before they are settled. Arragemets for achievig the Aspiratioal Scheme Ed Dates 4.4 The Departmet has arragemets i place to idetify the key risks to achievig the ed dates. The risk register maitaied by the Coal Liabilities Uit records the key risks uder five broad headigs: exteral, goverace, reputatioal, operatioal ad cotractual risks. This approach cotiues the good practice i risk maagemet previously idetified i the Coal Liabilities Uit by the Natioal Audit Office i Our aalysis of the Departmet s risk register at December 2006, coducted with support from our cosultats KMPG, suggested that the Departmet had idetified the mai risks to delivery ad the actios it would take to mitigate these risks. 4.5 The Departmet also took steps to improve, over time, the scope ad format of the iformatio it receives from its claims hadlig cotractor to eable it to track progress. Iformatio is eeded to meet the eeds of various stakeholders, icludig the Courts, Members of Parliamet, ad claimats. Potetial barriers to completio 4.6 The Departmet faces a umber of challeges to achievig effective closure icludig: maitaiig cosesus with all parties o the achievemet of the ed dates; havig appropriate cotractual arragemets to esure cotractors work towards the ed dates; moitorig performace to esure issues arisig are resolved quickly; ad resolvig ay outstadig issues affectig groups of claims. It will be crucial for the Departmet to maitai sufficiet staff withi the Coal Liabilities Uit to maage these risks ad the complex issues oted below, ad ot reduce its capacity too quickly. 4.7 The Departmet s latest cotract with Capita Isurace Services, agreed i 2006, cotais icetives ad pealties to ecourage the cotractor to discharge its tasks accurately, effectively ad efficietly i lie with the completio timetable. The icetives iclude a fixed aual fee; icetive paymets coditioal o achievig satisfactory levels of service ad timetables (outlied i Figure 11); ad variable completio bouses. 4.8 The Departmet s cotracts with its medical suppliers Atos Origi ad Capita Health Services, agreed i 2001 ad 2002 respectively do ot cotai specific provisios related to the achievemet of ed dates. Both 25 I legal terms, completio occurs whe the ifrastructure for dischargig liabilities is dismatled. 26 C&AG s report, Maagig Risks to Improve Public Services, HC 1078, Sessio Coal Health Compesatio Schemes

29 part four cotractors are remuerated o a per test basis ad are cotracted to make available a miimum umber of medical assessmet appoitmet slots each moth (3,000 for COPD). Both are key to the timely completio of the schemes. The Departmet coducts mothly operatioal meetigs with both cotractors to moitor progress; it will eed to achieve a fairly eve delivery of cases through medical assessmet process if it is to meet the desired ed dates. This objective could be complicated by the issues outlied below. 4.9 A sigificat proportio of the remaiig claims may raise more complex issues. Durig the lifetime of the schemes, the Departmet has sought to prioritise claims where the claimat has had a life-threateig illess, either as a result of age or disease. Cases raisig difficult issues or policy questios were deferred util the issues were settled. This meas that some of the more complex ad time cosumig cases will have to be dealt with i the remaiig cohort. Challeges o the VWF scheme 4.10 Two issues could complicate completio of the VWF schemes: Services claims. A idividual who is preveted from performig certai tasks, such as gardeig, due to ijury resultig i VWF ca lodge a services damages claim uder the scheme. Whe this cohort of claims was icluded i the Agreemet i 2002, the Departmet ad its advisors evisaged a relatively small umber of claimats who could be dealt with o a case by case basis. There have bee, however, some 40,000 of these claims, of which 17,000 remai to be settled; these claims are the most complex to process ad the most at risk of fraudulet submissios. Co-defeded geeral damage claims. I some cases as well as workig i mies operated by the Corporatio, applicats have worked i privately owed mies or for private cotractors i ad aroud Corporatio mies for which the Corporatio is ot liable (see Case Example 5 overleaf). Uder the court judgemets the Departmet is oly liable for the compesatio due to the mier durig his employmet by the Corporatio (subject to the start dates set out i the judgemet), but has a obligatio to co-ordiate the ivolvemet of the co-defedats. I these cases, the third party operator, or co-defedat, is resposible for the balace of the compesatio; there ca be multiple co-defedats. The Departmet estimates that some 1,700 further co-defeded claims for VWF will eed to be processed by scheme completio. The co-defedats, however, do ot have to commit to the closure dates. At a hearig i September 2006 the Court sactioed the paymet of proportioal offers where the Departmet has demostrated best edeavours to achieve resolutio of the claim; this aims to accelerate paymets to claimats by the private cotractor, which i cojuctio with the Departmet s settlemet will discharge the VWF liability to the claimat. 11 The cotract with Capita Isurace Services offers fiacial icetives for completio of the VWF ad COPD schemes subject to the achievemet of certai performace stadards Vibratio White Figer Compliace with audit requiremets (for example accuracy rate i processig claims) Volume of claims hadled Speed with which Services claims are challeged ad processed Speed with which Services claims offers are settled Chroic Obstructive Pulmoary Disorder Compliace with audit requiremets (for example accuracy rate i processig claims) Processig speeds for claims questioaires ad Deceased Risk Offers Capacity plaig advice No scheme specific service levels Data accuracy data i the maagemet systems must be accurate Correspodece to be correctly archived ad a appropriate ad accurate respose set withi 20 workig days Maagemet iformatio reports to be produced to a agreed timetable Volume of claims hadled Source: The Departmet s cotract with Capita Isurace Services Coal Health Compesatio Schemes 27

