This post was written by Darren Smith, Julia Dodds, and Claire Hamm.
The UK has an estimated 3,000 deaths per year from mesothelioma, the lung cancer caused by inhalation of asbestos fibres. This rate of incidence shows no signs of slackening, a result of the historic exposure of the UK workforce to asbestos, and is not expected to peak until 2018. With the average award of damages for mesothelioma currently around £150,000 ($300,000), defendants and their insurers are already paying out close to $1 billion a year to settle mesothelioma claims alone; and to this must be added the cost of claims for non-fatal asbestos-related diseases.
With such potential liabilities at stake, the question of who pays for asbestos claims is critical. It is therefore no surprise that recent years have seen a series of hard fought battles in asbestos-related claims, resulting in a series of significant decisions by the UK’s supreme court, the House of Lords. Those decisions have not always been applauded by policy makers, who have been quick to reverse decisions that are seen as unfair to claimants (plaintiffs).
While the battles so far have been dominated by disputes between claimants and defendants, June will see a change of tack as defendants and their insurers commence a trial in the High Court in London to determine whether certain policy wording will allow insurers to avoid cover.
Since 1972, it has been compulsory for employers in the UK to carry insurance against claims for personal injury, brought by employees or former employees. The state is thus relieved of the burden of compensating those suffering industrial injury or disease, while the risk is transferred from employers to insurers and then dispersed across the insurance market. By making the insurance compulsory, the intention was to ensure that a worthy claimant was always compensated. The questions that have exercised the UK courts in recent years have broadly been related to who should pay compensation for asbestos-related disease and what asbestos-related conditions should attract compensation.
Until 2002, the general principle in the UK courts was that a defendant could only be liable in negligence to a claimant for the damage it had caused. However, this principle was shattered in 2002 by the House of Lords’ decision in Fairchild v Glenhaven Funeral Services Limited [2003] 1 AC 32.
The claim was for occupationally induced mesothelioma. The claimant had been employed by a number of defendant employers throughout his working life from the mid-1960s onwards. It was alleged that all of the claimant’s employers had materially increased the risk of damage to the claimant as a result of exposing him to asbestos.
The Lords’ decision in Fairchild effectively made mesothelioma an indivisible injury. It was said that for the first time in legal history, employers were made liable for damage even though they may not have caused it all. The Lords felt that to have decided otherwise would have left claimants with no remedy as they could not prove which employer had materially contributed to the risk of contracting mesothelioma.
The effect of Fairchild was that a defendant and its insurers could be potentially liable for a high value claim when it was possible that the insured had not caused the damage at all. All that was now required of a claimant was for him to be able to show that the defendant employer had materially contributed to the risk of him contracting the disease. The defendant was then liable for 100 per cent of the claim and the onus lay on the defendant to seek contributions from other employers who may also have exposed the claimant to asbestos, but whom the claimant had chosen not to pursue.
Four years later, however, the Lords revisited the principles established by Fairchild in the case of Barker v. Corus UK Limited [2006] UKHL 20 and relaxed their earlier view. While the Lords accepted that under the Fairchild principle a defendant had to contribute materially to the risk of damage to the claimant, it did not mean the defendant had actually caused the injury/disease.
The Lords went on to say that if each employer’s contribution to damage was simply to increase the material risk to a claimant of damage occurring, then each defendant should only be liable for the degree of risk for which it was responsible. In other words, defendant employers were now only responsible for their proportion of the claim.
While employers and their insurers felt that the decision in Barker redressed the balance between claimants and defendants, the decision was roundly criticised by claimants, claimant lawyers and trades unions. The problem for claimants was that where all or part of alleged asbestos exposure could only be proved against former employers that had now ceased to exist and for whom no insurance could be traced, there would be no recovery.
So just seven days after the Lords’ decision was published, the UK government announced legislation in the form of the Compensation Act 2006 reversing Barker and reinstating the position in Fairchild.
While defendants saw a significant setback on divisibility of damage in the 2006 Act, the following year saw a much better outcome for insured and insurers in the House of Lords’ decision on the scope of compensatable damage in Johnston v NEI [2007] UKHL 39.
In Johnston, the Lords were asked to rule on whether asymptomic pleural plaques and any associated anxiety were compensatable in negligence. The Lords decided not: pleural plaques themselves were not damage. Further, anxiety (short of diagnosed mental illness) was only compensatable in negligence where damage had been established.
