THE TRIGGER LITIGATION: IMPLICATIONS FOR COMMERCIAL CONTRACTS & LIABILITY INSURANCE LLOYD S OF LONDON 12 OCTOBER 2010

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1 THE TRIGGER LITIGATION: IMPLICATIONS FOR COMMERCIAL CONTRACTS & LIABILITY INSURANCE LLOYD S OF LONDON 12 OCTOBER 2010 LEIGH-ANN MULCAHY QC & CLARE DIXON FOUR NEW SQUARE LINCOLN S INN LONDON WC2A 3RJ Tel: L. Mulcahy & C. Dixon

2 Leigh-Ann Mulcahy QC Leigh-Ann specialises in professional liability, insurance, commercial litigation and product liability. In the insurance context, she is representing Zurich in the Employers Liability Policy Trigger Litigation, which is now on appeal to the Supreme Court. She is also acting on a number of high value fire claims and advising on various coverage issues in relation to professional indemnity insurance. In the professional negligence context, she specialises in claims against lawyers and accountants. Described as someone who works wonders for her clients and puts in stunning performances in court, she is recommended by the legal directories in the fields of both Professional Negligence and Product Liability. Prior to taking silk, she held the appointment of Treasury Counsel (A Panel) and in this capacity advised and acted on behalf of various Government departments. She currently represents the Ministry of Defence in the Atomic Veterans Litigation and has recently concluded a judicial review of the vcjd Compensation Scheme on behalf of the Department of Health. She is Editor of Jackson & Powell on Professional Liability, Consulting Editor of The Law and Regulation of Medicines and General Editor of Human Rights & Civil Practice. She is also a CEDR accredited mediator. Clare Dixon Clare specialises in professional liability and insurance matters. She is currently representing Zurich Insurance Company in the Employers Liability Policy Trigger Litigation. In addition to acting in disputes involving issues of policy interpretation, Clare has experience of claims involving non-disclosure and fraud. She has also acted in a large number of subrogated recovery actions concerning fires, floods and subsidence. Clare has wide experience of professional liability matters involving lawyers, insurance brokers, surveyors, accountants and construction professionals. She has particular expertise in claims made against solicitors and valuers (by individuals and lenders) arising out of property transactions. She was noted in the 2010 Legal 500 for her commercial understanding and thoroughness. L. Mulcahy QC & C. Dixon Page 2

3 THE TRIGGER LITIGATION: IMPLICATIONS FOR COMMERCIAL CONTRACTS & LIABILITY INSURANCE Introduction 1. On 8 th October 2010, the Court of Appeal delivered judgment in the Employers Liability Insurance Trigger Litigation [2010] EWCA Civ The Trigger Litigation involves 6 test cases which were brought in order to determine the correct interpretation of employers liability ( EL ) policies which indemnify against liability for injury or disease sustained or contracted during the policy period rather than the more common form of wording indemnifying against liability for injury caused during the policy period and, therefore, to determine which insurers will indemnify insureds in respect of liabilities for mesothelioma. 2. This talk addresses the context for the Trigger Litigation, analyses the Judgments at first instance and on appeal and then considers the major implications for the construction of commercial contracts, liability insurance and tort. The Context 3. This is the latest instalment in what might be termed the asbestos litigation. The Courts have been taxed for a number of years with issues in relation to the liability of employers to their employees for mesothelioma in tort (see e.g. Fairchild v Glenhaven Funeral Services Ltd [2003] 1 AC 32, Barker v Corus UK Ltd [2006] 2 AC 572, Sienkiewicz (Administratrix of the Estate of Enid Costello Deceased) v Greif (UK) Ltd [2010] 2 WLR 951). The Trigger Litigation concerns the position as between the employer (or the employee, or more usually his personal representatives, standing in the shoes of the employer under the Third Party (Rights against Insurers) Act 1930) and his or its insurer in contract. The position of insurers inter se as to issues of apportionment (and possibly also the issue of allocation to a particular policy year) are likely to be further instalments in the asbestos litigation and litigation in relation to apportionment is already underway. L. Mulcahy QC & C. Dixon Page 3

