El Trigger Litigation. Note on Judgment from the Supreme Court. 28 March (or All s Well That Ends Well )

Transcription

1 El Trigger Litigation Note on Judgment from the Supreme Court 28 March 2012 (or All s Well That Ends Well ) Background: 1. The Supreme Court heard the case between 5 th and 15 th December The Court was asked to decide the meaning of a number of employer s liability (EL) insurance policies which employers had bought to cover them for their liabilities for personal injury claims. The majority of the insurance contracts were expressed to operate only where injury or disease is sustained or for injuries sustained and diseases contracted during the policy year in question. 2. All the contracts had to be construed in relation to mesothelioma claims on the basis of the individual policy wordings. 3. The crux of the matter was: What has to happen in any policy year to make the insurer on risk during that year liable to respond and so to indemnify the employer? exposure to asbestos or is it the onset of the mesothelioma? Is it the tortious 4. The case encompassed six actions which embraced a consideration of nine specimen policy wordings emerging from four insurers over a period from the late 1940 s to The parties to the six actions included four insurer defendants (BAI, Independent, Excess, MMI). In Actions 1 to 5 the insurers were resisting claims for mesothelioma made against them by individual claimants (claiming under the Third Party( Rights Against Insurers) Act 1930) and by solvent employers required to meet claims by their employees. Zurich, although an insurer, was in the opposite camp to the four previously named insurers, and

2 Action 6 involved a dispute between Zurich and MMI surrounding the transfer of liabilities from MMI and Zurich in relation to local authority policies and MMI and 10 local authorities as to interpretation of their EL policies. (For details of the individual cases see paragraphs 36,37, 38, 39, 40 & 41 of the judgment of the Court of Appeal) THE HIGH COURT: 6. In the High Court the claimants succeeded on the basis that Burton J decided that the EL insurance policies responded as if they had caused wording that is, they responded on an exposure basis, notwithstanding that in mesothelioma cases injury materialises about 5 years before diagnosability and that is when the injury is sustained. 7. The Judge considered that this was consistent with the factual matrix, with the commercial purpose of the policies and with public policy underlying the Workers Compensation Acts and the Employers Liability Compulsory Insurance Act 1969 (ELCIA 1969). THE COURT OF APPEAL: 8. There was no unanimity as between the 3 appeal court judges, Rix LJ, Smith LJ and Stanley Burnton LJ. They each decided the cases on a different basis and each found in favour of different parties. 9. In summary the outcome in respect of the different policy wordings was that: (1) disease contracted policies responded on an exposure basis; (2) sustain injury policies pre-dating the ELCIA 1969 (which came into force on 1 st January 1972) responded to actionable injury (namely angiogenesis [development of an independent blood supply] of the tumour) in the policy period; (3) sustain injury policies post-dating the ELCIA 1969 responded on a causation basis (according to Smith LJ because they always did so and according to Rix LJ because of a term in the policies providing cover in accordance with the ELCIA 1969, which required a causation trigger).

3 10. In terms of the individual actions the outcome was that: (a) BAI lost because all of its policies had disease contracted wording; (b) Independent lost because all of its policies post dated the ELCIA; (c) Excess won because all of its policies pre-dated the ELCIA and had sustain injury wording; (d) MMI won on earlier policies written on a sustain injury basis and lost with regard to later policies which included disease contracted wording (the ELCIA 1969 does not apply to Local Authorities). 11. From a practical perspective the Court of Appeal s judgment provided an unsatisfactory outcome. There was no one stop answer to the question of how an EL policy should be construed and for individual claimants and their employers the judgment meant that whether there was indemnity was something of a lottery. THE SUPREME COURT: Summary 12. The case was heard by Lord Phillips, Lord Mance, Lord Kerr, Lord Clarke and Lord Dyson. 13. By a majority of 4:1 (Lord Phillips dissenting) the Supreme Court found in favour of the claimants (both individual and corporate and Zurich). 14. The answer to the question: What has to happen in any policy year to make the insurer on risk during that year liable to respond and so to indemnify the employer? Is it the tortious exposure to asbestos or is it the onset of the mesothelioma? is that it is tortious exposure to asbestos in the policy year which triggers the insurer s liability to indemnify the employer.

