Briefing. Asbestos Update. Parent Liability, Employer Liability and more. May Parent Company Liability

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1 Briefing Asbestos Update May 2012 Parent Liability, Employer Liability and more In this briefing, we consider two recent judgments on (1) the responsibility of parent companies for the liabilities of subsidiaries and (2) the trigger for cover under employer liability insurance for mesothelioma claims. We also review the Control of Asbestos Regulations 2012 and comment on the Health and Safety Executive s approach to enforcement in the asbestos area. Parent Company Liability The Court of Appeal has recently 1 provided a significant judgment on the responsibility of a parent company, Cape Plc, for the asbestos liability of its subsidiary. The case is significant as it is the first time a parent company has been held directly responsible for asbestos exposure suffered by the employees of a subsidiary. It is not yet known whether Cape will appeal. The Court of Appeal was unanimous in its decision that Cape had assumed a direct responsibility to its subsidiary s employees in respect of asbestos exposure. The case was fact specific but some of the factors which influenced the Court in finding that this responsibility existed included: The parent had involvement in health and safety issues which affected the subsidiary. For instance a group medical adviser was in place; group medical surveillance was carried out; and a group manual provided for regular medical checkups for all employees having regular exposure to asbestos; There was always one or more directors of the parent on the board of the subsidiary; The parent exercised some control over the activities of the subsidiary (including some financial control); and The parent was aware of working conditions at the subsidiary and aware that systemic failures in respect of asbestos control measures were occurring. The Court set out explicitly that absolute control of the subsidiary was not necessary for the parent to assume a responsibility to employees of the subsidiary. Looking at the broader implications of the decision, the circumstances where a parent is likely to have responsibility for the health and safety of a subsidiary s employees include: where the business of the parent and subsidiary are in a relevant respect the same; the parent knew (or ought to have known) that the subsidiary s system of work was unsafe; the parent has (or ought to have) superior knowledge on health and safety in the particular industry; and the parent knew, or should have anticipated, that the subsidiary or its employees would rely on it using that superior knowledge for the employees protection. Where responsibility is found to exist, to discharge this responsibility the parent must either advise the subsidiary of what steps should be taken to provide a safe system of work or ensure those steps are taken. The judgment could have significant financial implications for some parent companies in relation to historic asbestos exposure. The case also brings into focus group arrangements for managing asbestos and other risks. While a parent company may wish to retain some control over the arrangements of subsidiaries and ensure uniformity across the group, this will need balancing against the risk of potential extension of liability both civil and criminal. In particular, if the parent was successfully prosecuted for a health and safety related offence, the Court would consider its turnover when deciding on the level of any fine. A fine assessed against the turnover of a parent as opposed to a subsidiary may potentially be significantly higher. Trigger Litigation the status quo restored On 28 March 2012, the long-awaited judgment of the Supreme Court was handed down in a series of employers liability (EL) mesothelioma cases ( the EL Trigger Litigation ). The judgment restores the market practice that had existed for many years for EL insurers to pay claims for mesothelioma where exposure to asbestos had occurred during the policy period regardless of whether the policy indemnity trigger was disease caused (causation wording), injury sustained or disease contracted (occurrence wording) during the policy period. 1 David Brian Chandler v Cape Plc [2012] EWCA Civ 525