4 4. Many of the legal challenges arise from the particular aetiology of mesothelioma. It is a cancer which results from asbestos fibres working their way into the mesothelium which lines organs in the body like the lung, heart and stomach. The most common form of the disease is pleural mesothelioma (affecting the lining of the lung). In an unfortunate few (about 2-3%), the fibres trigger the ultimate development of a tumour. It can be more than 40 years after the date of inhalation before the victim experiences symptoms but, thereafter life expectancy is only about one to two years with an average of 14 months. The disease is invariably fatal. Exposure to asbestos is implicated in almost all cases of mesothelioma. 5. It can be seen from a chart taken from one of the expert reports in the Trigger Litigation that the peak of deaths from (and consequently of claims for) mesothelioma is still to come and is predicted to occur sometime in the 2020s. This gives an indication of the scale of the problem and its importance to all insurance industry stakeholders Annual Male Deaths from Mesothelioma in UK Actual Figures to 1996 and Projected beyond 2000 L. Mulcahy QC & C. Dixon Page 4

5 6. The Asbestos Working Party has recently updated its estimate of the future cost of UK asbestos-related claims between 2009 and 2040 to over 9 billion. 1 Over the last decade, there has been an increase in the proportion of mesothelioma sufferers who actually make a claim for compensation one-third to two-thirds. 7. Whilst the issues have arisen in the context of mesothelioma, the policy wordings refer to injury or disease (not mesothelioma ). Accordingly, the Litigation has implications for the treatment of other industrial diseases which have a latency period such as asbestosis and industrial cancers e.g. bladder cancer. Indeed, the evidence in the Trigger Litigation showed that one of the insurers was already declining claims on the basis that injury was sustained outside its policy period. EL insurance 8. It is well established that the primary trigger for a liability insurance policy is the crystallising of the insured s liability to the claimant, whether by judgment or settlement: Post Office v Norwich Union [1967] 2 QB 363; Bradley v Eagle Star Insurance Co Ltd [1989] AC The issue in the Trigger Litigation is: what is the secondary trigger which actually identifies the policy which responds? 10. Typical EL policies offer cover in respect of injuries caused during the period of insurance. Since 1948, this is the basis of insurance offered by the EL tariff insurers. In such policies the trigger is causation which, in mesothelioma cases, is agreed to be the exposure to or inhalation of asbestos. 11. However, some EL policy wordings do not refer to the causation of the injury but to the date on which the injury is sustained or the disease is contracted. For example, one of the policies at issue provided: The Company agrees to indemnify the Insured in respect of all sums which the Insured shall be legally liable to pay as compensation for bodily injury or disease suffered by any person under a contract of service 1 This can be accessed through the following web-link: L. Mulcahy QC & C. Dixon Page 5

6 with the Insured when such injury or disease arises out of and in the course of employment by the Insured and is sustained or contracted during the currency of this Policy. 12. The issue in the Trigger Litigation is: what is the relevant date on which injury or disease is sustained or contracted? In relation to mesothelioma, is it the date of inhalation or the date of the tumour (which may be decades later)? The test litigation 13. Four insurers Excess Insurance Company Ltd ( Excess ), BAI (Run Off) Ltd ( BAI ), Municipal Mutual Insurance Ltd ( MMI ) and Independent Insurance Company Ltd ( Independent ) (jointly referred to as the Insurers ), all of whom are in run-off and no longer writing policies who had a sustained, or a sustained or contracted, wording argued that, in such circumstances, the injury was not sustained, nor was the disease contracted, until the tumour developed ( the date of the tumour ). In contrast, the insured employers, victims of mesothelioma and a solvent insurer (Zurich Insurance Company) 2 (jointly referred to as the Claimants ) argued that these policies should be interpreted so as to respond in the same way as the causation based policies i.e. at the date of causative exposure ( the date of inhalation ). Public liability insurance 14. The status of a key decision in the context of public liability ( PL ) insurance is at the heart of many of the issues in the EL Trigger Litigation. 15. The typical wording for PL policies is to cover injury occurring during the period of insurance. 16. In Bolton Metropolitan Borough Council v MMI [2006] 1 WLR 1492, involving a claim on a PL policy with the relevant wording being that injury...occurs during the currency of the policy, MMI argued that injury occurred at the date of inhalation 2 Zurich took over the right to renew policies from MMI and was joined to the Litigation by MMI to determine who out of Zurich and MMI were liable in 10 test cases involving local authority insureds. For convenience, and because its position was aligned with those of the insureds and employees, it was described as a Claimant. L. Mulcahy QC & C. Dixon Page 6

