An employer which exposes an employee to asbestos creating a risk of mesothelioma is, as matter of English law, treated as causing later contracted mesothelioma. As a result of the Compensation Act 2006, the employer and thus its Employer's Liability ("EL") insurer, is liable for the full amount of its insured's liability for mesothelioma so caused. However, and upon payment, the insurer has an equitable right to seek contribution as against other insurers during the period of exposure. In a new development of the law, and by a 4-3 majority, the insurer also has a right of contribution against the insured itself in respect of any period of uninsured exposure.
In Zurich Insurance PLC UK v International Energy Group Limited  UKSC 33, the Supreme Court overturned the Court of Appeal's decision (and reinstated the first instance decision of Cooke J) in relation to an insured loss arising under the laws of Guernsey. In Guernsey there is no equivalent to the Compensation Act 2006 and, therefore, following the House of Lords' decision in Barker v Corus, an EL insurer is only liable for a rateable proportion of the loss by reference to its period on risk in the context of the time during which the insured exposed the victim to asbestos. In so deciding, and given agreement that Guernsey law mirrored English common law, the Supreme Court took the opportunity to opine on the position under English law more widely relating to the indivisible disease mesothelioma.
The Claimant was responsible for all of the liabilities of Guernsey Gas Light Co Ltd (referred to collectively below as the "insured"). It sought an indemnity under EL policies issued by Midland Assurance Ltd, whose liabilities had been succeeded to by Zurich (the "insurer") covering a 6 year period from 31 December 1982 to 31 December 1988.
The insured employed Mr Carré for 27 years from 13 November 1961 to 31 December 1988. Throughout the entire 27 year period of employment (which included the 6 year policy period) Mr Carré was negligently exposed to asbestos by the insured. He subsequently contracted and died of mesothelioma.
Mr Carré's claim was settled by the insured who then sought to recover the settlement sum and its own costs from the insurer. The insured's total outlay amounted to £274,431.60.
The issue in dispute was whether the insured was entitled to an indemnity from the insurer amounting to the entirety of its outlay or whether it was only entitled to a proportion, corresponding to the proportion which the insurer's 6 year policy period bore to the full 27 year period of Mr Carré's exposure to asbestos by the insured.
The insured's liability to Mr Carré was governed by the law of Guernsey where the UK Compensation Act 2006 (the "Compensation Act") did not apply. The insurer argued that this was crucial, since the effect of the Compensation Act was to reverse the decision of the House of Lords in Barker v Corus UK Ltd  2 AC 572, with the result that the position in Guernsey was governed by the decision in Barker.
First instance decision
At first instance, Cooke J found that the insured was entitled to a full indemnity in respect of its costs of defending Mr Carré's claim, but that otherwise its right of indemnity was limited to a share of its outlay based on the proportion of the period of Mr Carré's employment by the insured for which the insurer was on risk.
Cooke J founded his conclusions on his understanding of the rulings in Fairchild v Glenhaven Funeral Services Ltd  1 AC 32 and Barker. He held that the liability of the insured in each policy year was the amount of risk which it created in that year. Accordingly, the total risk that the insured created during the 6-year policy period for which the insurer was on risk was to be calculated by comparison with the total period of Mr Carré's employment.
Cooke J rejected the insurer's alternative argument that it had an equitable right of contribution as against other insurers and the insured.
The insured appealed against the rejection of its claim for a full indemnity and the insurer cross-appealed, challenging Cooke J's award of a full indemnity in respect of defence costs and his rejection of its alternative equity-based argument.
Court of Appeal decision
The Court of Appeal was unanimous in allowing the insured's appeal against the refusal to grant a full indemnity and rejecting the insurer's cross-appeals.
Giving the leading judgment, Toulson LJ indicated that the key to the question of whether the insured was entitled to a full indemnity was found in the decision of the Supreme Court in Durham v BAI (Run Off) Ltd  1 WLR 867 (the "Trigger litigation"). He held that, properly analysed, Fairchild was a recognition that, in this particular type of case, because of the limitations of medical science, the usual "but for" test of causation should give way to a more generous test of causation, by which it was sufficient for the claimant to prove that the defendant had merely increased the risk of the victim contracting mesothelioma and that the victim had contracted the disease.
The Court of Appeal held that the conclusion of the majority in the Trigger litigation on the interpretation of the Fairchild principle applied directly to the present case and, thus, that Cooke J was wrong to assess the insurer's liability on a time on risk basis. It was concluded that the combined effect of Fairchild and the Trigger litigation was that there was sufficient link between Mr Carré's exposure to asbestos during the 6-year policy period and his contraction of mesothelioma for the insured to be legally liable for causing his disease and the insured had a contractual right of indemnity under the policy against that liability. The fact that, by the same reasoning, Mr Carré's exposure to asbestos during the rest of his employment was also an effective cause was irrelevant to the insured's right to an indemnity.