30 part four Challeges o the COPD scheme 4.11 Two issues could threate the COPD closure dates: Case example 5 The effect of the co-defedat issue Mr E is a 50 year old mier who lodged a claim for VWF ijury i He spet 15 years as a coal face worker, with the majority of this employmet beig at Corporatio mies. I the mid 1990s his pit was privatised ad he moved to aother privately operated mie soo after. His origial medical assessmet i 2002 resulted i a offer of 300. He appealed this decisio ad a level of damages has bee agreed. By the ed of March 2007 Mr E has yet to receive his settlemet as the isurace compay for the privately operated mies are disputig their liability. Surface workers. COPD is caused by the igestio of guilty dust which the court has deemed, i the case of successful claims, is the result of workig udergroud for the Corporatio. There are curretly about 10,000 COPD claims that the Departmet deem ivalid because employmet with the Corporatio was o the surface. The Claimats Solicitors Group argue that some of these surface workers were ofte exposed to dusty coditios, particularly those workig i coal preparatio plats, ad sometimes spet time udergroud. Oce a claim has bee registered i the COPD scheme it ca oly be formally closed i four ways: acceptace of the Departmet s offer of compesatio; deial of the claim by the Departmet; withdrawal of the claim by the claimat; ad through a process kow as Strike Out whereby the Court rules that a case is closed. A Court hearig for a directio o the claims from surface workers is scheduled for July Co-defeded claims. By March 2007, it is estimated that some 16,000 co-defeded COPD claims had bee received. Ulike VWF claims, the Departmet does ot co-ordiate the ivolvemet of codefedats ad is therefore makig proportioal offers i respect of employmet with the Corporatio. We uderstad the Claimats Solicitor s Group has advised solicitors to reject these offers as acceptace is ot i the best iterests of the claimats. For co-defeded claims i respect of the idividuals who worked for the Corporatio s cotractors, the Departmet has paid the full compesatio award ad has reached a agreemet with the cotractors for a cotributio to the amout paid out. The Departmet s outstadig liability 4.12 Closure of the schemes will ot, by itself, fially discharge the liability. This will occur oly if all future potetial claimats have become ieligible, for example due to the Limitatio Act The Departmet has sought to close claims where there is o etitlemet, together with those where there has bee o respose to its offer or where the offer has bee rejected ad ot resolved by mediatio, by adoptig the process kow as Strike Out (paragraph 4.11 refers). I exceptioal circumstaces, however, a claim that has bee struck out ca still be pursued through the courts. 27 It is possible, therefore, that there will additioal claims for damages after a scheme is closed I additio to further VWF ad COPD claims, it is possible that legal actio may be take i pursuace of other claims. The South Wales brach of the Natioal Associatio of Colliery Overme, Deputies ad Shotfirers, supported by some areas of the Natioal Uio of Mieworkers 28, is curretly fudig legal actio regardig the alleged acceleratio of osteoarthritis ad meiscal damage of the kee caused by workig coditios i mies. The litigatio is still i the early stages of a Court process ad, to protect the taxpayer s iterest, the Departmet s positio is that liability must be demostrated To iform decisios o the staffig levels of the Coal Liabilities Uit beyod , cotractor resources ad budget implicatios, the Departmet commissioed idepedet actuarial advice i March 2007 o the outstadig liabilities of miscellaeous coal health related claims. This aalysis will iclude those litigated VWF ad COPD claims that fall outside the curret schemes as well as emergig types of claim. 27 As a geeral rule a claimat whose case has bee Struck Out loses the right to make a further claim. But there are exceptios, for example if there has bee procedural impropriety or ew evidece comes to light. 28 Durham Mechaics (Derbyshire), Scotlad ad South Wales. 28 Coal Health Compesatio Schemes

31 Appedix XXX ONE Study methods 1 This Appedix summarises the methods employed by the Natioal Audit Office i producig this report. Use of exteral expertise 2 The Natioal Audit Office employed KPMG LLP to provide expert advice o good practice i the public ad private sectors (with particular referece to the isurace idustry) i cotrollig admiistratio costs ad risks for major projects, programmes of work ad compesatio schemes. It reviewed the factors likely to be relevat to: a b c The set-up of ay large compesatio scheme, for example: scopig ad plaig; ad establishig structures ad resources; The admiistratio of ay large compesatio scheme, for example: commuicatio; claims hadlig; settlemet paymets; ad maagemet cotrols The closure of ay large compesatio scheme, for example: optios to termiate; closure timigs ad processes; icetive structures; resource maagemet; ad procedures for hadlig outstadig liability. 3 It assessed the Departmet s exit strategy agaist this good practice iformatio. Appedix 5 offers a summary of the good practice paper. Qualitative case aalysis 4 The Natioal Audit Office coducted qualitative aalysis of a purposive sample of 63 claims. This allowed us to examie i-depth the issues affectig the processig of claims ad cosider how they affected idividual claimats. A purposive sample is ot iteded to be statistically represetative of a populatio; rather it is used to idetify the full rage of likely scearios which occur as a result of a situatio or actio (i this case, a claimat s ivolvemet i the COPD or VWF compesatio schemes). 5 We used iformatio held o Capita Isurace Services database to idetify the rage of possible outcomes of makig a claim ad the divisio of settled cases across each outcome. This formed the basis of a purposive samplig frame, used to idetify a rage of types of cases to examie i depth. Idividual cases were selected at radom withi the parameters of the samplig frame. Iformatio relatig to the processig of each case was captured aoymously usig a template ad crossrefereced, i order to draw out commo themes. Quatitative data aalysis 6 The Natioal Audit Office obtaied aoymised data from both the COPD ad the VWF claims databases, i excess of 100 millio data poits, i order to udertake our ow aalysis. There were 591,706 COPD claims ad 169,617 VWF claims which were progressed through the schemes ad the database captures a sigificat amout of iformatio o each claim from applicatio to settlemet, for example: the origial claim paperwork, work history, medical records, medical assessmet results, ad correspodece. 7 We used this data to assess key metrics for each of the schemes, for example: the throughput of cases; the time take to reach key milestoes; the level of claims outstadig; ad the value of differet types of paymet to claimats ad solicitors. Much of this aalysis had ot bee udertake by the Departmet before. The data geerated has bee used extesively throughout this report. Coal Health Compesatio Schemes 29