7 (which would have fallen within the policy period of another insurer, Commercial Union) rather than at the date of the tumour or manifestation (both of which would have fallen within an MMI policy period). The Court of Appeal rejected that argument and held that injury occurred, at the earliest, at the date of onset of malignancy, which they stated was 10 years (plus or minus 1 year) prior to diagnosability. 17. The decision in Bolton was of potential relevance to the EL insurance issues in the Trigger Litigation in the following respects: a. in relation to the construction of injury sustained did it mean the same as the Court of Appeal s construction of an injury occurring wording? b. in relation to the date of injury in mesothelioma cases; c. as to whether the injury was required to be actionable in order to trigger indemnity. 18. The financial implications of the issue for EL are much greater than for PL. Figures from the Department of Work and Pensions show that of the mesothelioma claims presented to the Compensation Recovery Unit, 97% are EL and only 2% are PL ([87] of Burton J s Judgment). 3 Whilst the financial implications for the parties in the Trigger Litigation were not all in evidence, in relation to MMI, success on the issue of injury sustained and disease contracted would enable it to release 85M from its reserves in respect of EL mesothelioma claims ([123] of Burton J s Judgment) (compared with the 8.3M it had released in respect of PL mesothelioma claims). Mr Justice Burton s Judgment [2009] 2 All ER Following a 9 week trial during 2008 Burton J gave judgment in favour of the Claimants, holding that in the context of these policies sustained and contracted were to be interpreted as having the same meaning as caused [239]. He considered that the construction of the wordings would one way or another reach the same answer [208]. 3 Mr Justice Burton s judgment at [87] L. Mulcahy QC & C. Dixon Page 7

8 20. He reached his view on the construction of the wordings on the basis that within the wordings was a fundamental ambiguity as to the position of the ex-employee since the wordings at issue required the victim to be employed at the date when the injury was sustained but given the latency period for mesothelioma this would rarely be the case [ ]. The Judge concluded that this made no commercial sense and, therefore, found that the policies fell to be interpreted by reference to their commercial purpose [240] which he identified as being to indemnify the employer against any liabilities that he may incur to those employed during the period of insurance as a result of his activities during that period [205][240]. 21. The Judge also found as a fact that there was a universal practice in EL for indemnity to trigger at the date of exposure [180], though he found that the reasons for this happening may have differed [201]. 22. The Judge distinguished the Bolton PL wording from EL on the basis that the history and origins of EL were different from PL [242]. 23. However, he held that, if he was wrong about his construction of the policies or the binding nature of Bolton, and it was therefore necessary to consider when injury occurred, it did not occur at the date of inhalation [163]. Having heard more extensive medical evidence than in Bolton (including from biochemists), he held that injury occurred at angiogenesis (which is when the tumour acquires a blood supply sustaining its growth) being the point of no return. He determined that this occurred at 5 years prior to diagnosability subject to evidence in an individual case of a faster or slower growing tumour [247]. The Court of Appeal judgment 24. The case was appealed by the Insurers and the appeal hearing took place in November 2009 before Lord Justice Rix, Lady Justice Smith and Lord Justice Burnton. Judgment was delivered on 8 October They delivered 3 different judgments. 25. The leading judgment was given by Rix LJ. He agreed with the Judge s finding as to the commercial purpose of EL policies [219] (although this was not based on a L. Mulcahy QC & C. Dixon Page 8

