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On 28 March 2012, the Supreme Court handed down its keenly anticipated judgment in the Employers Liability Policy Trigger Litigation. The Trigger Litigation involved nine appeals arising out of six separate test cases concerning the scope of an insurer’s obligation to indemnify employers against their liabilities towards employees who contracted mesothelioma following exposure to asbestos.  The appeals arose because the insurers maintain that Employment Liability (“EL“) policies only cover mesothelioma claims where the disease actually develops during the policy period. However the relevant employers and personal representatives submit that the policies cover mesothelioma contracted during the policy period, i.e. that it is the timing of the exposure which is the relevant trigger as opposed to the manifestation of the disease.

Background

Diseases with particularly long gestation periods, such as mesothelioma, have presented numerous difficulties for the courts. A vast body of case law surrounds the issue of whether liability arises on a “manifestation” or “causative” basis. Until 2006 it had been a long standing commercial practice for insurers to pay out on long-tail claims by reference to the date of exposure – the “causative” basis.

This practice was, however, thrown into disarray by the Court of Appeal’s decision in Bolton MBC v Municipal Mutual Insurance [2006] EWCA Civ 50 in which it was held that a public liability (“PL“) policy covering injury or illness ‘occurring’ during the currency of the policy was triggered only when the mesothelioma developed, as opposed to the time of causation.

The decision resulted in a great deal of doubt and uncertainty as to the operation of EL policies for employees who had contracted latent diseases.  Moreover the result created the potential for victims to be left without compensation or redress, a point which, if applicable to EL policies, would go against the intention of the Employers Liability (Compulsory Insurance) Act 1969, which, since 1 January 1972 has required every employer (other than local employers) to “insure and maintain insurance . . . for bodily injury or disease sustained by employees“.  It was against this background that the Trigger Litigation was brought.

Court of Appeal

The Court of Appeal overturned the decision of the High Court that each of the policies responded on an exposure, and thus causative, basis in drawing a firm distinction between the meanings of “contract” and “sustain”.  The court found, by a two to one majority, that where the words “disease contracted” were used in the EL policy, liability was triggered on a causative basis, but if the policy referred to “injuries sustained” then liability was only triggered on an manifestation basis.  The decision served to resurrect the uncertainty stemming from Bolton and both parties appealed.

The Supreme Court was required to consider the following issues:

– whether, on the appropriate construction of the policies in issue, mesothelioma is ‘contracted’ or ‘sustained’ at the moment the employee inhales the dangerous fibres or at the moment of manifestation of the disease; and

– whether the special rule as determined in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22 and Barker v Corus UK Ltd [2006] UKHL 20 applies when determining whether an employee ‘sustained’ or ‘contracted’ mesothelioma during a particular policy period.

Supreme Court Judgment

Policy construction

The Supreme Court unanimously found that both ‘sustained’ and ‘contracted’ referred to a causative trigger.  Lord Mance, in giving the lead judgment, stated that:

“the only approach, consistent with the nature and underlying purpose of these insurances both before and after the [1969 Act], is one which looks to the initiation or causation of the accident or disease which injured the employee.”

In coming to this conclusion Lord Mance identified a number of factors pointing to a causative trigger:

1)       the wording of the policies requires the injuries to be sustained during the course of employment;

2)       the wording illustrates a close connection between the employment undertaken and the premium agreed by the parties for the risks in respect of that period;

3)       if the trigger were manifestation based it would lead to a gap in cover where exposure occurs in one policy period and the injury/disease in another;

4)       on the insurer’s case an employer would be vulnerable to a decision by the insurer not to renew the policy, for example in response to a required disclosure by the employer of past negligence in relation to exposure; and

5)       a causative trigger prevented the territorial limits of the policies having an absurd effect so as to exclude injury or disease first experienced while abroad.

It was noted that the phraseology of ‘disease sustained’ did not sit comfortably with the “causative” analysis. Lord Mance stressed, however, that in this case it was ‘necessary to avoid over concentration on the meaning of single words or phrases viewed in isolation’ and that to read ‘sustained’ as meaning ‘developed’ or ‘manifested’ would be to ignore the underlying focus of the insurance cover.

Application of special rule

Following the cases of Fairchild and Barker, where an employee has been exposed to asbestos and later goes on to develop mesothelioma, an employer who has materially contributed to the risk of that employee contracting the disease will be held jointly and severally liable for causing the disease.  This is irrespective of whether that particular period of exposure played any or no part in the actual development of the disease.  What was in issue before the Supreme Court was whether the same principle could be applied to insurers by reference to the date of inhalation of asbestos in a particular policy period.

The court held by a majority of four to one, Lord Phillips dissenting,  that following the cases of Fairchild and Barker, the concept of a disease being ’caused’ during a policy period must be interpreted sufficiently flexibly to ’embrace the role assigned to exposure’ in these cases. For the purposes of the policies therefore:

“the negligent exposure of an employee to asbestos can properly be described as having a sufficient casual link or being sufficiently causally connected with subsequently arising mesothelioma for the policies to respond.”

Lord Phillips could not view the case law in such a flexible light, rather finding that the special rule was sufficient to make an employer liable but was not sufficient to establish that the mesothelioma was caused in a particular policy year.

Lord Phillips recognised that his interpretation of the legislation would lead to a situation in which insurers would be able to avoid paying out in cases of mesothelioma but considered that this was a matter for parliament to address.

Comment

The judgment has provided some clarity to this controversial area of law and, for the time being at least, should hopefully return some calm to the insurance market.  Insurers may not welcome the outcome of the decision but the benefit of the resulting certainty cannot be overestimated.

What remains to be seen is the effect the judgment may have on PL insurance which, as a result of the decision in Bolton, now sits in a somewhat difficult and inconsistent position.  The court felt that PL insurance and EL insurance ‘operate on different bases because of their different backgrounds, terms and purposes’ and as such did not profess to rule or make any judgment as to the correctness of the Court of Appeal’s decision in Bolton.