32 appedix oe 8 Usig the maagemet iformatio that the Departmet receives from Capita Isurace Services, we calculated the average admiistratio cost for a VWF claim ad for a COPD claim at 31 March 2007, together with the expected outtur costs for each scheme. As highlighted i Figure 8, the Departmet does ot apportio costs icurred by its cotractors across each of the schemes. The Natioal Audit Office, usig data supplied by the Departmet ad Capita Isurace Services, made a series of calculatios based o the applicatio of cotractor resources. These calculatios ad the uderlyig assumptios were discussed ad agreed with the Departmet. The data represeted i Figure 8 is a summary of the costs of each scheme; the resultat sigle average cost per claim figure is for each scheme as a whole ad does ot take ito accout the outcomes for the differet cohorts foud withi each scheme. Data is ot available to perform a aalysis to this level of graularity or to idicate a chage i costs over time. Process mappig 9 A process map is a visual represetatio of a sequece of evets. The Natioal Audit Office used iformatio gathered from court reports ad Capita Isurace Services to develop process maps of the COPD ad VWF compesatio schemes. These were used to demostrate the various ways i which a claim could progress through the schemes; highlight potetial bottleecks i the process; ad idetify Departmetal actio to refie these processes. These process maps are recreated i Appedix 4. Audit iterviews 10 Throughout the study the Natioal Audit Office held semi-structured iterviews with staff at a rage of levels withi the Coal Liabilities Uit of the Departmet. Staff at the Departmet with a previous resposibility for the COPD ad VWF schemes were also iterviewed. I additio to this we coducted semi-structured iterviews to capture a rage of views o the hadlig of the Coal Health liabilities from the early 1990s to date. We iterviewed staff of the followig: i ii iii Nabarro (previously kow as Nabarro Nathaso, solicitor to the Departmet) Capita Isurace Services (claims hadlig cotractor to the Departmet) Atos Origi (medical cotractor for COPD ad VWF geeral damages claims) iv v vi Claimats Solicitors Group The Coal Idustry Social Welfare Orgaisatio The Natioal Uio of Mieworkers KPMG LLP coducted a additioal semi-structured iterview with the represetatives of: Capita Health Solutios (medical cotractor for VWF services claims). Cosultatio with Members of Parliamet 11 May Members of Parliamet have costituets who have made claims through oe, or both, compesatio schemes. I additio, may Members were ivolved i the Coal Health Claims Moitorig Groups. The Natioal Audit Office wrote to a selectio of Members ivitig them to discuss their views o the Departmet s hadlig of the liabilities ad the experieces of their costituets. As a result we held meetigs with seve Members; i oe istace they facilitated meetigs betwee the Natioal Audit Office ad a costituet. Review of policy files, maagemet iformatio ad other key documets 12 The Natioal Audit Office reviewed Departmetal papers of relevace to the Coal Health liabilities, from the early 1990s owards, to make judgemets o a rage of issues, particularly, trasfer of liability, estimates of the scale of liabilities, maagemet oversight of scheme developmet, procedural challeges ad Miisterial commuicatios. The Natioal Audit Office also reviewed court reports arisig from hearigs o the compesatio schemes i order to idetify major evets which occurred withi each scheme. 13 This review icluded the work of PricewaterhouseCoopers LLP (PwC), which is egaged by the Departmet to report o the work of Capita Isurace Services. PwC is charged with esurig, amogst other fuctios, that offers made to claimats comply with certai aspects of the Claims Hadlig Agreemets; it audits a sample of the value of the offers made to claimats ad reports o the techical accuracy of the offer. The Natioal Audit Office reviewed a selectio of PwC s audit reports. 30 Coal Health Compesatio Schemes

33 Appedix XXX TWO The diseases ad related compesatio arragemets Chroic Obstructive Pulmoary Disease The disease 1 Chroic Obstructive Pulmoary Disease (COPD) is a medical coditio that affects the lugs. The mai symptom is breathlessess, which results from the lugs beig uable to get sufficiet oxyge ito the blood, ad hece to the muscles, to allow ormal exertio. Severity depeds o the extet of lug damage. A mild form of COPD is chroic brochitis, which is o-disablig ad reversible. Emphysema is a severe form that is lifeshorteig due to a permaet arrowig of the airways. 2 Smokig is the primary cause of chroic brochitis ad emphysema i the geeral populatio. The death rate for smokers is six times greater tha for o-smokers. 3 The extet of lug damage is assessed by a spirometer. This measures the volume of air expelled i a sigle forced breath followig a deep breath i. A key measure is FEV1 (Forced expiratory volume). This is the maximum expulsio durig the first secod. A ratig of per cet idicates mild COPD, moderate ad less tha 40 per cet is severe. The liability 4 The British Coal Corporatio (the Corporatio) bega receivig claims for COPD i the late 1980s, culmiatig i a group actio i This litigatio led to a High Court judgemet i 1998 that foud the Corporatio liable for COPD caused by workig udergroud (see timelie at Appedix 3). Exposure to dust o the surface was ot covered by the judgemet. 5 The judgemet, which specifically excluded liability for the effects of smokig, icorporated a matrix ad formula developed by the claimats primary medical expert to apportio ijury betwee smokig ad dust (see box aside). The example shows how smokig ca reduce the claimat s etitlemet to damages substatially. 6 The judgemet also excluded liability for the effect caused by ormal levels of dust i the air, for which the Corporatio was ot resposible. The remaiig liability is apportioed to exclude employmet before 1954 (1949 i Scotlad), the date set by the Court as the poit whe the Corporatio became egliget because it should have the kow that coal dust causes COPD ad have take reasoable steps to protect its workforce. Summary of the full Medical Assessmet Process 7 A Medical Assessmet Process (MAP) was specifically desiged to assess COPD claims. It determies the ature ad extet of ijury, whilst takig accout of the judgmet ad mirrorig commo law. For live claimats there are two stages: 1st stage This is a screeig spirometry to test lug fuctio. This idicates the extet of ay lug damage (paragraph 3 above) but ot the cause or level of disability, ad was desiged to prioritise claimats so that the eldest ad most severely ijured could be dealt with first. Smokig matrix High dust exposure Moderate dust Light smokig Average smokig Heavy smokig Apportiomet of causatio Proportio = years of udergroud work due to job years of udergroud work + (ratio x years of smokig) Example: 20 years udergroud, high dust, 40 years of heavy smokig Proportio = 20 = 20 = 0.25 of full damages due to job 20 + (1.5 x 40) 80 Coal Health Compesatio Schemes 31