The Lords’ decision reversed the understanding, based on a number of first instance decisions in the 1980s, that pleural plaques could form the basis of a claim. The decision in Johnston should have closed the door on the steady stream of claims for pleural plaques that defendants have had to deal with over the past 20 years. In negligence terms that door was shut firmly, but unfortunately the Lords also suggested—although strictly obiter dicta—that the claimants might have been better able to argue that they were entitled to damages for breach of their employment contracts. Reed Smith Richards Butler has already seen a number of pleural plaques’ claimants applying to amend their claims to include breach of contract, suggesting that another door has been opened.
While the UK government has indicated that it will allow the decision in Johnston to stand in England & Wales, the position in Scotland may be different. Scotland has always been a separate jurisdiction within the UK, with its own legal system. The devolved Scottish government (led by the left-of-centre Scottish National Party) has stated that it intends to legislate to reverse Johnston north of the border. If the Scottish Parliament concurs, the jurisdictional gap between England and Scotland will be widened further in respect of damages for asbestos-related diseases; we have already seen legislation in Scotland in 2007 that permits the relatives of individuals who die of mesothelioma to claim for damages, even though the deceased may have received compensation by way of settlement of a claim while alive. This claimant-friendly approach in Scotland could well lead to a degree of forum shopping by claimants not seen in the UK before.
With no sign of any assistance for defendants from the policymakers, it was probably inevitable that employers’ liability insurers would start to question their own liability to insured employers. Back in February 2006, the Court of Appeal handed down a judgment in the case of Bolton MBC v Municipal Mutual Insurance Ltd [2006] EWCA Civ 50. There was little interest in the case at the time. In retrospect, this could prove to be one of the most significant cases in respect of disease liability ever seen in the UK.
This case originated with a mesothelioma claim against Bolton Metropolitan Borough Council under the duty of care it owed as an occupier of premises (not as an employer). The deceased had worked at the local authority’s premises between 1960 and 1963, during which time he was exposed to asbestos dust. In 1991 he was diagnosed with mesothelioma and died later that same year.
Bolton MBC settled the claim and turned to its public liability insurer, Commercial Union, to recover. Bolton MBC maintained that Commercial Union should be on cover because it was the insurer in 1980 when the deceased’s mesothelioma first occurred.
This argument was based on medical evidence that mesothelioma typically commences approximately 10 years before first diagnosis. Commercial Union sought to avoid cover on the basis that the wording of the policy was that it provided cover “in respect of injuries occurring during the period of insurance,” and argued that the injury had been caused during the deceased’s exposure to asbestos back in the 1960s and therefore Municipal Mutual was on cover.
The Court of Appeal accepted the argument that, in cases of mesothelioma where this type of wording was in the policy, the insurer on cover would be the insurer around 10 years prior to diagnosis. In theory, this judgment was confined to public liability insurance (where asbestos claims are less frequent), but many employers’ liability policies contain similar wording that states that they provide cover for “injuries arising during the period of insurance.”
The assumption had always been that this meant that employers would be able to recover for any liability in damages from those insurers on cover during the period of a claimant’s employment. However, from late 2006 onwards at Reed Smith Richard Butler, we saw an increasing instance of cases where employers’ liability insurers, primarily those in run off or liquidation, adopted the Bolton arguments to try to avoid cover. Some insurers even sought to extend the principles in Bolton to asbestos-related diseases other than mesothelioma, or nonasbestos diseases such as bladder cancer. The result has been a number of claims by insured against insurers, which have now been consolidated under the name of the E L Trigger Litigation, and are to be tried in a nine-week trial starting in the High Court in London in June. Reed Smith Richards Butler is instructed for a major international corporate client in the litigation.
The judge in the case has already indicated that whatever his decision, he expects it to be appealed and potentially to find its way to the House of Lords. Even then, that may not be the end of it. If the Bolton principle is applied to employers’ liability insurance cover, it is all too easy to imagine a situation where a mesothelioma claimant will receive no damages at all because his employer has long since ceased trading, and any insurers that can be traced are able to avoid cover because the injury did not “arise” during the period of cover. Faced with such a possibility, it will be fascinating to see whether the UK courts decide of their own accord to take a policy-based decision that ensures compensation is paid. If they do not, then based on the history of Fairchild and Barker, it is highly likely that the policy makers will legislate to keep the guiding principle of compulsory employers’ liability insurance on track.