9 finding of fact but rather derived from the nature of employers liability) [220] and that the policies at issue did not cover ex-employees [271]. 26. He held that a sustained wording was to be interpreted as responding at the date when injury was suffered and had the same effect as an injury occurring wording in PL policies (as held by the Court of Appeal in Bolton) [ ]. 27. However, he arrived at a different conclusion in relation to the meaning of a contracted wording which he found was capable of referring to the disease s causal origins and would therefore respond at the date of inhalation [245]. Interestingly, he considered that contracted was also capable of referring to the onset of disease and its progress [237] which gives rise to the possibility of a contracted wording being a multiple or even continuous trigger. 28. Rix LJ also considered that the Employers Liability Compulsory Insurance Act 1969 ( the ELCIA ) required a causation wording which would mean that for policies after the coming into force of the Act, employees would be able to recover against insolvent insurers. He did however indicate that there would be a liability on the part of the employer to repay the insurer where such cover went beyond the cover actually provided by the policy [186]. 29. As to the date when injury was sustained (or occurred), he considered he was bound by Bolton but otherwise he would have preferred to find that, for those who go on to develop mesothelioma, injury occurred at the date of inhalation [284, 289]. 30. Stanley Burnton LJ agreed with Rix LJ as to the meaning of sustained [339] and (though not without hesitation) contracted [340]. 31. Disagreeing with Rix LJ, he considered that the commercial purpose of an insurance policy can only be divined from its wording and that its purpose is to provide the cover defined in the policy [333]. 32. He also disagreed with Rix LJ on the 1969 Act holding that the ELCIA did not require causation wording [342]. L. Mulcahy QC & C. Dixon Page 9

10 33. He considered that Bolton was correct as to the date of injury [339]. 34. Smith LJ agreed with Burton J for the reasons he gave [310]. In addition, she stated that the factual matrix can change (e.g. as to the understanding of a disease such as mesothelioma) and warned of the need to avoid construction of mid-20 th century policies with 21 st century eyes [317]. 35. The consequence of these contrasting judgments is that the Insurers succeeded in relation to policies which referred only to injuries sustained but not to disease contracted. Permission to appeal to the Supreme Court was granted by the Court of Appeal. Implications for the Construction of Commercial Contracts The principles of construction 36. In the words of Lloyd LJ in The Sounion [1987] 1 Lloyd s Rep 230, many questions of construction seem designed to separate the purposive sheep from the literalist goats and that is very much true in this Litigation. 37. The parties were largely agreed as to the principles of construction but fundamentally disagreed as to their application. 38. As Lord Steyn stated in Sirius Insurance Co v FAI Insurance [2004] 1 WLR 3251 [t]here has been a shift from literal methods of interpretation to a more commercial approach. This has been accompanied by a much broader approach to admission of evidence which is extrinsic to the contract itself. In ICSL v West Bromwich Building Society [1998] 1 WLR 896 the relevant factual matrix was defined by the House of Lords to comprise all the background knowledge which would have been reasonably available to the parties in the situation in which they were at the time of the contract and includes absolutely anything which would have affected the way the language of the document would have been understood by a reasonable man (at ). This was subject to 3 qualifications: relevance (BCCI v Ali [2001] 1 AC 251 at 269), the L. Mulcahy QC & C. Dixon Page 10