34 appedix two 2d stage This stage has more complex lug fuctio tests ad, o the same day, a cosultatio with a respiratory cosultat. The doctor, who has the claimat s medical records ad a copy of his claim, produces a detailed medical report (kow as the MAP ) that rates the ijury i graduatios of 10 per cet. The doctor also assesses, by talkig to the ma ad lookig at his records, how his disability developed i the past ad will progress i the future. The difficulty of diagosig COPD ad makig these judgemets of progressio requires specialists of cosultat status. 8 The procedures for deceased me are based o medical records. Types of compesatio 9 There are two types of compesatio for claimats who complete the full medical process: i ii Geeral damages This compesates for pai, sufferig ad loss of ameity; ad Special damages This covers fiacial losses due to the ijury (see box below). 10 About 24,000 claimats selected the optio of a expedited paymet. This optio is based o the spirometry test plus a miimum period of employmet. These are termed risk offers, as they are made without a examiatio of medical records or the ivolvemet of a doctor. Although full ad fial offers, they are pitched sigificatly lower tha had the claim goe through the MAP, but they allow earlier paymet. Examples of heads of special damages Loss of earigs compesatio for a iability to work, or get a job at all, from the time of beig uable to work due to COPD util the poit at which he would have expected to retire. Loss of beefits i kid compesatio for beefits ormally received by those employed i the idustry, such as cocessioary fuel (free coal). Redudacy had the ma ot had to stop work due to COPD he might have received sigificat redudacy paymets whe his pit closed. Pesio ot oly would the ma lose moey due to a reduced umber of years of qualifyig employmet, his survivig wife too would ed up out of pocket had he died prematurely due to COPD. 11 Although still extat, the expedited paymet has bee overtake from 2005 by the Optioal Risk Offer Scheme (OROS) which is split ito LOROS for live claimats ad DOROS for deceased claims (i.e. widows ad estates). The priciple ad process are broadly the same as the expedited paymet except that LOROS is a opt-out arragemet (i.e. claimats automatically receive a offer, which they may reject i favour of the full medical process if they believe they will get higher damages from completig a full medical assessmet). 12 Arragemets have also bee put i place for claimats to receive iterim paymets. Vibratio White Figer The disease 13 Vibratio White Figer (VWF) is a medical coditio affectig the figers. It ivolves damage to erves ad blood vessels, which causes parts of the figers to go white due to the reduced flow of blood; ad damage to erve edigs, which results i umbess ad tiglig. The severity varies. I mild form there is temporary umbess. As the disease becomes more serious there is a progressive loss of dexterity. It ca require amputatio i extreme cases. The disease is irreversible ad utreatable but without further exposure the damage stabilises. Discomfort becomes worse upo exposure to cold. Practical problems iclude difficulty i doig up buttos or holdig small objects. The liability 14 The British Coal Corporatio (the Corporatio) received its first VWF claim i Liability was deied ad o compesatio paid. The Corporatio did ot cosider that there was sufficietly prologed use of vibratig tools i situatios, such as drillig ito very hard rock, that might give rise to a foreseeable risk of vibratio white figer. Further claims were received, culmiatig i a group actio i The High Court judgemet of 1996 foud the Corporatio liable from Jauary The Corporatio appealed agaist this judgmet ad lost. I 1997 there was a further hearig of lead actios, together with a further appeal by the Corporatio to cotest the levels of awards ad to clarify the threshold for egliget exposure to vibratio. The Court of Appeal ruled o these matters i July 1998 (see timelie at Appedix 3). Nursig care at advaced levels of ijury a ma could require ursig assistace well beyod the ability of his family to provide, at a high cost (up to 57,000 per year if bed-boud i the home). 32 Coal Health Compesatio Schemes

35 appedix two Summary of the full medical assessmet process 15 A scale to classify the coditio was established by Dr Pelmear i 1968, a leadig expert, ad Professor Taylor, a idustrial hygieist. Iitially this related oly to vascular damage as demostrated by whiteig of parts of the figers, but was refied i 1986 to cover erve damage (Stockholm scale). Each had ad each of the three parts of each figer is classified separately. 16 The Medical Assessmet Process (MAP) is based o the Stockholm scale. However, applicatio of the scales is ot straightforward. Measuremet is ot oly depedet upo the accurate reportig of the symptoms by the claimat to the doctor, but also the doctor s evaluatio of the claimat s descriptio of his symptoms. 17 The Departmet established the Idepedet Medical Advisory Group to develop a effective MAP that allowed cosistet volume delivery. The outcome was a MAP ivolvig three mai tests by a traied techicia withi a cotrolled eviromet (e.g. ambiet temperatures ad a period of acclimatisatio for the claimat) ad a cosultatio: i ii Cold provocatio test: The claimat places both hads i cool water at 15 degrees C for five miutes before a re-warmig of the figers that is carefully moitored electroically ad measured accordig to a stadard scale. The slower the re-warmig, the greater the ijury. However, it ca provide both false egative results (i.e. fail to idetify the existece of VWF) ad false positives (i.e. suggestig ijury whe there is oe). I 2001 this test was discotiued o the advice of the small team of experts comprisig the Medical Referece Pael. Based o the Medical Advisory Group, the Pael was established to moitor the operatio of the MAP ad to recommed chages as ecessary. Vibrotactile threshold test: Here the forefiger ad little figer of each had are tested for their ability to detect varyig levels of vibratio. This starts from zero, icreases ad the decreases to zero agai, with the claimat havig a series of upredictable cycles. A stadardised scorig scale is used to measure ijury to the erves. iii iv Thermal aesthesiometry test: Agai the forefiger ad little figer are used, this time to determie sesitivity to chages i temperature of a metal plate over a umber of cycles. This too measures eurological damage, which is the scaled. Examiatio: The claimat is the see by a doctor who is specifically traied to iterpret the test results ad make a assessmet of the overall ijury due to VWF, discoutig other coditios which ca produce similar test results or symptoms. The doctor also coducts further specified tests (see box below). Examples of the additioal tests by a doctor a b c A dexterity test, with the claimat beig asked to pick up small objects with each had. Depedet o the co-operatio of the claimat, so this assessmet is iheretly subjective. A Alle test, which assesses vascular ijury, where the doctor squeezes the arteries i the wrist, the ma raises his arm ad the drops it back dow to see how quickly blood flows back ito the had. A Purdue pegboard test that assesses dexterity as the claimat places small cyliders ito a cribbage-like board. It ca be ureliable. Types of compesatio 18 There are three categories of claims (see box below). Categories of VWF claim A B C Claims where Court proceedigs commeced o or before 22 Jauary Claims: i ii Where Court proceedigs commeced after 22 Jauary 1999 ad a medical report was served with those proceedigs Which have ot resulted i the commecemet of Court proceedigs but where a medical report has bee served o the claimat s behalf or had bee commissioed prior to 25 March 1999 ad subsequetly served. Claims which have ot resulted i the commecemet of Court proceedigs ad where a medical report has ot bee served o the claimat s behalf. Coal Health Compesatio Schemes 33

