Equitas Insurance Limited V. MMI Limited [2018] EWCA Civ 991: ‘Spiking' And Recoupment Of Liabilities For Mesothelioma In The Context Of Reinsurance.

In Equitas Insurance Limited v. MMI Limited [2018] EWCA Civ 991, the Court of Appeal (Lady Justice Gloster and Sir Jack Beatson) granted permission to Equitas to appeal from an arbitration award of Flaux LJ sitting as a judge arbitrator. The substantive appeal will address fundamental issues relating to the presentation of Fairchild mesothelioma claims by insurers to their reinsurance programme.

THE STORY SO FAR

Ever since the House of Lords in Fairchild dispensed with the 'but for' causation test and substituted a 'material contribution to the injury' test for mesothelioma victims, the Courts (and Parliament) have been struggling to work out the consequences.

Following the radicalism of Fairchild came the no less ground breaking decision of the House in Barker v. Corus, by which the mesothelioma victim's damages were apportioned by reference to exposure: if there were 10 defendants each responsible for one year's exposure of constant intensity, the claimant was entitled to recover 10% from each; and if there was one defendant responsible for 10 years' exposure, each year 'carried' 10% of the claimant's total claim for damages.

Self-evidently, Barker proration fed through each defendant's insurance layers, and insurers' reinsurance layers, in a simple and logical way. Each year (corresponding to any given policy year) had readily identifiable financial consequences.

Parliament, however, intervened in double quick time and section 3 of the Compensation Act 2006 was enacted so that, in England, Wales, Scotland and Northern Ireland, any and every period of material exposure (be it 1 day, 1 week or 1 month) is taken to have caused the mesothelioma. As such, any defendant culpably responsible for any period of material exposure (however short) must pay 100% of the damages to the victim.

How then did this global liability fall to be shared between insurers and (for years where there was no insurance) insureds? In IEGL v. Zurich [2016] AC 509 the Supreme Court gave the answer that there should be a prorated sharing, much like Barker but in respect of the insurance programme - the so-called "Fairchild recoupment and contribution rights".

REINSURANCE

Inevitably the debate has now moved to the reinsurance arena.

In Equitas v. MMI Flaux LJ, sitting as a judge-arbitrator, was called upon to answer two questions, namely:

Question 1: Was MMI (the reinsured) entitled to present each outwards reinsurance claim to any single triggered reinsurance contract...