11 knowledge should have been reasonably available to the parties (ICSL at 912) and the fact that the enquiry is objective (Mannai Investments Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749 at 768). The modern approach has been to hold that it is not necessary for there to be ambiguity before one can have regard to extrinsic evidence. 39. There were two important House of Lords decisions on interpretation between the first instance judgment and the Court of Appeal hearing in the Trigger Litigation. The first was Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC This concerned a property development contract containing a phrase relating to the calculation of an additional payment due in certain conditions. The amount of the payment was defined but in context it lacked rationality. Lord Hoffmann considered what he called the principle of the correction of mistakes by construction. He stated that All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. at [25]. However, he also stated that the courts do not readily accept that people have made mistakes in formal documents [23]. He said that as part of the task of interpretation, the background context must always be taken into consideration [24] and that there was no limit to the amount of red ink or verbal rearrangement which the court is permitted [25]. This appeared to be a judgment moving in the purposive direction. 40. The second decision was Wasa International Insurance Co Ltd v Lexington Insurance Co [2010] 1 AC 180. This related to the identification of a period of cover under a reinsurance contract insuring property risks on an occurrence basis. It was inferred that the parties had intended the insurance and reinsurance to cover the same risks but the two contracts were governed by different laws in circumstances where the particular system of law under which the insurance contract fell to be construed could not be predicted. The insurer was held liable under Pennsylvanian law for property damage occurring both before and during the 3 year policy period. However, the House of Lords held, in favour of the reinsurers, that the policy wording was clear, that the reinsurance period of cover should be given its ordinary meaning in the London market and that the loss had to occur during the period of the policy. Accordingly, this judgment was arguably not purposive in its result. L. Mulcahy QC & C. Dixon Page 11

12 The application of the principles of construction 41. The application of the principles of construction by the Court of Appeal in the Trigger Litigation was that: a. There was a split between the Judges over whether it is permissible to look outside the four corners of the contract to find its commercial purpose; b. A literalist interpretation was given to the word sustained by reference to its dictionary definition [230]. It was implicit in the judgment that there was no ambiguity in the word. c. On the other hand, an ambiguity was held to exist in relation to the word contracted which was capable of a wider meaning encompassing the causal origins of a disease. The fact that such a construction was consistent with teh commercial purpose of the policy (as he saw it) underpinned Rix LJ s view that it should respond at the date of the causal origins [244]. He also took account of the contra proferentem principle in the case of ambiguity (ibid). d. Stress was laid by both Rix LJ and Stanley Burnton LJ on the fact that these were standard form contracts [234][331]. They considered that the meaning of such contracts would not change over time. Smith LJ disagreed. e. The actual result on the sustained wording did not accord either with the policy s commercial purpose or the universal practice of the EL market prior to Bolton to indemnify by reference to the date of exposure. 42. The outcome will please the literalist goats. It does however raise a question, at least for the purposive sheep, as to why it was not possible in those circumstances to say that something had gone wrong with the wording (per Chartbrook) and/or why the principle in The Antaios [1985] AC 191 whereby if a detailed semantic or syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense is not applicable? The consequences of the policy construction 43. The consequences of the Court of Appeal s judgment is that cover on a sustained wording relies on the insurance on that basis being maintained by the employer potentially for several decades and remaining in place at the date of the tumour. L. Mulcahy QC & C. Dixon Page 12

13 44. There will inevitably be black holes in cover where there have been changes in wording (either by the same insurer e.g. Excess, BAI and Independent all changed to a causation wording in either the mid 1970s or 1980s or by changing to an insurer with a different policy wording); or where the insured has failed to maintain insurance because it has ceased trading or become insolvent or where an insured can no longer get insurance. It has been impossible to obtain insurance for historical mesothelioma risks since the late 1990s [6]. 45. As Rix LJ acknowledged at [272], the requirement that the employee be a current employee means that cover for mesothelioma is likely to be non-existent on a sustained wording. 46. There is the potential for a single policy to respond to two different triggers causation ( disease contracted ) and occurrence ( injury sustained ). There is also the potential for disease contracted to operate as a continuing trigger and for there to be double insurance. 47. Finally, the interpretation of the policies has implications for the indemnification not just of mesothelioma but also of other industrial diseases which have a latency period such as asbestosis and industrial cancers. 48. Given that there are policies written by other solvent insurers (not in the Litigation) with sustained wordings, it is not clear whether market practice (which to date has been in line with Zurich s position) will now change and further, what attitude will reinsurers take. The elephant in the room? 49. There may be a largely unspoken issue at the heart of this Litigation: namely whether public policy considerations have any place in the law of contract. For example, Mr Justice Burton referred to the result he arrived at as being consistent with public policy in support of his conclusions on construction [240]. By contrast, Stanley Burnton LJ said there was not as strong a moral imperative (emphasis added) to find insurers liable as there rightly is to hold the employers liable [336]. L. Mulcahy QC & C. Dixon Page 13