4 15. The practical effect of the judgment is that insurers will have to revert to the practice which the four defendant insurers abandoned in 2006 whereby mesothelioma claims are paid out on an exposure basis irrespective of whether the policy wording is sustained or contracted. Analysis 16. Lord Mance (with whom Lord Kerr concurred) delivered the leading judgment [paragraphs 1 75]. The judgment of Lord Clarke is at paragraphs The judgment of Lord Dyson is at paragraph 90. The judgment of Lord Phillips is at paragraphs The judgment focussed on the issues of (a) policy construction and (b) causation. (a) Construction 18. On the issue of construction of the policy wording all five judges agreed that for the purpose of EL policies mesothelioma is sustained or contracted when the process which leads to the disease is initiated as the result of wrongful exposure to asbestos. [Lord Mance: paragraph 49 51, and see in particular paragraphs and 41: Lord Clarke paragraph 76: Lord Dyson paragraph 90: Lord Phillips paragraph 99]. 19. Lord Phillips also emphasised that the Court s conclusions also apply to employers liability in relation to other long tail diseases such as asbestosis and pneumoconiosis. 20. Lord Mance stated that it is important to avoid over concentration on single words and phrases viewed in isolation, and that the policies should be construed by looking at them broadly and as a whole. 21. Lord Mance identified five features of the policies as the foundation of his findings on the issue of construction [paragraphs 18 28]; namely,

5 (1) The wordings on their face require the course of employment to be contemporaneous with the sustaining of injury; (2) The wordings demonstrate a close link between the actual employment undertaken during each policy period and the premium agreed to be payable for the risks undertaken by the insurers in respect of that period; (3) The potential gaps in cover if the insurances only address risks arising from employment during the insurance period; (4) On the insurers case employers would be vulnerable to any decision by insurers not to renew cover; (5) The way in which the policies deal with the issue of extra-territorial scope which could operate to very curious effect if sustained wording looks to the experiencing of a disease rather than causation. 22. Lord Mance held that relevant conclusions about the general nature and purpose of the individual policies could be reached by considering the individual wordings, the features which linked cover to the employees and activities in the relevant policy period and the 5 points summarised above [paragraph 41]. (b) Causation 23. Unlike in the decisions below the issue of causation is a key feature of the Supreme Court s judgment, and is the basis upon which Lord Phillips dissented from the judgment of the majority. 24. The majority agreed that the special rule of causation founded in Fairchild and Barker operates by relaxing the rule of causation and taking the view that a weak or broad causal link between tortious asbestos exposure and the victim s mesothelioma is acceptable and by deeming the exposure to asbestos of the employee who subsequently develops mesothelioma to have been the cause of his mesothelioma. This way of interpreting the effect of Fairchild and Barker does not pose any difficulties in terms of policy response. The EL policies respond to the employers liability for the disease of mesothelioma caused by the

6 tortious exposure to asbestos in the policy period. [Lord Mance paragraphs 53 74: Lord Clarke paragraphs 77 88: Lord Dyson paragraph 90: Lord Phillips paragraph ] 25. However, Lord Phillips took the view that the Fairchild/Barker principle was that in cases of mesothelioma the basis of liability is the wrongful creation of or contribution to the risk of mesothelioma by exposure to asbestos. The effect of this is that each person who has exposed the victim to asbestos and thus materially increased the risk of the victim developing mesothelioma will be jointly and severally liable. On Lord Phillips analysis the damage is the creation of risk which can be divided up between tortfeasors. However, exposure to the risk of mesothelioma does not satisfy the concept of injury or the concept of causation for the purposes of the EL policies which require injury to have been sustained and/or disease to have been contracted during the policy period. 26. Thus, on Lord Phillips analysis of the law on causation in mesothelioma cases the employer cannot prove, on the balance of probability, that the mesothelioma for which he has been held liable under the special rule in Fairchild and Barker was in fact initiated in any particular policy year as is necessary to establish the liability of the insurer to indemnify him. The ELCIA Only Lord Mance dealt overtly with statutory interpretation of the ELCIA 1969 [paragraphs 42 47]. He stated expressly that in his judgment the conclusion which gave proper effect to the protective purpose of the legislation was that the ELCIA 1969 requires insurance on a causation basis. Bolton and Public Liability 28. Bolton has not been overruled, but was distinguished. In paragraphs 48 and 49 of his judgment Lord Mance agreed with Smith LJ s judgment in the Court of Appeal (paragraph 328) that PL and EL insurances give rise to different considerations and operate on different bases because of their different backgrounds, terms and purposes. 29. Thus, so far as PL mesothelioma cases are concerned the law remains as set out by the Court of Appeal in Bolton. The policy which responds is that in force 10 years prior to diagnosability. On the basis of the up to date medical evidence given in the Trigger litigation

7 at first instance Burton J held that injury occurs in mesothelioma cases on angiogenesis, that is 5 years prior to diagnosability (paragraphs ). However, strictly speaking, these comments were obiter. Alison McCormick Outer Temple Chambers, 222 The Strand, London,WC2R 1BA 28 March 2012