2 The insurers in the EL Trigger Litigation sought to challenge that position in respect of mesothelioma claims as a result of the case of Bolton MBC v Municipal Mutual Insurance Limited. Bolton held that the trigger point for public liability (PL) policies (using similar occurrence wording) was not exposure but a much later point (typically at least 30 years) when a tumour began to develop (the point of angiogenesis of the disease) around 10 years prior to diagnosis. The Court of Appeal in the EL Trigger Litigation applied a similar interpretation to EL policies as Bolton did to PL policies although the angiogenesis/tumour which triggered indemnity was considered to be some 5 years prior to diagnosis. The potential insurance ramifications for mesothelioma sufferers, employers and some insurers were highly significant. The decision meant that some employers would be uninsured in respect of liabilities and unable to compensate employees who had developed mesothelioma. Some insurers were also potentially liable for risks they never anticipated when writing and pricing insurance cover. The uncertainty for victims, employers and insurers has now been resolved with the Supreme Court holding that: 1 EL and PL policies are insurance policies for fundamentally different purposes and interpretation had to take that into account. The court was not required to and would not follow Bolton in respect of EL policies; and 2 Interpretation should not just focus on individual words. Taking broader construction into account, the insurance trigger for injury sustained and disease contracted wordings in the context of mesothelioma cases and EL policies was exposure to asbestos in the course of employment. The EL Trigger Litigation decision does not affect the trigger position for PL insurance (which continues to follow Bolton) although there may be further litigation in relation to issues such as latency period. Nor does the decision alter the fact that before employers and their insurers can be liable for exposing an employee to asbestos, actionable injury or disease must arise. Therefore the decision does not alter the position regarding pleural plaques in England and Wales which are not actionable. This decision is a welcome clarification, after a number of years of uncertainty for employees, employers and insurers alike. It is also a timely reminder to employers to make sure they have as accurate a record as possible of their insurance history given that policies from many years ago may provide valuable cover. Control of Asbestos Regulations 2012 On 6 April 2012, the Control of Asbestos Regulations 2012 (CAR 2012) came into force. Whilst these Regulations update the previous Control of Asbestos Regulations 2006 (CAR 2006), the requirements under CAR 2012 remain largely unchanged. The Unchanged Obligations Under CAR 2012 the main obligations remain the same, such as: Those responsible for the maintenance or repair of non-domestic premises have a duty to manage asbestos. This involves making a suitable and sufficient assessment as to whether asbestos is or is liable to be present in the premises. Before carrying out work which is liable to expose employees to asbestos, employers must make a suitable and sufficient assessment of the risk, and manage and control those risks (including plans of work detailing how work is to be carried out before working with asbestos). The requirements for licenced work (i.e. not undertaking any licensable work with asbestos without holding a licence) and notifications to the relevant enforcing authority remain the same. Regular training is mandatory for anyone liable to be exposed to asbestos at work or who supervises such employees. Changes from 6 April 2012 The main change under CAR 2012 relates to some types of non-licenced asbestos work. The main changes that have come into force from 6 April 2012 are that: Non-licenced work needs to be notified to the relevant enforcing authority before work commences where it is not exempted by Regulation 3(2). Regulation 3(2) sets out that notification does not apply where: (a) exposure is sporadic and of low intensity; and (b) it is clear from the risk assessment that exposure will not exceed the control limit (0.1 fibres per cm3 of air averaged over a continuous period of 4 hours); and (c) the work involves (i) short non-continuous maintenance activities in which only non-friable materials are handled; or (ii) removal without deterioration of non-degraded materials in which the Asbestos fibres are firmly linked in the matrix; or (iii) encapsulation or sealing of asbestos containing materials which are in good condition; or (iv) air monitoring and control and the collection and analysis of samples to ascertain whether a specific material contains asbestos. Brief written records should be kept of non-licenced work which has to be notified. The Health and Safety Executive (HSE) suggests that a copy of the notification with a list of workers on the job, plus the level of likely exposure of those workers to asbestos should be kept. By 30 April 2015, those carrying out non-licenced work