The Court of Appeal also rejected the insurer's alternative argument that it had an equitable right of contribution.
The insurer appealed, seeking both a reinstatement of Cooke J's first instance decision and a reversal of both the first instance and Court of Appeal judgments on its alternative argument.
Supreme Court decision
The Supreme Court overturned the Court of Appeal's decision and reinstated the first instance decision of Cooke J with regard to the compensation element of the claim, thereby confirming that, in the context of a claim arising in Guernsey, an insurer's liability should be assessed on a time on risk basis. It is important to note that, despite the Supreme Court unanimously deciding to overturn the Court of Appeal's decision, the seven Justices were split 4 to 3 as to their reasoning. In particular there was disagreement as regards how the position would be different in a UK context.
Giving the leading majority judgment, Lord Mance rejected the insured's submission that the Trigger litigation had the effect of undermining the decision in Barker. Accordingly in Guernsey the common law position remains as stated in Barker and it follows that, as an employer can only be liable by reference to its material contribution to the risk of harm to the employee, so an insurer can only be liable by reference to its time on risk.
As to the UK position, Lord Mance acknowledged the insured's submission that the so-called "special rule" arising by virtue of Fairchild, Barker, the Trigger litigation and the Compensation Act has the effect of entitling an employer to "spike" the entirety of its liability to one insurer (irrespective of how long that insurer was actually on risk). He accepted that the Supreme Court was bound, by virtue of the decision in the Trigger litigation, to hold that mesothelioma is caused in each and every period of any overall period of exposure and thus in each and every period of insurance. The starting point, therefore, is that an employer is entitled to "spike" as against an insurer of its choosing.
Lord Mance recognised that to end the discussion there, however, causes fundamental problems in relation to liability insurance more generally, not least:
- An insured would be allowed to select a period and policy to which a risk attaches;
- An insurer would potentially have a liability over a long period despite having obtained premium for a much shorter period;
- An insured could completely ignore any periods where it chose not to take out insurance at all; and
- An insured would have no incentive to maintain continuous insurance cover as to have one insurer on risk for even a very short period would be sufficient for any risk to be covered.
The majority concluded that a solution to these issues could be found in the established concepts of co-insurance and self-insurance, Lord Mance finding support for such an approach in a number of decisions of the Australian courts. The result is that an insurer against whom the insured has sought to "spike" the entirety of a claim will have an equitable right of contribution as against (1) any other insurers on risk during the period of exposure; and (2) the insured for any period where no insurance was in place. The majority also recognised that their finding was consistent with the approach which has been taken in the London insurance market to mesothelioma claims. Recognising that the majority view led to concerns over wider application, Lord Mance was at pains to point out that the principles should only be applicable in what Lord Hodge referred to as the "Fairchild enclave".
Lord Sumption for the minority opined that it is contrary to the fundamental principles of the law of insurance contracts that an insurer should be liable for the entirety of an employee's damages where that insurer was only on risk and had only accepted premium for a very short period. He could not accept the interference with the insurance contract by application of equitable principles which arises from the majority view. Finding support from US authorities, Lord Sumption preferred an interpretation of the insurance contract against the background of the Trigger litigation to the effect that the insurer would only be liable for a rateable proportion of the insured loss. He also rejected any suggestion that there are public policy reasons for holding that an insurer is liable for the entirety of any claim. He noted that an injured employee is now protected by various statutory schemes from the risk of being unable to recover.
Lord Sumption's wider concerns about the impact of the majority view are perhaps best captured in Lord Neuberger's judgment. He considered that the interference by the Supreme Court with commercial contracts would "open up a dangerous seam of potential litigation" and might be deployed by lawyers more generally, notwithstanding the majority's clear view that the principle would only be applicable within the "Fairchild enclave".
As to the question of applying a principle of rateable contribution to defence costs (an issue which was in fact conceded by Zurich in the appeal), the Supreme Court agreed that there was no basis for such an approach. The defence costs were insured under a separate part of the insuring clause which was not subject to the special rule arising in Fairchild. The costs had in fact been incurred and it was irrelevant whether or not those costs also benefitted an uninsured defendant.
After many years of mesothelioma related litigation, and some years after similar issues had been addressed in other countries such as the US, the law on triggers of cover now appears to be tolerably clear. A victim of a disease such as mesothelioma (where damage is indivisible) can "spike" his claim against any employer exposing him to asbestos. That employer can in turn "spike" its insurance claim against any of its EL insurers, who will be left with contribution claims against each other and/or the insured itself. The end result, assuming insurers and employers can be located and are not insolvent, should be a rateable sharing of the loss by reference to the period of exposure, a position broadly reflected by the current approach in the market. This result necessitated the making of new law for policy reasons, and in the face of real difficulties as to how a contribution could be obtained from an insured who had an insurance agreement requiring an insurer to pay 100% of the loss.