36 appedix two 19 Three mai types of damages may be claimed: a b c Geeral Damages for pai, sufferig ad loss of ameity; Smith ad Machester for hadicap o the labour market; ad Services for assistace with gardeig, widow cleaig, DIY, decoratig, car washig ad car maiteace. 20 For the purposes of makig a claim there are three occupatioal groups (see box below). Occupatioal groups Group 1 Group 2 Group 3 Occupatios where the use of had held vibratory or percussive tools was recogised as a substatial part of the occupatio (Examples from defied list: Face Productio Team, Roof Bolter). Occupatios where the use of vibratory or percussive tools was ot ecessarily a substatial part of the job, but use by idividuals withi this group may well have bee sigificat (Example from defied list: Geeral Udergroud Labourer). Ay occupatios ot show i the defied lists of Group 1 ad Group 2 (e.g. catee staff, crae driver, ad loco driver ad guard (udergroud ad surface)). 21 There is o expedited optio due to the eed to complete a exhaustive medical to esure a fair assessmet (paragraphs 5 ad 6 o page 31), but arragemets have bee put i place for claimats to receive iterim paymets. 34 Coal Health Compesatio Schemes

37 Appedix three Timelies Vibratio White Figer Timelie Ja: Trasfer of the VWF liability from the British Coal Corporatio to the DTI Jul: Fial Court Judgemet o the extet of the British Coal Corporatio s liability, followed by start of egotiatios for the Claims Hadlig Agreemet Dec Ja: Pilot of the Medical Assessmet Process Nov: Services medical pilot begis Ja Apr: DTI advertise the closure date for ew Geeral Damages claims Sep: Scheme closed for ew Geeral Damages claims from live claimats Ja: DTI ad Capita agree Aspiratioal Scheme Ed Dates Mar: Arragemets made to idetify ad maage the risks prevetig achievemet of the ed dates Jul: Court agrees to cut-off dates to support achievemet of the ed dates Ja: Scheme closed to ew Services claims from widows ad estates Aug: Start of ew Capita hadlig cotract Dec: All Services medical assessmets completed Ja: Mai Claims Hadlig Agreemet cocluded Mar: Agreemet reached o the Medical Assessmet Process ad teders ivited Jul: Start of the Medical Assessmet Process for Services Ja: Scheme closed for ew Geeral Damages claims from widows ad estates Ja: Scheme closed to ew Wage Loss claims Mar: Scheme closed to ew Services claims from live claimats Oct: Target date for operatioal scheme completio Aug: Roll-out of the Medical Assessmet Process begis but delays occur i obtaiig records to cofirm employmet histories Ju: Trasfer of Capita staff from Geeral Damages claims to Services claims completed Coal Health Compesatio Schemes 35

38 appedix three Chroic Obstructive Pulmoary Disease Timelie Ja: Trasfer of the COPD liability from the British Coal Corporatio to the DTI Ja: High Court Judgmet that the British Coal Corporatio has bee egliget i respect of COPD Feb: Start of egotiatios for the Claims Hadlig Agreemet (CHA) May: Start of pilot Medical Assessmet Process Ju: Ed of spirometry screeig programme Aug: Start of ew Capita hadlig cotract Dec: Cut off date for claims questioaires from live claimats selectig the ormal Medical Assessmet Process Feb: Uaccepted DOROS offers expire ad are processed uder the ormal Medical Assessmet Process Ju: Cut off date for claims questioaires from deceased claimats selectig the ormal Medical Assessmet Process Oct: Ed of the Medical Assessmet Process for live claimats Feb: Target date for operatioal scheme completio Ju: Start of spirometry screeig programme Aug: Ed of pilot Medical Assessmet Process Sep: Mai Claims Hadlig Agreemet cocluded Nov: First expedited offers made, based o spirometry results Mar: Scheme closed to ew claims Oct Dec: Court hearigs to implemet the fast track Optioal Risk Offer Scheme (OROS) Feb: First Live OROS (LOROS) offers issued Sep: First Deceased OROS (DOROS) offers issued Mar: Ed of the Medical Assessmet Process for deceased claims Mar: Target date for last iitial offer Oct: Target date for last revised offer Dec: Medical Assessmet Process begis 36 Coal Health Compesatio Schemes