14 50. In principle, one might think that public policy has no place in the private law of contract. However, the position is slightly more complicated than that bald proposition for EL in that: a. There is a statutory backdrop to EL insurance in the form of the Workmen s Compensation Acts (from which the sustained and contracted wordings originated), the ELCIA 1969 (which made EL insurance compulsory) and, to the extent that it may be relevant, the Compensation Act 2006 which funnels 100% liability through any exposing employer. Public policy clearly underlies all of these Acts; b. The employers liability arises in tort which has public policy at its core (e.g. the test of whether it is fair, just and reasonable to impose a duty of care?). The Courts have shown themselves prepared to bend the traditional law of causation for policy reasons in order to fashion a remedy for victims of mesothelioma (see Fairchild). This raises the issue of to what extent the tortious liability of the employer to his employee and the contractual liability of the insurer to the employer should coincide; c. One can have regard to the consequences or implications of any particular policy construction: Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 1 All ER (Comm) 299 at [16]. This potentially allows policy considerations into play; d. The US courts have nakedly allowed policy considerations to drive what is called the triple trigger doctrine i.e. they have sought to make as many policies of insurance respond as possible. Will the Supreme Court take the same approach? It is at least a possibility. 51. There will however be those who will argue that hard cases make bad law! Implications for Liability Insurance The Concept of Injury in Liability Policies 52. Lord Justice Rix identified the critical issue in the appeal as being one of construction but he identified another of the important issues as being the meaning of the word injury within the policies. L. Mulcahy QC & C. Dixon Page 14

15 53. He put the point in the following way [20]:...even if mesothelioma can be said to be sustained or contracted only at the date of the tumour, is it possible to say that at any rate some injury or disease (even if not at that time identifiable as mesothelioma) was sustained or contracted at the date of inhalation (or soon thereafter)? Even though, looking forwards, it may not be possible to speak of injury or disease until mesothelioma has developed, so that the employee cannot be described as injured or unwell until the mesothelioma tumour has occurred, nevertheless, looking backwards from the diagnosis of mesothelioma and an established case of employer liability, is it possible to say that the inhalation which ultimately led to the tumour albeit so many years later involved at least some form of injury, or that the long process which began at the time can properly be called disease? And if there was injury at that time, did it have to be actionable injury? [Emphasis added] 54. This passage identifies the two key issues on the meaning of injury as being: a. Can a person who inhales asbestos and develops mesothelioma 40 years later only be said to be injured for the purposes of the policy when he has developed a tumour? b. If not, and if that person can be said to be injured at an earlier stage, must that injury be one which the law of tort would recognise as having sufficient seriousness to be actionable? When is Injury Suffered for the Purposes of the Policy? 55. In brief terms the two ends of the spectrum when considering mesothelioma 4 are: a. The inhalation of the asbestos fibres. Asbestos is a complete carcinogen which means that no other agent is required to cause the eventual malignancy. However, it does not follow that if a person breathes in asbestos that they will develop mesothelioma. In fact the evidence is to the contrary. Of those employees who were exposed to asbestos some 40 years ago it is thought that only about 2-3% will ultimately develop mesothelioma. The remainder will swallow or expectorate the fibres such that they never reach the lungs or, if they do reach the lungs, they will not mutate in such a way as to lead to malignancy. b. Development of the tumour. For the unfortunate 2-3% the mesothelial cells enter the lung, acquire their own blood supply so as to become self sufficient and start growing 4 For a more detailed exposition of the pathogenesis of mesothelioma see [103] to [113] of the first instance decision of Burton J. L. Mulcahy QC & C. Dixon Page 15

