Solicitor, Legal Director
Partner, Head of Financial services
Out-Law Guide | 11 Dec 2008 | 5:02 pm | 5 min. read
Durham v BAI (Run Off) Limited and other cases
This was the collective hearing of six test cases to establish the event that triggered insurance cover under various employers' liability (EL) policies. Each case concerned an employee who had contracted mesothelioma after being exposed to asbestos at work.
In some cases, the claim was brought by the employer against its own insurers. In others, the employer no longer existed and so the claim was pursued directly against the insurer by the employee or his family. One of the test cases was a dispute between insurers as to which of them was liable under insurance policies issued to local authorities.
The question was whether the policy that responded to the claim was the one in place at the time the employee was exposed to asbestos fibres, or the policy (if any) in place years later when the tumour developed.
A person who inhales asbestos fibres will not necessarily go on to develop an asbestos-related disease. Everyone inhales millions of foreign bodies, including millions of asbestos fibres, every day. In most cases these are successfully dealt with by the body's natural defences.
But sometimes, and over a period of many years, asbestos fibres may cause mesothelial cells on the surface of the lungs to mutate in such a way as to form a malignant tumour. The process is very slow. It can take around 40 or 50 years for any symptoms of mesothelioma to occur. The period between diagnosis and death, however, is short – around 14 months.
At one time it was thought that inhalation of a single asbestos fibre could cause the disease. Medical opinion now believes that exposure to quantities of fibres is needed, the risk increasing with the dosage.
For many years, it was the accepted practice that EL insurers would respond to mesothelioma claims on an "exposure" basis. But following the 2006 Court of Appeal's decision in Bolton v Municipal Mutual Insurance Limited, some EL insurers stopped paying such claims on the grounds that the policy in place at the date of the tumour (not the date of exposure) was the one that should respond.
The Bolton case concerned a public liability (PL) insurance covering liability for injury or illness "when such injury, illness…occurs during the currency of the policy". The question was which of two possible insurers was liable to respond to a mesothelioma claim.
The Court of Appeal concluded that injury did not occur at the date of exposure. It did not need to specify when it did occur, as liability rested with one of the two insurers in any case. The court, however, made it clear that its decision was reached in the context of a PL policy written on an "injury occurring" basis.
The insurers involved in this litigation wrote EL policies that referred to an injury or disease being "sustained" or contracted during the period of insurance. In about the mid 1980s, they changed their wordings to refer to injury "caused" during the policy period.
There was no dispute that the "injury caused" wording triggered the policy in place at the time the employee was exposed to asbestos fibres. In fact, both before and after the wording change, insurers continued to pay mesothelioma claims on an exposure basis.
Following Bolton, however, insurers argued that, under the earlier "injury sustained" policies, no injury was sustained until the tumour developed, many years after the period of insurance.
If correct, this would leave many employees without compensation, either because there was no EL policy in place at the date of the tumour, or because that policy would not respond to claims by ex-employees who had developed tumours as a result of exposure to asbestos decades before. It would also create the added problem of identifying precisely when the tumour developed in any given case.
The judge found, as a matter of construction, that the policies covered injury resulting from exposure during the policy period.
The medical evidence supported insurers' claim that no injury or disease was suffered at the date of exposure or for some time afterwards. The judge also concluded that there was no binding universal custom in the insurance industry to pay out mesothelioma claims under EL policies on an exposure basis.
Although the evidence was that insurers always paid out EL claims on an exposure basis, their reasons for doing so were not universally the same. Some believed all EL policies were to be interpreted in this way. Some thought injury was sustained at the date of inhalation. Others did not turn their minds to the question at all.
But, in considering the construction of the policies, the judge was entitled to take the factual background into account to resolve any ambiguity in the wording.
The historical background included a series of Workmen's Compensation Acts going back to the nineteenth century that consistently dealt with disease claims on an exposure basis, reforms to limitation law in the 1960s that enabled long-tail disease claims to be brought many years after exposure, and the introduction in 1972 of a compulsory EL insurance regime.
The Employers' Liability (Compulsory Insurance) Act required employers to "insure and maintain insurance…against liability for bodily injury or disease sustained by its employees and arising out of and in the course of their employment in Great Britain in that business…"
Against this background, the judge considered that it was more likely that the policies were intended to cover the employer in respect of injury to an employee resulting from exposure at work during the policy period, while the employee was still employed.
It made no sense to construe them in a way that meant that the employee would lose the right to be indemnified because he developed his tumour years after having left the employment.
Policies that operated on an exposure basis best complied with the Act because they provided once-and-for-all cover in respect of an employee, whether or not the policy was maintained in subsequent years.
The judge was satisfied that the words "sustained" and "contracted" in the policies needed to be construed as meaning the same as "caused" or "be caused". This was consistent with the commercial purpose of EL insurance and the public policy behind the legislation.
Consequently, all the policies under consideration should respond on an exposure basis, as if they had been written with the "injury caused" wording.
This made it unnecessary to decide when actual injury or disease took place. The judge, however, suggested this should be five years before the tumour could be diagnosed, unless in any given case it could be shown that the tumour was faster or slower to develop.
The judge was also very careful to limit his decision to EL claims: "Nothing in this judgment can be taken nor is intended to cast any doubt – save by reference to the updating and expansion of the medical evidence – upon, nor differ from, the decision in Bolton".
The decision upheld the public policy behind many recent high-profile mesothelioma decisions that victims of the disease should not go uncompensated.
But in October 2010 it was overturned in the Court of Appeal by a majoritiy of 2:1. Leave to appeal to the Supreme Court was granted with a recommendation that the matter be expedited.
Solicitor, Legal Director
Partner, Head of Financial services