39 appedix three Timelie of the Departmet's maagemet structures, 1993 to 2007 May 1991: Privatisatio of the British Coal Corporatio's miig iterests aouced Ju: Chage of policy health liabilities to be retaied i the public sector Jul: Coal Idustry Act Dec: Privatisatio of pits Dec: Coal Idustry Bill Jul: Decisio DTI to assume health liabilities by the ed of 1997 Ja: Trasfer of COPD ad VWF liabilities to DTI Ja: DTI take over cotracts with IRISC, Nabarro Nathaso, McClure Naismith, Hays ad Busiess Healthcare Ja: Decisio to trasfer COPD ad VWF liability to DTI at the ed of 1997 Oct: First meetig of the COPD Moitorig Group Ju: Exteral expert i project maagemet appoited NOTES 1 The Trasfer of Liabilities Workig Group (October 1996 December1997): Proposed by the British Coal Corporatio i September 1996 to hadle the large umber of liabilities to be trasferred to the DTI. 2 Eergy Liabilities Committee (February 1998 Jauary 1999): Set up to supervise DTI s hadlig of the liabilities trasferred from the British Coal Corporatio. The eed for a over-archig steerig group was idetified i December Coal Liabilities Committee: Hived off from the Eergy Liabilities Committee. 4 Predomietly dealt with operatioal issues DTI's Coal Divisio Nov 1998: DTI s Coal Liabilities Uit (ogoig) Eergy Liabilities Committee 2 Trasfer of Liabilities Workig Group 1 Coal Liabilities Committee 3 COPD Policy ad Operatioal Meetigs 4 VWF Policy Meetigs 4 VWF: Project Executive Board VWF Scheme Completio Board (ogoig) COPD Project Executive Board COPD Scheme Completio Board (ogoig) Number of DTI staff o COPD ad VWF work Supportig agecy staff ad cosultats at DTI Coal Health Compesatio Schemes 37

40 Appedix four Process maps Mai Stages of the Chroic Obstructive Pulmoary Disease (COPD) process sice 2005 Claimat/Solicitor Start Here Take claimat's Istructios (Mier/ Widow/Estate) Submit Registratio details Opt i to DOROS? No Yes Receive Offer Yes Capita Isurace Services Process claim Request post mortem records Advise claimat Verify DOROS offer? No Deceased Request employmet records Yes Eligible for DOROS offer? No No Deceased/ Alive? Alive Request spirometry test Eligible for LOROS offer? Yes ATOS Origi Coduct spirometry test Elisio Obtai post mortem records Iro Moutai Deceased Obtai employmet records Deceased/ Alive? Alive 38 Coal Health Compesatio Schemes

41 appedix four NOTES Receive Offer Yes Accept LOROS offer? No Submit claims questioaire Submit further details Accept or reject deial Accept or reject offer 1 All claimats who were eligible for Deceased Optioal Risk Offers (DOROS) were advised, through their solicitors, i September The solicitors were required to idicate before February 2007 whether or ot their claimat accepted the offer. 2 Eligibility for a Live Optioal Risk Offer (LOROS) was determied o the basis of both a claimat s employmet history ad their spirometry test result. Yes Validate claims questioaire Missig iformatio? No No Make Offer Request claims questioaire Request medical assessmet Eligible for a postmedical offer? Yes Make a LOROS offer Request medical records Perform medical assessmet Obtai medical records Coal Health Compesatio Schemes 39

42 appedix four Mai Stages of the Vibratio White Figer (VWF) process Claimat/Solicitor Start Here Take claimat's Istructios (Mier/ Widow/Estate) Complete claim questioaire Supply further iformatio Accept or reject geeral damages deial No Capita Isurace Services Yes Process geeral damages claim Missig Iformatio? Eligible for geeral damages? Yes No No Request employmet records Eligible for geeral damages? Yes Request geeral damages medical assessmet Cofirm employmet group ATOS Origi Coduct geeral damages medical assessmet Iro Moutai Obtai employmet records Capita Health Solutios Claimat's Helpers 40 Coal Health Compesatio Schemes

43 appedix four Accept or reject geeral damages offer Eligible for services damages? No No further claim Yes Submit claimat ad helper questioaires Supply further iformatio Accept or reject services deial Accept or reject services offer Yes Make geeral damages offer Process services claim Missig iformatio? No No Perform helper verificatio No Request services medical assessmet Eligible for services damages? Eligible for services damages? Yes Yes Make services offer Perform services medical assessmet Complete helper questioaires Verify iformatio Coal Health Compesatio Schemes 41

44 Appedix XXX five Best practice 1 As outlied i Appedix 1, the Natioal Audit Office employed KPMG LLP to provide expert advice o curret good practice i the public ad private sectors (with particular referece to the isurace idustry) i cotrollig admiistratio costs ad risks for major projects, programmes of work ad compesatio schemes. It provided a best practice guide o the start-up, admiistratio, ad completio of compesatio schemes. The followig are extracts from its report draw upo i the mai body of this report. Scheme start-up 2 KPMG set out the matters which a operator followig good practice should curretly cosider durig the scopig ad plaig phase if faced with a major compesatio scheme based o disease associated with particular employmet. These are icluded below, with a appraisal, by the Natioal Audit Office, of the Departmet s performace ext to each. Scheme admiistratio 3 KPMG highlighted the geeric topics likely to be relevat to the admiistratio of ay large compesatio scheme, icludig: a b c d effective commuicatios with all stakeholders; the settig of claims hadlig specificatios, processig rules, ad agreemet for a tariff of plaitiff s costs; paymets maagemet, icludig fraud prevetio; ad maagemet cotrol, icludig the settig of performace idicators ad icetives. Steps take by isurace compaies to maage ucertai liabilities Coducted by the Departmet pre-start/start-up Obtai a actuarial estimatio of populatio ad costs, ad a appraisal of the level of ucertaity 8 Obtai a actuarial assessmet o the expected phasig of claims 8 Review the alteratives to meetig the liabilities, icludig their practicality ad cost Determie the qualifyig criteria required for a claimat to be eligible for compesatio Assess the quatum of the compesatio payable to claimats Idetify available defeces to claims ad cotributory factors that reduce liability Pla for the level of expertise ecessary to determie a claimat s eligibility to claim Idetify ad pla for opportuities for recovery or cotributio from third parties Idetify alterative optios for processig claims ad complete a cost-beefit aalysis Partial Stress test the impact of the chose scheme o the iitial plaig assumptios 8 42 Coal Health Compesatio Schemes

