Asbestos – courts turn up the pressure on employers and their insurers

The recent Court of Appeal decision in IEGL v Zurich Insurance Plc UK Branch confirms that an employer's liability (EL) insurer in an asbestos-related mesothelioma case cannot reduce the amount of indemnity payable just because it did not provide insurance for the entire period of the employee’s exposure. Instead, an EL insurer remains liable to indemnify the insured in full. Victoria Pool and Leon Taylor of DLA Piper discuss the ramifications.   

Background

Mr Carré died from mesothelioma after having been exposed to asbestos for 27 years until 1988 whilst employed by IEGL. Zurich had provided EL insurance to IEGL for a 6 year period between 1982 and 1988. IEGL settled Mr Carré's claim for £250,000, which IEGL sought to recover from Zurich.

Guernsey law applied to the claim. This meant that the UK Compensation Act 2006 did not apply and the case fell to be decided on the basis of Guernsey common law (which was the same as English common law for present purposes).

Zurich argued that it would be unfair to require it to indemnify IEGL for the full amount of compensation paid given that it only received premium for 6 of the 27 years of exposure. Its primary argument was that the decision in Barker v Corus UK Ltd in 2006 (the effect of which has been reversed in England and Wales by the Compensation Act 2006) meant that liability in tort in mesothelioma cases was based on the wrongful creation of a risk of the employee suffering mesothelioma. Accordingly, Zurich argued that it should only be liable for the total risk created during the 6 years of its policy period.

Zurich's alternative argument was that it should be entitled as a matter of equity to a contribution from IEGL (as a solvent policyholder) in respect of the period when IEGL exposed Mr Carré to asbestos but was not insured by Zurich.

The trial judge agreed with Zurich's approach on the primary argument and decided that Zurich should only be liable for the total risk created during the 6 year policy period. Given this result, the judge strictly did not need to address Zurich's alternative argument, but did so and rejected it anyway.

Court of Appeal decision

On appeal by IEGL, the Court of Appeal rejected both Zurich's arguments and allowed the appeal.

The Court of Appeal held that the judge's analysis of the Barker case was no longer sustainable following the re-consideration of that case by the Supreme Court in the EL Policy "Trigger"  Litigation which was decided shortly after the trial judge heard the IEGL case. In Trigger, the majority of the court decided that the true basis of common law liability for a mesothelioma case meant that IEGL was taken to have caused Mr Carré's disease by exposing him to asbestos and Zurich was obliged to indemnify IEGL in full in respect of that legal liability. The suggestion that Zurich was only liable under its EL policy for a proportionate share of the liability was wrong.   

Equity argument

Having decided Zurich was fully liable under its EL policy with IEGL, the Court of Appeal also decided Zurich could not use equitable principles to avoid the consequences. The relationship between the insurer and insured is contractual and IEGL has a contractual right of indemnity under the policy against liability during the years when IEGL was insured by Zurich. The fact that Mr Carré's exposure to asbestos during the rest of his employment was also an effective cause of the disease was irrelevant to IEGL's right to a full indemnity on the wording of the policy and on ordinary principles of insurance law.

Comment

The decision demonstrates once again the present unwillingness of the courts to allow EL insurers to find ways to avoid paying a full indemnity under their policies in mesothelioma cases. In particular, an EL insurer will pick up the tab for the entire claim without any right of contribution from a solvent insured in respect of "gap" periods where the victim was culpably exposed to asbestos but where the employer was uninsured. This is contrary to the current insurance market practice regarding the handling and apportioning of mesothelioma claims (as set out in ABI Guidelines) which provides that solvent policyholders are expected to contribute to the proportion of the claim which is apportioned to any period of culpable exposure which occurred when the employer was either self-insured, uninsured or unable to trace insurance.  EL insurers and their policyholders exposed to asbestos-related claims will be anxiously awaiting the outcome of any appeal to the Supreme Court in this case to ascertain how mesothelioma liabilities should be apportioned between them.  

Victoria Pool is a solicitor and Leon Taylor is a partner in the insurance and reinsurance litigation team of DLA Piper in London. 

Victoria Pool
Solicitor in the insurance and reinsurance litigation team of DLA Piper

Leon Taylor
Partner in the insurance and reinsurance litigation team of DLA Piper