On 28 March 2012, the Supreme Court handed down its judgment in the Employers’ Liability Policy “Trigger Litigation” case. All five Justices were unanimous in their interpretation of the policy wordings. They decided that in cases of employers’ liability policies giving cover where“injury or disease … is sustained or contracted during the currency of the policy” the disease may properly be said to have been “sustained” or “contracted” by an employee in the period when it was caused or initiated, even though it only developed or manifested itself subsequently.
This case arose out of the decision in Bolton MBC v Municipal Mutual Insurance Limited (2006) in which the Court of Appeal, dealing with the interpretation of a public liability insurance policy, held that actionable injury does not occur on exposure and accordingly that injury “occurred at the time when the malignant tumour was first created”, thus many years after exposure to and inhalation of asbestos fibres. A small group of insurers relied upon the decision in Bolton to argue that employers’ liability policies written on the basis of injury or disease sustained or contracted during the policy period only gave cover if the malignant tumour formed during the policy period.
Whilst the trial judge and Court of Appeal either were, or at least felt themselves, constrained by the decision in Bolton the Supreme Court proceeded on the basis that Bolton did not apply to employers’ liability insurance and did not have to be considered.
It will be remembered that in the EL “Trigger Litigation” the Court of Appeal concluded that the word “sustained” looked prima facie at the suffering of the injury while the word “contracted” could and should be construed as giving cover on a causation basis. The Court of Appeal had approached the case very much on the basis of their interpretation of the particular words “sustained” and “contracted”. In the Supreme Court, Lord Mance, with whom the others agreed, considered that it was necessary to look at the insurance contracts more broadly.
- The policy wordings, on their face, required the course of employment to be contemporaneous with the sustaining of injury. This still left open what was meant by “sustaining” or by “injury”.
- The policy wordings contained a close link between the actual employment undertaken during each insurance period and the premium agreed. Moreover, the premium was linked expressly to actual wages, salaries and earnings during the insurance period.
- If the policy wordings only addressed injury occurring during the insurance period, then, on the insurers’ case, there was a potential gap in cover as regards employers’ breaches of duty towards employees in one period which only lead to injury or disease in another later period.
- The inconsistent approach of the policy wordings to territorial issues threw doubt on any proposition that the wordings were so carefully or well chosen that a court should stick literally to whatever might be perceived as their natural meaning.
Lord Mance found that evidence and argument in relation to the historic practice of insurers in dealing with claims was inadmissible. However, he did find that the broad commercial purpose of the policies was an important issue.
Taking this broader approach to policy interpretation, Lord Mance concluded as follows:
“The general nature and purpose of these policies can be derived from their immediate context and terms … it is true, as Rix LJ said, that phrases such as “injuries sustained” by an employee or an employee who “shall sustain injury”, in either case by accident or disease, appears to address the impact of the accident or disease on the employee. But the underlying focus of the insurance cover is on the employee’s activities current during the insurance period. The cover would be potentially incomplete, and employers would be potentially exposed to uninsured risks, were “sustained” to be understood as meaning “developed” or “manifested.”
Lord Mance considered that this was particularly the case in relation to insurance policies issued after the Employers’ Liability Compulsory Insurance Act 1969 came into force from 1972 onwards. He held it required insurance on a causation basis. He concluded however that the interpretation for all the policies was:
“The disease may properly be said to have been “sustained” by an employee in the period when it was caused or initiated, even though it only developed or manifested itself subsequently.”
Lord Mance dealt briefly with a suggestion by Rix LJ in the Court of Appeal that an employee who had inhaled asbestos fibres might be said to have sustained an injury as a result of which he was worse off through having dangerous fibres in his lungs. Lord Mance was clear in his view that this is not the position. No cause of action arises from exposure or inhalation alone.