45 appedix five Scheme completio 4 KPMG reviewed the factors likely to be relevat to the completio of a large compesatio scheme. It highlighted the type of issues which must be resolved i decidig to termiate a scheme; these could iclude whether the majority of the eligible populatio had claimed, the costs of maitaiig sufficiet ifrastructure, ad ay factors limitig liability. It recommeds actuarial advice be used to determie the volume, value ad phasig of claims that might be expected i the future. I makig the decisio for scheme completio the Departmet s performace lacked the quality of aalysis KPMG would expect. 5 Other importat activities listed by KPMG are show below, with a appraisal by the Natioal Audit Office of the Departmet s performace alogside: Best practice activities i scheme completio Departmet's performace The determiatio of appropriate completio timig ad process = Icetives to claims processig cotractors to achieve the completio targets 4 Compromise offers to settle the most difficult claims = Maitaiig sufficiet resource durig the wid-dow phase 4 Settig procedures for hadlig further liabilities after scheme closure 4 Asset recovery from, for example, co-defedats = Maitaiig records to deal with residual equiries 4 Producig fial reports for key stakeholders Too early to commet Key = sigals work i progress Coal Health Compesatio Schemes 43

46 Appedix XXX SIX Cotractors 1 The followig chart is a list of cotractors egaged by the Departmet to admiister ad advise o the COPD ad VWF schemes. COPD ad VWF schemes: Cotractors ivolved i the processig of claims ad providig advice Curret (previous) cotractor COPD activity VWF activity Capita Isurace Services, sice 2004 (Ao, tradig as IRISC, from 1998 ad before that, IRISC) Cetral processig of casework Nabarro 1 Legal services: Eglad ad Wales McClure Naismith Legal services: Scotlad Iro Moutai (Hays Commercial Services) Collectio/Storage of employmet records Busiess Healthcare Collectio/Storage of former British Coal Corporatio medical records Capita Health Solutios medical assessmets: Services Atos Origi (Healthcall provided the Medical assessmets/spirometry 2 Medical assessmets: Geeral damages COPD service to November 2002) screeig from November 2002 Elisio 3 Collectio of medical records from GPs ad hospitals Source: Natioal Audit Office aalysis of the Departmet s cotracts NOTES 1 Nabarro was kow as Nabarro Nathaso prior to March See Appedix 2 for a descriptio of medical tests. 3 Elisio is cotracted to Atos Origi. All other cotracts are with the Departmet. 4 A further compay, Hyperlik, is resposible for the website 44 Coal Health Compesatio Schemes

47 Appedix seve Fees paid to claimats represetatives Total paymets to the top 10 claimats represetatives by coal health fee icome as at 31 March 2007 Solicitor Total Rakig m Thompso s Beresfords Hugh James Raleys Browell Smith & Co Mark Gilbert Morse Avalo Uio of Democratic Mieworkers Watso Burto LLP Graysos Solicitors Total Source: Capita Isurace Services NOTES 1 This figure represets 61 per cet of the total fees paid to claimats represetatives ( 1,045m) at 31 March The figures exclude paymets made to solicitors as a result of the origial litigatio. 3 Figures do ot cast correctly due to roudig. Coal Health Compesatio Schemes 45

48 Appedix eight The Boys Smith report 1 The Departmet commissioed a review of the coal health compesatio schemes i July It was udertake by Stephe Boys Smith, a former seior civil servat. The followig is a syopsis of the report s coclusios ad recommedatios published i November Geeral coclusios o the schemes 2 The schemes have resulted i the expediture of very cosiderable amouts of public moey i former miig areas ad i the associated tows ad cities. 3 The review cocluded that the ature of these highly complex schemes, which had resulted directly from litigatio ad were supervised by the Courts, meat that: a b c Parliamet scrutiises the maagemet of the schemes by the Departmet but, because of the role of the Courts, is uable formally to hold it to accout i the ormal way; tesio is iheretly likely to arise betwee the parties. This is ot coducive to the straightforward despatch of busiess; ad this is ot the best way to admiister compesatio for so may people ad which icurs high costs. Coclusios o the admiistratio of the schemes 4 The risk maagemet systems of the Departmet ad its cotractors had developed sice the schemes bega. The curret systems reflected best practice, ad are believed to be well operated ad effectively itegrated ito the Departmet s maagemet of the schemes. There are effective auditig arragemets for the medical assessmet processes. Coclusios o fraud 5 Measures to address iaccurate or improper claims are built ito the schemes ad are cetral to maitaiig their itegrity. Although o other specific procedures to couter fraud were i place at the start of the schemes, it is believed that those ow i place to prevet, detect ad pursue fraud are a sesible ad proportioate respose to the issue. 6 The couter-fraud arragemets show valuable savigs i relatio to their costs ad details of these arragemets should remai cofidetial. Coclusios o competece 7 Although it is ufortuate that there were ot origially more accurate estimates of the umber of claimats ad of the costs, it is ot believed that better estimates could have bee made at the time, give the paucity of data ad the lack of precedet for compesatio schemes of this kid ad complexity. Better estimates would ot have materially altered the ature of the schemes. 8 Solicitor s tariffs appeared reasoable at that time but do ot adequately reflect the more routie ature of the work ow beig udertake. 9 Not all solicitors have charged fees of successful claimats ad some solicitors who did this i the past have sice discotiued the practice. The positio the Law Society ow takes o this amely that solicitors should first tell claimats that they are able to receive a similar service elsewhere at o extra cost should apply retrospectively. This would mea that claimats should ow be able to seek the reimbursemet of ay fees they may have paid i the past if, whe they made their claims, they had ot bee told that they could receive a similar service elsewhere at o extra cost. It should be for the legal professio to take this matter forward. 46 Coal Health Compesatio Schemes

