Focus: Long-running UK mesothelioma litigation resolved
2 April 2012
In brief: The UK Supreme Court has handed down its decision in the 'EL Trigger Litigation' concerning a long-running dispute about insurers' liability to compensate mesothelioma victims, making it clear their obligation to indemnify employers will be triggered when an employee is negligently exposed to asbestos fibres. Partner Dean Carrigan , Senior Associate Philip Hopley and Lawyer Stephen Lloyd report.
How does it affect you?
- The decision1 provides clarity for insurers of UK employment liability (EL) insurance policies and their reinsurers that their obligation to indemnify employers who compensate victims of mesothelioma (or other latent diseases) will be triggered when an employee is negligently exposed to asbestos fibres.
- Insurers under such policies will no longer be able to avoid liability by arguing that a later EL policy that was in place when the mesothelioma was actually diagnosed is the policy that should respond to a claim.
- This case still leaves insurers of UK public liability policies that cover occupational injuries in a different, and apparently inconsistent, position. The Supreme Court has declined to overrule the English Court of Appeal's judgment in Bolton2 that held that the date of injury under a public liability policy is the date the injury or disease manifests itself.
Mesothelioma is a fatal disease caused by the inhalation of asbestos fibres. It has an extremely long latency period, of up to 40 or 50 years, before it develops and becomes diagnosable.
From the 1940s until the late 1990s, EL policy wordings in the UK3 used a number of different 'triggers' for cover. The most common wording offered cover for injuries 'caused during the period of insurance', and it is accepted that policies with that wording were triggered at the time the employee inhaled asbestos fibres and not when the disease ultimately developed.
However, some EL insurers issued policies where the trigger for cover was not the date of the cause of the injury but, rather, the date on which the injury was 'sustained' or, alternatively, 'contracted'.
Until 2006, this difference in wordings was not seen as significant, and the insurance and reinsurance markets paid claims on the assumption that the different wordings meant the same thing. It was also assumed that, in mesothelioma claims, the relevant 'injury' was suffered at the time of inhalation.
Those assumptions changed with the Bolton decision of the English Court of Appeal in 2006.There, it was held that a public liability policy that covered bodily injury 'occurring' during the policy period was triggered when the cancer first developed, and not when the employee inhaled the asbestos fibres.
Bolton cast doubt over the operation of EL policies with 'injuries sustained' and 'disease contracted' wordings for employees who had contracted mesothelioma or other latent diseases. Significantly, it created the potential for victims to be left without any compensation if, as insurers contended, the courts were bound to follow Bolton and hold that these policies were only triggered when the employee developed mesothelioma.
What became known as the 'EL Trigger Litigation' – a consolidation of employment liability claims against various insurers – was launched to resolve this issue.
At first instance, the High Court returned to the pre-Bolton position, by finding that the 'injuries sustained' and 'disease contracted' employment liability wordings meant the same as an 'injuries caused' policy wording.
On appeal to the Court of Appeal, the uncertainty that Bolton had created was resurrected. The Court of Appeal held that EL policies:
- referring to 'diseases contracted' were triggered by exposure to asbestos; and
- referring to 'injuries sustained' were triggered only by the development of mesothelioma.
The two issues on appeal were:
- for the purposes of construing an EL policy, is mesothelioma 'sustained' or 'contracted' at the time of the employee's exposure to asbestos, or only later, when the disease manifests itself?; and
- does the special rule in Fairchild4 apply when determining whether an employee 'sustained' or 'contracted' mesothelioma during a particular policy period?
In dismissing the insurers' appeals, the Supreme Court unanimously decided that the answer to the first issue was the relevant date of exposure to asbestos. It decided by a 4-1 majority that the answer to the second issue was yes.
In explaining its reasoning on the first issue, the court identified a number of special features that pointed to the correct interpretation of the trigger for cover under EL policies being aligned with the date of exposure to asbestos. In particular:
- the wordings of the EL policies in question required injuries to be sustained during the course of employment. There was also a close connection between the employment undertaken for a particular period and the premium agreed by an insurer for the risk for that period;
- there would be the potential for employees to be left without access to insurance if EL cover were not triggered until a disease manifested itself, and where, in the meantime, the employee had changed jobs, or the employer had changed insurers or gone out of business;
- the insurers' contended interpretation of the policies would make it possible for them to avoid their liabilities entirely if they decided not to renew them. For example, this could occur in response to an employer's disclosure that it had exposed its employees to asbestos in the past; and
- interpreting EL insurance on a causation basis also gave proper effect to the protective purpose of historic and current UK legislation that requires every employer to maintain EL insurance for injuries to employees that arise out of the course of their employment.
In relation to the second issue, the majority held that the concept of a disease being caused during the policy period had to be interpreted flexibly, so as to be consistent with the rule in Fairchild. To do otherwise could result in a situation where employers, but not their insurers, were liable to employees for latent diseases.
Significantly, the Supreme Court did not expressly overrule the Court of Appeal's judgment in Bolton, and distinguished it on the basis that it concerned public liability insurance. The circumstances of the appeal made it unnecessary to consider what the position may be under these types of policies.
Although Australian law has, for some time, adopted the position under both workers compensation and public liability policies for latent diseases that the relevant date of injury is the date of exposure, the EL Trigger Litigation has been closely monitored because of the effect the outcome was expected to have on the European and North American insurance and reinsurance markets if, as has happened, insurers were unsuccessful.
UK insurers and their reinsurers will welcome the clarification of the law (if not the actual result) that effectively restores the market to its pre-2006 position for EL policies. It is now clear that an employee's negligent exposure to asbestos during the period of employment will trigger that insurer's obligation to indemnify the employer.
Reinsurers will now be in a clearer position to assess and allocate claims presented to them, and consider particular reinsurance issues, such as aggregation, that will arise.
While insurers of public liability policies in the UK will not have been greatly encouraged by the emphatic dismissal of the EL insurers' appeals, Bolton will remain good law until such time as the Supreme Court is asked to consider it.
- Trigger – BAI (Run Off) Limited (In Scheme of Arrangement) v Durham and others  UKSC 14.
- Bolton MBC v Municipal Mutual Insurance Ltd  EWCA Civ 50.
- Equivalent to workers compensation policies in Australia.
- This rule creates an exception to the general principle of causation that a claimant must establish that a defendant's negligence caused their injury or disease. Since 2002, English law has recognised that this does not apply to mesothelioma cases, and an employer will be deemed to have caused the mesothelioma if a claimant can simply show that they were exposed to asbestos by that employer: Fairchild v Glenhaven Funeral Services Ltd  UKHL 22 and Barker v Corus UK Ltd  UKHL 20. This rule has not been incorporated into Australian law, which maintains the general principle of causation in negligence cases for latent diseases.
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- Jamie WellsPartner,
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