Court of Appeal rules in EL Policy Trigger Litigation
11 October, 2010
On Friday the Court of Appeal handed down its judgment in the so called Trigger Litigation arising out the dispute as to which Insurer should respond to an Employers' Liability (EL) claim against an insured for compensation arising out of exposure to asbestos dust leading to the Claimant contracting mesothelioma. This issue all started with the Public Liablity (PL) case of Bolton v MMI in which Forbes successfully represented Bolton. Since then several insurers have been seeking to rely on that case in EL cases.
In the EL arena the High Court had decided that the insurer on cover when the exposure to the dust and therefore inhalation of the fibres had occurred should be the correct one, whether the policy wording referred to injury or disease being sustained or contracted. This decision was appealed and heard almost a year ago, and the complex and at times contradictory judgment of the 3 Justices has now been handed down. The perfected version of the judgment will be available this week.
There seem to be 3 basic findings.
- Policies with contracted wording respond on a causation basis, i.e. the date of exposure/inhalation, so the insurer on cover when the negligent exposure occurred must indemnify no matter when the disease manifests itself. All 3 of the Justices agreed on this point. Contracted meant when the chain of events leading ultimately to the disease, was set in motion. Lord Justice Rix said that if a policy contains both contracted and sustained wording, then contracted takes precedence.
- Policies in place before the coming into force of the Employers Liability (Compulsory Insurance) Act 1969 (ELCIA), i.e. Jan 1972, with sustained wording mean that it is the insurer on cover when the disease was occured, said to be 5 years prior to diagnosability, who responds. So Insureds with this wording will not have cover for any disease now manifesting itself. As it is not now possible to obtain cover for historical exposure this will mean that any Defendant with sustained wording for pre Jan 1972 exposure will not have cover and will need to make provision for such claims. This was a 2:1 decision. Lord Justice Burnton agreed with Lord Justice Rix, but for different reasons. The minority decision of Lady Justice Smith was that the High Court decision was correct, ie that sustain could be interpreted to mean caused.
- For policies in place post ELCIA with sustained wording, it is the insurer on cover at the date of exposure/inhalation who responds. Lord Justice Rix was encouraged in this decision by the idea that only by interpreting the policies in this way could the intention of the Act (to provide protection for employees) be upheld. He did add the proviso that the Insurer could have the right to seek an indemnity against the insured if the requirement to provide cover due to the act went beyond the cover of the policy although he was not supported in that view by the other 2 judges. Again this was a 2:1 decision. Lady Justice Smith agreed with Rix LJ, but only because she considered sustain and cause to mean the same thing (as in 2 above). Lord Justice Burnton disagreed that the ELCIA required the interpretation of causation to sustain wording.
So where does this all leave us.
- It is clear that each policy wording must be looked at individually and be scrutinised for the words used before it can be said whether the policy will respond, and even then, in view of the different reasons each Judge gave for the decision he or she came to, it is not clear cut.
- For Local Authorities with MMI cover, the MMI policy wording is, pre 1974 on a sustained basis. It was only post 1974 that it was on a contracted basis. So pre 1974 it falls into 2 above as the ELCIA does not apply to local authorities.
- It seems that a majority of the Court of Appeal would have preferred to have been able to uphold the High Court decision that the Insurer on cover at the time of the negligent exposure should respond in all cases ( and in fact Lady Justice Smith did reach that conclusion) but, for different reasons, a majority decided that they could not do that in all cases. Lords Justice Rix and Burnton felt constrained by the Court of Appeal's decision in the PL case of Bolton v MMI which had decided that the date of the onset of the disease was the relevant one as PL policy wording traditionally has an occurrence or happening wording. The injury was found to have happened or occurred at the date of onset of the disease.
- The decision did not address the controversial question of whether there is still a 10 year rule in relation to when mesothelioma starts to develop, as had been historically thought, or whether it is now reduced to 5 years from the date of diagnosis, as accepted by the High Court. This matter was not put in issue in this case, and may need to be heard in due course on another matter to be resolved.
- There remain gaps in cover so it is as important as ever for Insureds to scrutinise their policies for different years and to make provision for potential gaps in cover.
- It is unlikely that any Insurer will change their stance as a result of this decision, in view of the many differences between the 3 Lords Justice.
- Permission has been granted to appeal to the Supreme Court and cases remain stayed pending appeal.
- It is open to the Supreme Court to overturn Bolton and decide that an injury is in fact caused on inhalation which would solve many of the issues.
For further information or assistance with policy interpretation please contact Siobhan Hardy at our Leeds office on 0113 244 6688 or contact Siobhan Hardy by email.