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Background

Mr Alan Carré (“AC”) worked for International Energy Group Limited (“IEG”) in Guernsey for 27 years, from 1961 to 1988, after which he worked for another employer until his retirement in April 2008. In July 2008 AC was diagnosed with mesothelioma and sadly died from the illness a year later. Throughout his employment with IEG, AC was exposed to asbestos dust and fibres without adequate protective equipment.

In a claim brought by AC which was continued after his death, it was alleged that the mesothelioma was caused by IEG’s negligence in allowing AC to be exposed to asbestos during his employment. The claim was settled following IEG’s agreement to pay AC’s estate £250,000 plus costs, in respect of which IEG then claimed indemnity under its employers’ liability insurance policy (the “Policy”) from its insurer, Zurich Insurance plc UK.

The Policy provided (emphasis added):

“If any person under a contract of service or apprenticeship with the Insured shall sustain a bodily injury or disease caused during any period of insurance and arising out of and in the course of his employment by the Insured in the business above mentioned, the Company will indemnify the Insured against all sums for which the Insured shall be liable in respect of any claim for damages for such injury or disease settled or defended with the consent of the Company.”

Zurich did not dispute the fact of IEG’s liability to AC, nor the quantum of damages IEG paid to AC in settlement. However, Zurich did challenge IEG’s entitlement to a full indemnity under the Policy on the basis that Zurich was only “on risk” (i.e. acting as IEG’s insurer) for the last 6 out of the 27 years during which AC was employed by IEG. On this basis, Zurich argued that it was liable to IEG only for a proportionate amount of the full claim (i.e. 6/27).

The Compensation Act 2006 (the “Act”) provides that where several employers have negligently exposed an employee to asbestos fibres, and that employee then goes on to develop mesothelioma, each of those employers will be jointly and severally liable to pay the victim compensation in respect of the total period of exposure (notwithstanding that the employee was exposed under several different employers). However, given that the original claim was brought in Guernsey, the Act did not apply and the case fell to be decided on the basis of Guernsey common law.

In the High Court[1] Mr Justice Cooke referred to the case of Barker v Corus UK Ltd[2] and found that IEG’s liability in any given year of the policy was for the wrongful exposure to risk which was created in that year. On this basis, he found in favour of Zurich in holding that it was only liable to IEG pro ratain respect of the proportion of time it had been on risk (i.e. for 6/27 of the full claim). IEG appealed the judgment.

Court of Appeal Decision

The Court of Appeal[3] overturned Mr Justice Cooke’s decision and found that Zurich was in fact liable for the entire amount claimed by IEG. In reaching this conclusion, the Court analysed the Supreme Court’s decision in the Employers’ Liability Policy Trigger Litigation[4], a series of joined test cases concerning mesothelioma (it should be noted that Mr Justice Cooke did not have the benefit of this decision, which was not handed down until two months after his High Court judgment).

In the Trigger litigation, the Supreme Court held (Lord Phillips dissenting) on a consideration of Fairchild v Glenhaven Funeral Services[5] that the relevant date on which employers’ liability insurance policies will be triggered is the date (or dates) on which the victim was exposed to the asbestos, not the date when mesothelioma first manifests in the victim. This represents a slightly more relaxed view of causation compared with the approach in Barker, which focused on the wrongful creation of risk. Per Lord Justice Mance at paragraph 68:

“[There is] a causal link, between the exposure and the mesothelioma, sufficient for it to be said that the mesothelioma was ‘the result’ of each (and every) exposure.”

At paragraph 73:

“[F]or the purposes of the insurances, liability for mesothelioma following upon exposure to asbestos created during an insurance period involves a sufficient ‘weak’ or ‘broad’ causal link for the disease to be regarded as ‘caused’ within the insurance period.”

The Court of Appeal found that once this causal requirement is met, the contractual wording of the insurance policy (“sustain a bodily injury or disease caused during any period of insurance”) engages and the insured employer will be entitled to an indemnity from the insurer “against all sums” for which it is liable.

Interestingly, the Court of Appeal stated that it was not relevant that AC had been exposed to asbestos whilst working for other employers; this did not affect the fact of IEG’s contractual right to be indemnified under Zurich’s policy (as worded).

 Appeal to the Supreme Court

Zurich applied directly to the Supreme Court for permission to appeal the Court of Appeal’s decision, which was given on 29 July 2013, and the appeal was heard by the Supreme Court on 15 and 16 July 2014.

The judgment is expected to provide further clarification of this area and of the decisions in Fairchild and the Trigger litigation, and to answer the question of whether IEG is indemnified by Zurich in respect of the full amount of AC’s claim, or whether this is limited to a proportionate amount.

Individual victims and employers’ liability insurance policy holders will likely want to see the Court of Appeal’s decision upheld as it allows a great deal of flexibility in seeking payment from insurers and potentially (depending on the wording of the policy in question) allows them to ‘cherry pick’ as between all triggered insurers, choosing the one with the best cover and avoiding gaps or insolvent periods. Conversely, insurers would no doubt welcome a return to a more restrictive approach to liability, and the consequent reduction in exposure.

 

 

[1] International Energy Group Limited v Zurich Insurance plc UK [2012] EWHC 69 (Comm)

[2] Barker v Corus UK Ltd [2006] UKHL 20

[3] International Energy Group Ltd v Zurich Insurance plc UK [2013] EWCA Civ 39

[4] BAI (Run off) Ltd (In Scheme of Arrangement) and others v Durham and others [2012] 1 WLR 867

[5] Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22