3 with asbestos that is not exempt under Regulation 3(2) (above) must be under adequate medical surveillance by a doctor. This must include a medical examination to the chest, not more than two years before the beginning of exposure to asbestos and periodic medical examinations at intervals of at least once every two years while exposure continues. There have also been changes to modernise the language of CAR 2012, and the addition of new definitions and changes to reflect changes to other legislation, for example the removal of certain elements which are now covered under REACH (Registration, Evaluation, Authorisation and restriction of Chemicals) Regulation. It is important for businesses to be aware of the new Regulations in place and to ensure that their working practices comply with this new legislation. If you would like any further information on your duties under CAR 2012 please contact a member of our asbestos team. Asbestos: enforcement trends As outlined above, on 6 April 2012, the Control of Asbestos Regulations 2012 (CAR 2012) came into force, but the requirements of the previous Control of Asbestos Regulations 2006 (CAR 2006) remain largely in place. Consequently, the HSE s approach to enforcement is likely to remain focussed on similar areas post 6 April The HSE s General Enforcement Guidance and Advice The HSE sets out the criteria where it will consider prosecution in its document General Enforcement Guidance and Advice relating to the 2006 regulations. The HSE identifies several specific instances where enforcement action be it prohibition notices, improvement notices or prosecution should be considered. In relation to the duty to manage, an inadequate or non-existent management plan, a failure to cooperate with a duty holder or a failure to review or implement a plan, all constitute instances where, in serious cases, consideration should be given to prosecute. This is particularly the case where they form part of a series of failures. The HSE s Guidance and Advice also identifies enforcement guidelines for non-licensed and licensed asbestos works. Given the changes in respect of non-licensed work under CAR 2012, it may be that the HSE will update this section of its Guidance and Advice, although there is no indication as yet when this will happen. M&S was criticised for failing to allocate sufficient time and space for the removal of asbestos containing materials and, even though M&S had its own guidance on how asbestos should be removed from its stores, it failed to ensure that its contractors work was carried out appropriately and in accordance with asbestos regulations and approved codes of practice. Costs The HSE is also not afraid to ask for significant cost orders in its favour. In the M&S prosecution, Willmott Dixon (M&S contractor at one of the stores) was fined 50,000 but ordered to pay 75,000 in costs. In a February 2011 prosecution against Libra Demolition, the company was fined 1,500 for failing to manage and monitor asbestos removal work and was also ordered to pay costs of 10,000. Joint prosecutions The HSE may not be the only enforcement agency involved in asbestos related enforcement or prosecutions. In the Libra Demolition case, the HSE and the Environment Agency conducted a joint prosecution. The HSE and the EA have also worked together on other asbestos related prosecutions such as that in April 2011, when Michael Murton was jointly prosecuted by the HSE and EA. Murton received suspended sentences, was ordered to carry out 200 hours of community service and was ordered to pay costs of 10,000 for failing to identify the presence of asbestos in a nightclub before work commenced. Conclusion Given the introduction of the CAR 2012 and the HSE s estimate that more than 500,000 non-domestic premises, including schools, shops and offices still contain some form of asbestos, it is not likely that the level of asbestos related enforcement activity, including prosecutions, will fall. Those with a duty to manage asbestos therefore need to be confident that they already have in place appropriate systems and checks to comply with CAR 2012, rather than waiting for an enforcement agency to discover failings. Major fines Last year saw one of the biggest fines for asbestos related offences given to M&S. M&S was fined 1 million and ordered to pay the HSE s costs of 600,000 and 3 of its contractors were also fined for offences which took place during refurbishment works at 2 separate M&S stores.

