This appeal originally arose from a mesothelioma claim pursued in Guernsey and to which Guernesy law applied. In 2008 a Mr Carre (now deceased) was diagnosed with mesothelioma. He had been exposed to asbestos during employment with IEG between 1961-1988.
IEG-a solvent company-settled Mr Carre’s claim for a total outlay of some £274,000 (damages and costs).
IEG subsequently identified Zurich as their EL insurers and sought a full indemnity of their outlay in the claim despite the fact that Zurich were only on risk for the last 6 years of the 27 years of exposure.
The Zurich insurance policy wording was for injury or disease sustained / caused during any period of employment and for indemnity against all sums for which the insured were liable.
Zurich did not dispute that exposure occurred throughout employment and IEG had a full liability to Mr Carre or the amount for which damages / costs were settled.
The issue was the extent of Zurich’s indemnity. Were IEG entitled to a full indemnity from Zurich amounting to the entirety of its outlay in respect of Mr Carre’s claim? Or should Zurich’s contribution be limited and proportionate to its 6 years of cover relative to the overall 27 year period of exposure?
At 1st instance Cooke J held that Zurich need only pay a proportionate share of damages but the full costs of the claim. Cooke J’s findings were largely based on the Supreme Court’s (SC) decision in Barker v Corus UK Ltd UKHL 20, [2006] 2 AC 572; where exposure arises from multiple employers and each exposure can only be shown to have contributed to the overall risk of disease, then each employer’s liability is proportionate to its contribution to the overall risk. The Compensation Act 2006, which reversed the effect of the SC’s decision in Barker, did not apply to Guernsey and there was no equivalent Guernsey legislation.
IEG appealed. Zurich cross appealed, challenging Cooke J’s decision (i) that Zurich should pay full costs rather than a proportionate share (in the same share as damages), and (ii) rejection of Zurich’s alternative submission that it should be entitled, as a matter of equity, to a contribution from IEG in respect of the 21 year period that Mr Carre had been exposed by IEG but not insured by Zurich.
Court of appeal findings
The CA unanimously found that Cooke J’s interpretation of Barker and the test of causation was wrong. Shortly after Cooke J’s decision the SC in the ‘EL Trigger Litigation’ (Durham v BAI (Run off) Ltd), UKSC 14, [2012] 1 WLR 867, had re-examined Barker (described by the CA as ‘a problematic decision’ that ‘has not fared well’). In Trigger the majority of the SC found that whilst the general policy of the courts is to apply the ‘but for’ test, in some circumstances, where there are sufficiently powerful reasons for doing so, the courts may as a matter of legal policy accept ‘a weaker cause or relationship’ for the imposition of responsibility. The SC also described this as a ‘broader test of causation’;
If during a period of insurance cover there is a sufficient ‘weak’ or ‘broad’ causal link then the disease is to be regarded as ‘caused within the insurance period’ and IEG were contractually entitled to a full indemnity. The fact that Mr Carre’s exposure to asbestos during the rest of his employment was also an effective cause of the disease was irrelevant to IEG’s right to indemnity on the wording of the policy and on ordinary principles of insurance law.
Zurich’s argument for an equitable contribution from the solvent insured was rejected. There was no room for the operation of any equitable principles that could counteract or mitigate the effects of the ordinary insurance contract law principles. To limit the scope of indemnity would require a special clause which would then be incompatible with the Employers Liability (Compulsory Insurance) Act 1969. It would deprive the employer of insurance cover for which it had paid.
Implications
Zurich has indicated that it will appeal the decision. It will pursue the argument that in mesothelioma claims involving solvent insureds and gaps in insurance cover, an insurer is only responsible for a proportionate share of the claim. Alternatively, if there is full indemnity, then there is an equitable right of contribution from the solvent insured.
The argument for such a limit in indemnity is a matter of construction of insurance policies and insurance law. However the SC will no doubt consider the wider implications of how a reduced indemnity would affect the individual circumstances of mesothelioma claims where such indemnity disputes arise. What if the solvent insured does not have the financial ability to cover insurance gaps and meet their ‘self-insured’ liability? Is the claimant to be left with a shortfall in damages? Will insurers pick up any shortfall beyond their strict proportionate share of the claim?
What will be the position of the FSCS where it is a ‘co-insurer’ to such a claim? Will the FSCS still consider itself a ‘funder of last resort’?
Barker has also been used to argue for apportioned damages in asbestos lung cancer cases. How would such argument survive if a ‘weaker’ or ‘broader’ test of causation is applied to such claims in future?
Boris Cetnik
7th February, 2013