Weekly Update: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law - 38/10

THIS WEEK'S CASELAW

Employers' Liability Insurance "Trigger" Litigation

Whether cover for mesothelioma claims under EL policies triggered by exposure or onset of disease

http://www.bailii.org/cgibin/markup.cgi?doc=/ew/cases/EWCA/Civ/2010/1096.html&query=title+(+trigger+and+litigation+)&method=boolean

This is the appeal from the decision of Burton J reported in Weekly Update 46/08. The underlying issue is whether the correct employers' liability policy to respond to mesothelioma claims is the one in place when the asbestos dust was first inhaled or the one in place when the onset of the disease took place (in many cases, the onset of disease takes place up to 35 years after inhalation). The particular policy wordings in question differ slightly but, broadly, they provided cover for "injury sustained" or "disease contracted" during the policy period.

At first instance, Burton J found that there was no injury at the date of inhalation. However, taking into account the factual matrix of the case, he concluded that the policies had to be construed as meaning that injury was sustained when it was caused (ie at the date of inhalation). Equally, he construed that disease was contracted when it was caused. The relevant insurers' appealed and the Court of Appeal has now found as follows:

Mesothelioma is not an "injury" (and injury is not "sustained") until its onset. The Court of Appeal reached this conclusion, on the basis that they were bound by the earlier Court of Appeal decision of Bolton MBC v MMI [2006] (concerning mesothelioma in relation to a public liability policy). However, although Rix LJ did not say that Bolton was wrongly decided, he did indicate that, had he not been bound by precedent, he would have preferred the view that, once mesothelioma develops, it is the risk of mesothelioma created by the exposure which is the injury. Burnton LJ, however, found Bolton convincing. However, both Rix LJ and Burnton LJ (Smith LJ dissenting) rejected the judge's decision that something had gone wrong with the language and that this finding would be in conflict with the commercial purpose of EL insurance. Accordingly, injury was not sustained at the date of inhalation and the appellants (with this policy wording) won on this point. However, all 3 Lords Justices agreed (Burnton LJ with hesitation) that "disease contracted" referred to the time of the disease's causal origins (ie the date of exposure) (Rix LJ opining that the commercial purpose of the policy should prevail on this issue and Burton LJ opining that little, if any, assistance was to be gained by referring to the commercial purpose of the the policy). Accordingly, the appellants (with this policy wording) lost on this point. One further argument was that the wordings only applied to employees in the course of their employment and did not apply to ex-employees. At first instance the judge held that this point favoured a construction that cover was intended to be the date of causation in all cases. Smith LJ agreed with the judge, Rix LJ agreed that the wordings did not apply to ex-employees but felt that that did not point to a causation trigger, and Burnton LJ held that (certain) wordings did apply to ex-employees. Permission to appeal to the Supreme Court on all the above issues has been granted.

COMMENT: From a practical viewpoint, it is arguable that linking cover to the date of onset (for injury sustained wording) is unsatisfactory. Whereas the date of causation can be fixed with relative certainty, victims will often only learn that they are suffering from mesothelioma once they have started to experience symptoms. Onset will usually be "around 5 years" before manifestation but (retrospectively) determining the exact date of onset will be almost impossible in most cases. As a result of this, Burton J suggested the adoption of a prima facie rule of 5 years before manifestation, but this issue was not argued on appeal. More importantly, though, where an employer has become insolvent or is no longer in business, there will be no policy in place at the time of onset of mesothelioma. It might be expected that the Supreme Court and/or government will not favour an approach which leaves victims without any redress against an employer/insurer.

Swindon & Anor v Quinn Insurance Ltd

When did a dispute arise between an insured and insurer/whether an insurer must highlight onerous terms

http://www.bailii.org/ew/cases/EWHC/TCC/2010/2448.html

General Condition 16 of a liability policy provided that any dispute between the insured and the insurer on the insurer's liability in respect of a claim must be referred to arbitration within 9 months of the dispute arising (failing which, the claim shall be deemed to have been abandoned). The insurer denied liability on the grounds that the insured had breached certain policy conditions. The insured was subsequently found liable to a third party (and shortly afterwards went into voluntary liquidation, resulting in a claim against the insurer under the Third Parties (Rights against Insurers) Act 1930.

The main issue in the case was when the dispute between the insured and the insurer arose (and hence whether the 9 month deadline to commence arbitration had expired yet). The claimants argued that a dispute could not have arisen until the insured's liability to the third party had been established. Edwards-Stuart J held as follows:

Reference to a "claim" in General Condition 16 was to a claim by the insured under the policy (and not a claim by a third party). Post Office v Norwich Union [1967] establishes that until the liability of the insured has been established, and the amount of that liability has been ascertained, an insured cannot sue its insurer for a particular sum of money. However, that does not always prevent an insured from seeking a declaration that the insurer is in breach of contract before liability has been ascertained. That is because the insurer will often...