The “special approach” in mesothelioma cases
A separate issue was raised by Lord Phillips. It was not an issue that had been raised in the previous hearings though had nevertheless been there in the background. Although he agreed with Lord Mance’s interpretation of the policy wording, he considered that a difficulty was created by the “special approach” in cases of mesothelioma laid down by the House of Lords in the cases of Fairchild and Barker. Lord Phillips considered that the “special approach” was not based on the fiction that the defendants should be treated as having caused the mesothelioma. On the contrary, a defendant’s liability for a proportion of the mesothelioma resulted from contribution to the risk that mesothelioma would be caused and reflected the possibility that a defendant mighthave caused or contributed to the cause of the disease. The problem identified by Lord Phillips is that the “special rule” does not raise an implication or assumption as to when mesothelioma is initiated. Accordingly, if an employer has to show that mesothelioma was caused in fact in a particular policy year in order to claim under that policy the employer cannot succeed. The position is that it is impossible to prove on the balance of probability when mesothelioma is initiated.
Lord Mance, with whom the others agreed, noted that if Lord Phillips were correct then the claims on the insurance policies currently before the Supreme Court (and indeed many other such claims) must all fail. To avoid that situation they made it clear that they felt his interpretation of the basis for the "special rule" was incorrect. There was a sufficient broad causal link for the disease to be regarded as “caused” within the insurance period. Lord Mance concluded:
“The concept of a disease being “caused” during the policy period must be interpreted sufficiently flexibly to embrace the role assigned to exposure by the rule in Fairchild and Barker. Viewing the point slightly more broadly, if … the fundamental focus of the policies is on the employment relationship and activities during the insurance period and on liability arising out of and in the course of them, then the liability for mesothelioma imposed by the rule in my opinion fulfils precisely the conditions under which these policies should and do respond.”
In our update after the Court of Appeal judgment we suggested that there were more questions than answers. This judgment has restored a large degree of certainty and has retained the status quo in terms of how insurers have historically dealt with these claims.
The court has made it clear that EL policies should be interpreted with a broad commercial purpose rather than a concentration on the natural meaning of specific policy words; that purpose being the provision of cover for employees who suffer harm at the hands of their employer.
Given that emphasis it was hardly surprising that the majority also took the view that the policies should respond to mesothelioma even though those claiming under the policies may be unable to show as a question of fact that the mesothelioma was caused by the actions of the employer during a policy year. The majority got round that problem by deciding that the "special rule" in Fairchild and Barker results in a doctrine that as a matter of law those creating the risk are deemed to have caused the injury. Lord Phillips believed that that was an incorrect interpretation of the special rule and his view would have effectively removed EL cover from mesothelioma claims. He recognised that such an argument was unattractive but said it was a matter for Parliament not the courts to impose liability on insurers when their policyholders could not prove that they had caused injury during a specified period of cover.
The need to revisit the reasoning behind Fairchild and Barker was unexpected and shows what can happen when the courts make exceptions to general legal principles based on policy. Unforeseen consequences can follow which again require reappraisal of previous legal fiction. We can be fairly confident that had Lord Phillips' view been the majority then Parliament would have been forced to act quickly. Whatever one's views on the issues surrounding mesothelioma it is clear that the courts and Parliament see mesothelioma sufferers as a class of litigant deserving of special treatment. Will Parliament do so again in the context of the Legal Aid, Sentencing and Punishment of Offenders Bill in excluding mesothelioma claims from the Jackson LJ inspired changes on irrecoverability of success fees and ATE premiums as the House of Lords has intended when considering that Bill? The one remaining piece of the jigsaw for mesothelioma sufferers will be the establishment of a fund of last resort for untraced EL cover. Progress on that is expected to be made sooner rather than later now that this judgment has removed one of the obstacles.
A large number of stakeholders in mesothelioma litigation have been waiting for this decision. Many claimants and policyholders alike will be pleased at the result. Insurers will no doubt be working hard to ensure that any logjams can now be cleared with diligent speed.
A couple of issues remain untouched by this judgment. The Court of Appeal authority in Bolton remains good law in relation to PL claims. Whether any claimant or insurer decides to explore that issue further before the Supreme Court currently seems unlikely. The second issue is the point in time at which the malignancy should be deemed to occur. This is important for the trigger point in PL claims but also for the point in time in EL claims after which exposure is deemed no longer contributory. Historically insurers and claimants alike have accepted ten years as standard practice. The five year period explored at first instance in this case may now see further attention.
For further information please contact:
John Morrell, Director, Local Authority team
Direct dial: 0207 645 9538
Daren Charlton, Partner, Occupational Disease team
Direct dial: 0161 603 5148