16 uncontrollably in a process known as angiogenesis. Burton J. found that this process occurs about five years prior to diagnosability at which point the victim will have started to experience symptoms such as breathlessness ([246] of Judgment below). 56. Against this background, the Court was asked to construe the meaning of the word injury for the purposes of the policies. As Rix LJ identified the answer to this question depends upon whether one looks forwards or looks backwards. If one looks forward from the position of a person who has inhaled asbestos fibres then it is difficult to characterise that person as being injured at that time. However, if one looks backwards to the point of inhalation from the perspective of someone who has developed a mesothelial tumour then the picture looks very different. Such a person may well consider that they had suffered injury from the moment they inhaled the asbestos fibres. 57. MMI put a similar argument to the Court of Appeal in Bolton which Longmore LJ dealt with in the following way: 14. [MMI submitted] that accidental injury occurred either on inhalation of asbestos fibres or, perhaps, on the first bodily reaction to such inhalation, not at the unascertainable moment when a malignant tumour first appeared, still less when Mr Green first felt symptoms of breathlessness and chest pain and less still when mesothelioma itself was diagnosed 15. This argument is, in my judgment, inconsistent both with principle and authority. It is inconsistent with principle because the contract between the parties is an agreement to indemnify against liability. It cannot be right that, at the stage of initial exposure or initial bodily reaction to such exposure, there could be a liability on the part of Bolton in respect of which they could require to be indemnified under any public liability insurance policy. Mr Green could not have sued for personal injury at that stage because he had suffered no injury at that stage. The indemnity which Bolton are seeking is an indemnity against their liability for their share in the sum of 160,000 which was ultimately paid to Mrs Green. Mr Green could not conceivably have recovered 160,000 when he was first exposed to asbestos and his body was, at that time, successfully dealing with the fibres which he was inhaling. He was at that stage a well man, not suffering from any injury at all. [Emphasis added] 58. The highlighted sentences encapsulate the issue. Would Mr Green (the victim of the mesothelioma) have said he was a well man if asked immediately following his inhalation of asbestos? The answer, almost certainly, is Yes. However, would Mr Green have said that he was a well man when he inhaled the asbestos if he had been asked that question decades later when he had developed mesothelioma as a result of that inhalation? The answer, almost certainly, is No. L. Mulcahy QC & C. Dixon Page 16

17 59. At first instance Mr Justice Burton decided that he was not bound by the decision in Bolton but, in any event, determined that there was neither injury nor disease until the onset of mesothelioma (ie until the tumour had developed). He based this finding largely on the medical evidence [153] which he found was to the effect that there could be no injury until the tumour developed because it was only at that point that the tumour was sufficiently large so as: (i) not to be defeated by the bodies natural defences and (ii) to be capable of accelerating growth in its own right. In making this argument he rejected what he termed the retrospective argument namely that for those who develop mesothelioma there is an injury on inhalation because, for them, the inhaled asbestos fibres are not defeated by the bodies natural defences. 60. In the Court of Appeal Lord Justice Rix considered that he was bound by Bolton and so found that mesothelioma was not an injury until its onset ie until the development of the tumour [277]. However, he expressed serious doubts about the correctness of the decision and made it clear that, absent Bolton, he would have found differently. 61. In short, Lord Justice Rix would have found that, for the victims of mesothelioma, injury was suffered at the date of inhalation. He put the point this way: In the law, however, it seems that injury is very much a term of art. A trivial injury is not an injury for the purpose of the law of tort The law does not care about trivial things. However, if a trivial injury, such as a scratch or an insect bite leads on to more serious consequences, then the law does care about it. What is trivial? Not something which has material consequences. 62. For the victim of mesothelioma the inhalation of asbestos is not a trivial injury but is something which leads to material and serious consequences and could, therefore, be an injury for the purposes of the policy. Must the Injury be Actionable? 63. Returning to the quotation from Bolton: 15. This argument is, in my judgment, inconsistent both with principle and authority. It is inconsistent with principle because the contract between the parties is an agreement to indemnify against liability. It cannot be right that, at the stage of L. Mulcahy QC & C. Dixon Page 17

