Consumer insurance contracts law: Recent Irish legislation diverges from UK position
Out-Law Guide | 21 Oct 2010 | 11:19 am | 7 min. read
Durham v BAI (Run Off) Ltd and other test cases
The appeal concerned six test cases brought to establish what event 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 under the Third Party (Rights against Insurers) Act 1930. One test case was a dispute between insurers as to which of them was liable under insurance policies issued to local authorities.
The policy wordings were slightly different in each case. Some covered the employer against liability in respect of "any claim for injury sustained or disease contracted" by an employee during the policy period. Others wordings referred to "any injury sustained" or, similarly, to an employee sustaining a personal or bodily injury.
The question was whether these wordings meant that 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.
There was no dispute that, had the policies referred to injury "caused" during the policy period, the relevant policy would have been the one in place at the time of exposure.
The problem with the "injury sustained" wording arises because of the special nature of mesothelioma. As Lord Justice Rix pointed out, in the vast majority of employers' liability claims, the wording creates no difficulty because the negligence or breach of duty, accident and injury all take place at about the same time.
In the case of mesothelioma, however, over 40 years may elapse between the time the employee was negligently exposed to asbestos fibres and the time he shows any symptoms of the disease. The mesothelioma tumour itself is practically undetectable. By the time the employee is showing symptoms, he has, on average, only about 14 months to live.
Until recently, the court's view of the expert medical evidence about the onset of the disease was that it probably did not occur until approximately ten years before it could be diagnosed. In the High Court hearing of this case, however, the judge thought the period was closer to five years.
At one time it was also thought that inhalation of a single asbestos fibre could cause the disease. Medical opinion now believes that the risk of contracting mesothelioma increases with the dosage. Unlike asbestosis, however, increased exposure to asbestos fibres does not make the disease worse - it only increases the risk of developing it.
And yet despite a clear causal connection between exposure to asbestos and the onset of mesothelioma, it is not possible to say that all those who have been exposed will develop the disease. In most cases the fibres are successfully dealt with by the body's natural defences.
For many years, it was the accepted practice that EL insurers would pay mesothelioma claims on the basis that the policy in force at the date of exposure was the relevant policy. That practice stopped after the decision in Bolton v Municipal Mutual Insurance in 2006.
That case looked at a public liability (PL) policy covering liability for injury or illness "when such injury, illness…occurs during the currency of the policy". The Court of Appeal held that injury or illness did not occur at the date of exposure. In the circumstances of that case, the court did not need to specify when mesothelioma did occur.
Following this decision, some EL insurers stopped paying mesothelioma claims on the grounds that the same reasoning applied to "injury sustained" wording in their policies. They said injury was sustained only when the tumour developed, not when the exposure took place.
If correct, this would leave many employees without compensation, either because there was no EL policy in place by the time they developed mesothelioma, or because they were no longer employed by that employer so were not covered by the policy. It would also create the added problem of identifying precisely when the tumour developed in any given case.
The current appeal dealt with an EL not a PL policy, so one of the questions that arose was whether the Bolton decision was a binding precedent.
At first instance, the judge held there was no injury or disease until the onset of mesothelioma and that, in any event, any injury had to be actionable injury and there was none until mesothelioma began.
He also concluded that there was no legally binding custom in the insurance industry to pay out mesothelioma claims under EL policies on an exposure basis.
Nevertheless, the judge found, as a matter of construction, that there was an ambiguity in the wording that needed to be resolved by taking the factual background into account.
That background included a series of Workmen's Compensation Acts that dealt with disease claims on an exposure basis and the Employers' Liability (Compulsory Insurance) Act, which 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…"
In the judge's view, EL policies that operated on an exposure basis best complied with the Act because they provided once-and-for-all cover that protected the employee, whether or not he left that employment before developing mesothelioma and whether or not the policy was maintained in subsequent years.
Taking into account the commercial purpose of EL insurance and the public policy behind the legislation, the judge held that the words "sustained" and "contracted" in the policies needed to be construed as meaning the same as "caused" or "be caused".
The ultimate outcome of the appeal (by a 2:1 majority) was that EL policies written on an "injury sustained" basis were found to respond at the date the tumour developed, but policies that used the phrase "disease contracted" responded on a causation basis at the time of the exposure.
Each of the three appeal judges, however, followed different reasoning to reach a different conclusion.
Lord Justice Rix considered he was bound by the Bolton decision that mesothelioma is not an injury until its onset, although he expressed "serious doubts" about the correctness of that decision.
Had he been free to decide the issue, he would have redefined "injury" to mean an increased risk of injury occurring, which would have dated back to the exposure. But, following Bolton, he held that policies written on an "injury sustained" basis, like the "injury occurring" basis, responded at the date injury occurred, not the date of exposure.
The wording was clear, even if it appeared to conflict with the commercial purpose of EL insurance, which was to provide the employer with cover for liability that arose as a result of the employer's activities within the policy period.
In addition, Lord Justice Rix found that policies that specified the injury must be sustained by an employee during the policy period would not cover ex-employees who had been exposed to asbestos but had left that employment before they developed mesothelioma.
The phrase "disease contracted", however, was wider in that it was capable of referring to the cause of the disease or its onset and, in this case, the commercial purpose could prevail. Policies that referred to "disease contracted," could be linked back to the time of exposure, when the disease was caused or originated.
Lord Justice Rix also concluded that, in order to comply with the purpose behind the Employers' Liability (Compulsory Insurance) Act, EL policies had to be written on an "injury caused" basis. Otherwise they would not protect employees who had left the employment before developing mesothelioma or whose employers did not maintain EL cover.
Policies written after 1st January 1972 (when the Act came into force) are deemed to be compliant with the Act. It followed that such policies would be deemed to have been written on a causation basis, even if they used the phrase "injury sustained".
Lady Justice Smith disagreed with Lord Justice Rix and upheld the High Court decision in its entirety. "Injury sustained" should be given the same meaning as "injury caused" and Bolton should be distinguished on the grounds that it dealt with a PL not an EL policy.
Insurers had for many years paid mesothelioma claims on a causation basis. While this may not have given rise to a legally binding practice, she concluded that the common understanding behind it had to be taken into account as part of the factual background to the contracts at the time they were made.
Lord Justice Stanley Burnton, however, took a narrower view of construction. The cover was as defined in the policy and the legislation and the commercial purpose of EL insurance could provide little assistance.
He agreed with Lord Justice Rix that the court was bound by Bolton and that "injury sustained" meant when mesothelioma developed. He also agreed that the disease was "contracted" at the date of exposure.
But he disagreed that the Employers' Liability (Compulsory Insurance) Act effectively required EL policies to be written on a causation basis.
Anyone hoping that the Court of Appeal would bring clarity to the EL trigger issue will have been disappointed by an outcome reached more by default than by positive agreement.
Not surprisingly, leave to appeal to the Supreme Court has been granted with a recommendation that the appeal should be expedited. Meanwhile, the question whether an insurer will pay out on a mesothelioma claim will depend on a detailed examination of each individual wording.
Many issues have been left unresolved. Two of the three Court of Appeal judges considered themselves bound by the Bolton decision, but one of them (Lord Justice Rix) said he had "serious doubts" whether Bolton was correct.
To what extent should public policy and/or the commercial purpose behind these policies be taken into account? Or the fact that no-one at the time appreciated the difference between an "injury sustained" and "injury caused" wording?
And does the Employers Liability (Compulsory Insurance) Act effectively require all EL policies to be written on an "Injuries caused" basis, even though it refers to injuries "sustained"?
Consumer insurance contracts law: Recent Irish legislation diverges from UK position