49 appedix eight 10 The schemes did ot explicitly rule out solicitors chargig fees of successful claimats. The Departmet acted reasoably i drawig the matter to the attetio of the Law Society. 11 The ature of these schemes, where the Departmet is oe party to a egotiated settlemet ad where the courts ad ot the Govermet take the decisios o the shape of the schemes, meas that the Departmet is ot i a positio to cotrol or reduce costs i the ormal way. Discussio of public expediture has therefore to focus o those areas where it might be possible to secure savigs, such as solicitors costs, or o makig efficiecies i the hadlig of claims. Coclusios o topical issues 12 The practice whereby some solicitors ad claims hadlers make paymets to trade uios out of settlemets is ot iheretly improper so log as the claimat volutarily agreed to this i advace. There seems o reaso why the Departmet, which was a party to the egotiatios ad ot a regulator, should have isisted that the schemes explicitly disallowed these paymets. 13 Views about claims uder the VWF schemes for those who are o loger able to udertake certai day-to-day tasks (the VWF Service claims) vary very widely, some sayig that the system is very geerous ad others that the procedures are eedlessly striget. The arragemets are fair to claimats while cotaiig reasoable measures to prevet fraud, though this is the area where claims are more likely to be exaggerated tha ay other. 14 Give the ature of the schemes ad the eed to meet the requiremets of the Courts, simpler medical assessmet processes could ot have bee used. 15 A cosiderable amout of iformatio about progress with the schemes is ow publicly available. Additioal iformatio is provided to the parties. Partly because of the degree of the suspicio that surrouds some discussio of the schemes, more material could be put ito the public domai ad it is importat to be as proactive as possible i makig iformatio available, icludig about the terms of the UDM VWF agreemet siged i Commercially cofidetial iformatio should however cotiue to be safeguarded. Recommedatios 16 If the Govermet is ever i future faced with a comparable situatio; either where it has to implemet a court judgemet imposig a liability to pay compesatio, or where it believes it would face such a judgemet if a legal case were completed; it should very carefully examie alterative ways of proceedig. 17 I developig their work o risk maagemet the Departmet should cosider whether: to iclude o the risk register issues which have the potetial to become matters of sigificat public or political debate; ad periodically to review closed risks to determie whether they should be re-opeed. 18 The Departmet should examie carefully, with a view to implemetatio, all the recommedatios that emerge from the preset audit of the operatio of fraud ivestigatio procedures. 19 The Departmet should pay particular attetio to esurig that surveillace of claimats is cosidered carefully i the cotext of all the measures available to combat abuse of the schemes ad is employed oly where appropriate. I priciple its use is etirely proper. 20 The Departmet should cosider how best to corroborate UDM data, i particular that relatig to the completeess of the list of all claims hadled, i order to reach a view, i which it ca be cofidet, o the extet of ay o-compliace. 21 If i the future a agreemet betwee two parties is set up, similar to those betwee the Departmet ad UDM/Vedside, desiged to regulate the costs payable to third parties, there should be explicit safeguards with a view to bidig those parties to the iteded arragemets. 22 The Departmet should cosider optios for movig the determiatio of the costs of solicitors ad other claimats represetatives o to a basis that more accurately reflects the ature of the work actually udertake by these represetatives. Coal Health Compesatio Schemes 47

50 appedix eight 23 The reviewers have cosiderable sympathy with those who argue that it would be right to cosider meas whereby those who did ot whe they started their claims receive advice i the form that the Law Society ow requires amely that they would be able to obtai a similar service elsewhere for othig should be reimbursed ay additioal fees paid to solicitors. Subject to the outcome of ay legal proceedigs there might be about this matter, it is recommeded that steps should be take to eable such claimats to seek a reimbursemet of the extra fees they paid, should they wish to do so. It is recommeded that this is a matter for the legal professio, ad ot the Govermet, to pursue. e f The Departmet takes a proactive ad maximalist approach to the provisio of iformatio o the website ad i other ways; ad the iformatio policy of the Departmet o the coal health schemes should take full accout of the stregth of the views some hold about the subject as a whole ad should seek to pre-empt ay cause for grievace. 26 It is recommeded that, i respect of the costs of its cotractors, the Departmet should apply the ormal criteria i the provisio of iformatio that is commercially cofidetial. 24 It is recommeded that: a b Cosideratio be give to esurig that the valuable lessos leart from admiisterig the coal health compesatio schemes, which are beig cotiually ad helpfully documeted by the Departmet, be available to all those i govermet to whom they might be relevat i future, whether i the cotext of settig up other compesatio arragemets or i the cotext of other major projects. Particular ote be take of the most sigificat lesso, amely the importace of adequately resourcig major projects from the start. 25 O makig public iformatio about the Coal Health Compesatio Schemes, it is recommeded that: c d the full details of all the schemes are made available to all the stakeholders ad to the public at large; the periodic court reports o both COPD ad VWF should be made publicly available as soo as possible after the hearigs; Mai actios take by the Departmet as a result of the report: Risk maagemet ow covers reputatioal risk. Vigorous challege of solicitors tariffs for COPD fast-track claims costs to esure their fees reflect the work udertake. Workig with the Legal Complaits Service o ways to make claimats aware of the Service ad how they ca seek reimbursemet of additioal fees paid to solicitors. Provided the Departmet s project cetre with relevat iformatio to highlight the lessos leared ad to seek ideas o how they ca be distributed across Govermet. Suggestios iclude project templates ad metors. Goverace stregtheed by the appoitmet of a oexecutive o the Legal Services Group Board as Chair of Coal Liabilities Strategy Board. Source: The Departmet, April 2007 Prited i the UK for the Statioery Office Limited o behalf of the Cotroller of Her Majesty s Statioery Office / Coal Health Compesatio Schemes