Today, the Supreme Court unanimously decided that because the Compensation Act 2006 does not apply in Guernsey (where the victim was employed), Zurich is only liable for a proportion of the compensation paid to the employee which is to be calculated according to the time the insurer was on risk (it was held that defence costs incurred by the employee were to be indemnified in full).
However, by a majority of 4-3, the Court concluded (obiter) that had the law been as in the UK under the Compensation Act, Zurich would have been liable to compensate IEG in full but would then be entitled to claim a pro rata contribution from other insurers on risk during the period of exposure.
The History of Mesothelioma Cases in Brief
The House of Lords held in 2002 that any employer who had exposed its employee to asbestos was liable for any mesothelioma that develops which essentially created a new tort of exposing someone to a risk of harm.
Barker v Chorus
In 2006, the House of Lords held that it was possible to quantify the extent to which each employer had contributed to the risk of harm and so, liability should be apportioned according to the time that employer exposed its employee to asbestos.
Compnsation Act 2006
This Act was introduced by parliament to reverse Barker v Chorus with the effect that any employer is jointly and severally liable for the whole damage caused. That employer has the right to claim a contribution from other employers who had exposed the victim to asbestos.
Durham v BAI (Trigger Litigation)
In 2012, the Supreme Court held that the trigger for liability under Employers’ Liability policies is the date(s) the victim was exposed to asbestos and not the deemed date of injury.
Zurich v IEG
IEG employed Mr Carré in Guernsey for 27 years. Mr Carré was exposed to asbestos throughout his employment with IEG which he claimed caused him to develop Mesothelioma from which he died. IEG settled Mr Carré’s claim and sought an indemnity from Zurich.
The Commercial Court held that Zurich was only liable to IEG for a partial indemnity based on the 6 years that Zurich were on risk. The Compensation Act 2006 was not enacted in Guernsey and so, Barker v Corus applied (which was reversed in the UK by the Compensation Act) which meant, the Commercial Court held, that IEG was only liable for the time it was on risk.
Court of Appeal
The Court of Appeal reversed the Commercial Court’s decision. The Court of Appeal decided that there was sufficient causal link between Mr Carré’s exposure to asbestos during the 6 years that Zurich were on risk and his development of Mesothelioma for IEG to be legally liable for causing the disease and that Zurich was contractually obliged to indemnify IEG for the whole of that liability.
The Supreme Court reversed the Court of Appeal’s decision in respect of the compensation paid by IEG and held that Zurich was only liable to IEG for a proportion of the compensation paid based on the time that it was on risk (22.08% of the compensation paid). The decision was made on the basis that in the absence of the Compensation Act 2006 or equivalent in Guernsey, Barker v Chorus remains the leading authority and consequently IEG are only entitled to a proportionate recovery of the compensation paid.
The defence costs are to be paid 100% by Zurich as they were incurred with insurer’s consent in defending a claim for damages for injury/disease “caused” and under Fairchild, mesothelioma is “caused” during any period where exposure occurs which materially contributed to the risk of contracting mesothelioma.
It is important to note that by a majority of 4-3, the Supreme Court stated that had the Compensation Act 2006 or equivalent been in force in Guernsey, Zurich would have been liable to indemnify IEG in full for the compensation paid. The majority also concluded that Zurich had an equitable right to claim a pro rata contribution from any other insurer on risk and where there was no insurer, from EIG itself. The minority were of the view that, even in the UK, Zurich were only liable to EIG for a proportion of the full loss.
Impact on Insurers
The application of this decision is limited to its facts as it was decided on the basis of the legal position in Guernsey. The conclusions reached by the majority on the position in the UK are much more interesting.
These conclusions will be largely unwelcome to Employers’ Liability insurers as it allows insureds to cherry pick insurers who afford the greatest coverage/are solvent and means that those insurers that remain solvent are obliged to provide a full indemnify even where they were on risk for only a small part of the victim’s employment. The Court has helpfully recognised the insurer’s equitable right to claim contributions from other insurers on risk or the insured itself where there is no insurance but this is only helpful where other insurers are solvent.
It should however be borne in mind that the UK related comments were made obiter dictum as they were not necessary for deciding the case before the Court and are not therefore binding precedent in England. The fact that they were reached by such a small majority may mean that the issue is re-visited by the Courts in the future.
Impact on Reinsurers
Recognition by the Supreme Court (albeit on an obiter basis) of the equitable right of insurers to claim a contribution from other insurers/the insured itself is helpful to reinsurers as it supports the argument that reinsureds are required to mitigate their losses by seeking contributions from other insurers/the insured on a time on risk basis. Reinsurers’ liability follows the proportion that its reinsured is left to pay after contribution rather than the full 100%.