4 Burges Salmon s Asbestos team Our asbestos team is drawn from a number of practice areas including insurance, environmental and health & safety. We assist clients with a wide range of asbestos related issues including due diligence, policy coverage, the settlement of liability claims, compliance with the Control of Asbestos Regulations and investigations and prosecutions for breach of asbestos legislation. Kari McCormick is Head of the firm s cross practice Insurance Group and a partner in the Dispute Resolution team. She has many years experience of advising on asbestos coverage and liability issues, particularly in the context of employer liability and public liability insurances. Kari has negotiated a number of complicated settlements dealing with the apportionment of asbestos related claims between contributing parties (employers, contractors, insurers) and the difficulties created by the inability to commute employer liability insurance. Kari has also had considerable dealings with the Financial Services Compensation Scheme in relation to asbestos insurance liability issues and assisted in the drafting of the ABI Guidelines for Apportioning and Handling Employers Liability Mesothelioma Claims. Michael Barlow is a partner in the firm s Environment and Energy team and advises clients on a wide range of contentious and non-contentious environmental issues. He has advised a wide variety of clients on compliance with the Control of Asbestos Regulations, including advice on asbestos issues relating to what is currently the largest demolition project in Western Europe. He has also advised clients on defending claims for mesothelioma developed by ex-employees, particularly in complex factual situations following multiple changes of ownership of the employer. +44 (0) michael.barlow@burges-salmon.com Joanne Attwood is a solicitor in the Environment and Energy team. Joanne advises on contentious and non-contentious environmental and regulatory issues. She regularly advises clients on duties under the Control of Asbestos Regulations. Joanne has particular experience in advising on asbestos liability issues arising through the due diligence process on property and corporate transactions +44 (0) kari.mccormick@burges-salmon.com +44 (0) joanne.attwood@burges-salmon.com Brian Wong is a Senior Associate within the Dispute Resolution team. He has significant experience over a number of years of advising on and conducting asbestos liability claims and related insurance coverage disputes (both employers and public liability). He has also advised in relation to asbestos issues and related aspects of corporate restructuring, insolvency and the Financial Services Compensation Scheme. +44 (0) brian.wong@burges-salmon.com Catherine Gilbert is a Senior Associate in the Health and Safety and Construction teams. She advises clients mainly in the construction and engineering, rail, aviation and defence industries on complex regulatory and commercial disputes. Catherine has acted for clients in HSE prosecutions relating to fatal and serious accidents and has represented clients at inquests. Catherine s experience includes considering detailed asbestos related issues arising out of the demolition of a large chemical plant. +44 (0) catherine.gilbert@burges-salmon.com

5 Ann Metherall is dual qualified as a Solicitor and Chartered Civil Engineer and leads Burges Salmon s Health and Safety team. At the heart of Ann s work is support to clients in infrastructure and complex industrial businesses. She advises clients on a broad range of health and safety and regulatory issues and commercial disputes. Her health and safety work includes defending Health and Safety Executive and other regulator prosecutions; advising clients on fatal and major accident responses (including representation at inquests) and corporate manslaughter litigation; conducting and co-ordinating fatality investigations; advising clients on safety management systems and business risk mitigation; and the implementation of European legislation in the UK. Ann has advised on the application of the Control of Asbestos Regulations and represented clients during HSE investigations and prosecutions for breach of asbestos legislation. Alex Bogustawski is an Associate in the Health and Safety Team. Alex has extensive experience advising on safety related matters including investigations by the Health and Safety Executive and other regulatory bodies. This has included providing immediate on site attendance and support following a safety incident. Alex has delivered a number of interactive sessions to executive teams advising on safety law developments (including the new corporate manslaughter legislation) and practical risk mitigation measures. Alex has provided advice to the insurance company to a number of train operating companies as to its potential liability for mesothelioma claims in trigger cases. +44 (0) alex.bogustawski@burges-salmon.com +44 (0) ann.metherall@burges-salmon.com Burges Salmon LLP, One Glass Wharf, Bristol BS2 0ZX Tel: +44 (0) Fax: +44 (0) Chancery Exchange, 10 Furnival Street, London EC4A 1AB Tel: +44 (0) Fax: +44 (0) Burges Salmon LLP is a Limited Liability Partnership registered in England and Wales (LLP number OC307212) and is authorised and regulated by the Solicitors Regulation Authority. A list of members, all of whom are solicitors, may be inspected at our registered office: One Glass Wharf, Bristol BS2 0ZX. Burges Salmon LLP All rights reserved. Extracts may be reproduced with our prior consent, provided that the source is acknowledged. Disclaimer: This briefing gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content. Data Protection: Your details are processed and kept securely in accordance with the Data Protection Act We may use your personal information to send information to you about our products and services, newsletters and legal updates; to invite you to our training seminars and other events; and for analysis including generation of marketing reports. To help us keep our database up to date, please let us know if your contact details change or if you do not want to receive any further marketing material by contacting marketing@burges-salmon.com. BRM