18 initial exposure or initial bodily reaction to such exposure, there could be a liability on the part of Bolton in respect of which they could require to be indemnified under any public liability insurance policy. Mr Green could not have sued for personal injury at that stage because he had suffered no injury at that stage. The indemnity which Bolton are seeking is an indemnity against their liability for their share in the sum of 160,000 which was ultimately paid to Mrs Green. Mr Green could not conceivably have recovered 160,000 when he was first exposed to asbestos and his body was, at that time, successfully dealing with the fibres which he was inhaling. He was at that stage a well man, not suffering from any injury at all. [Emphasis added] 64. The point to be taken from the highlighted sentence is that if Mr Green had sued immediately following his inhalation of asbestos then he would not have had a cause of action. At that stage, the tumour had not developed and there was nothing which could be said to sound in damages. As a result, even if there was an injury at the time of the inhalation that injury was not actionable. According to the Court of Appeal in Bolton it had to be to trigger the policy. 65. The underlying reason for this finding is not clear. EL policies by their very nature have two triggers. First, the liability of the employer to the employee without which there is no requirement for an indemnity from the EL insurer. Second, the relevant period of cover as defined under the EL policy itself. There appears to be no principled reason why the timing of the first trigger (which requires actionable injury) should, absent policy wording to that effect, determine the second. 66. It was common ground that there was no authority to support Lord Justice Longmore s proposition in Bolton but, notwithstanding this, Lord Justice Rix felt bound to follow this part of the Bolton decision. However, once again, had he not been so bound, then he would not have determined the issue in the same way. He would, rather, have found that either actionable damage did occur on inhalation either on normal tortious grounds or because the inhalation of asbestos constituted an increased risk of injury. 67. Rix LJ at [279] considered established cases such as Smith v Leech Brain & Co Ltd [1961] 2 QB 405 in which a small burn led to cancer and, ultimately, death. Actionable injury was sustained at the point of the burn even though the sufferer had thought nothing of it at the time. If this analysis is correct then it would have to be correct for L. Mulcahy QC & C. Dixon Page 18

19 both public liability and EL policies. The evidence at the trial of this action was that public liability policies had different historical origins and responded on a different basis to EL policies. In short, and consistent with the findings in Bolton, they responded by reference to the date of tumour. However, if actionable injury is suffered on inhalation then public liability policies must respond in the same way. If Burton J. s finding on the date of injury in this litigation is applied to public liability policies then the effect would be to shorten the public liability tail in mesothelioma cases from 10 to 5 years. However, if Rix L.J. s analysis is correct then the effect would be to greatly extendt the public liability tail to about 40 years. 68. Alternatively, Rix L.J. would have been prepared to find, on the basis of the decisions in Fairchild, Barker, Rothwell [2008] 1 AC 281 and Sienkowicz, that there was a new tort of negligently increasing the risk of injury. Consequently, actionable injury was suffered on inhalation. Had this finding been made it would have had far reaching consequences in the law of tort, particularly in terms of limitation. However, given that Sienkowicz is set to be heard by the Supreme Court in a matter of weeks it may be that should the Trigger litigation be appealed the merits of this issue will have already been more determined. 69. Ultimately however Lord Justice Rix having decided that he was bound by Bolton could not avoid the worse argument defeating the better [289]. Leigh-Ann Mulcahy QC & Clare Dixon 12 October 2010 L. Mulcahy QC & C. Dixon Page 19

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