Senior financial services staff should consider potential D&O liability following Brexit
Out-Law Guide | 18 Nov 2009 | 3:17 pm | 6 min. read
Karen Sienkiewicz (administratrix of the estate of Enid Costello, deceased) v Greif (UK) Limited
Enid Costello died of mesothelioma in January 2006. From 1966 until 1984 she was an office worker at the defendant's factory premises. The defendant manufactured steel drums and during the course of this process, asbestos dust was released into the factory atmosphere.
Although Mrs Costello did not work on the factory floor, her duties took her all over the premises. In common with other inhabitants of the local area, however, she would also have been exposed to a low level of asbestos in the general atmosphere.
The general rule at common law is that a person suffering injury must show on the balance of probabilities that the defendant's tort (most commonly negligence) caused the injury or condition. But for the defendant's wrongdoing, the claimant would not have suffered the damage (this is sometimes called the "but for" test).
There is an important exception to this rule. In the case of a "divisible" disease such as pneumoconiosis, the amount of dust inhaled operates cumulatively to cause the disease and determine its severity. If exposure to the dust is partly due to the defendant's negligence and partly not, the defendant will be liable to the extent that his breach of duty has materially contributed to the disease. If there is more than one defendant, liability can be apportioned.
This approach, however, causes difficulties in mesothelioma claims because, unlike pneumoconiosis or asbestosis, mesothelioma is an "indivisible" disease. It is still uncertain whether its contraction or its severity can be related to the amount of asbestos fibres ingested, or even which fibres triggered the disease.
In Fairchild v Glenhaven , the House of Lords (as it then was) recognised that, in a mesothelioma case where the claimant had been exposed to asbestos at different times while working for different employers, it would be impossible to satisfy the conventional "but for" test and prove which exposure was the cause of the disease.
Consequently, the Law Lords created another exception to the normal causation rule. In mesothelioma cases, it would be enough for the claimant to show that a negligent exposure had materially increased the risk of his developing the disease.
In Barker v Corus , the House of Lords went on to decide that, in cases where there had been successive negligent exposures, liability should be apportioned between defendants. Each employer would be liable for that proportion of the damage which represented his contribution to the risk that the employee would contract mesothelioma.
Parliament, however, swiftly intervened to pass section 3 of the Compensation Act, which allows the claimant to obtain full compensation from any one of them.
The section applies where (1) a person has negligently or in breach of statutory duty exposed the victim to asbestos and (2) the victim has contracted mesothelioma as a result of exposure to asbestos, but (3) it is not possible to determine with certainty whether it was this or another exposure which caused the disease and (4) the person in question is liable in tort "whether by reason of having materially increased a risk or for any other reason."
The defendant in this case said that any negligent exposure to asbestos fibres while Mrs Costello was at work would have been minimal and far less than the environmental exposure, which was not negligent.
It argued that the Fairchild exception did not apply because this was a "single exposure"– in other words, the defendant was the sole known source of occupational exposure to asbestos dust. In any event, the exposure was not "material".
According to the defendant, the appropriate causation test to apply was a "doubles the risk" test. Only if the occupational exposure could be shown to have at least doubled the risk of Mrs Costello contracting mesothelioma could the defendant be held liable.
The judge at first instance agreed and concluded that Mrs Costello's exposure to asbestos at work increased the risk by only 18%.
The claimant appealed, arguing that the judge had failed to apply the law correctly.
The Court of Appeal found that the proper test was whether the occupational exposure had materially increased the risk of contacting the disease.
In its view, Fairchild effectively created a new tort limited to cases of mesothelioma - the tort of negligently materially increasing the risk of injury. Section 3 of the Compensation Act made it law that, provided all four conditions were satisfied, causation could be proved by demonstrating that the defendant wrongfully "materially increased the risk" of the victim contracting mesothelioma.
It did not matter whether the "other exposure" was negligent or non-negligent. The claimant could prove causation by any available method, including showing a material (i.e. more than minimal) increase in risk. The defendant appealed.
The Supreme Court unanimously dismissed the appeal.
The Fairchild exception was developed for mesothelioma cases because of ignorance about the biological cause of the disease. Under it, a defendant is liable if it materially increases the risk of the claimant contracting mesothelioma. The same principle applies whether it is a case of single exposure or multiple exposure.
The Court of Appeal, however, had misread the Compensation Act as creating a statutory rule of causation. Section 3 merely provides that, if a defendant negligently exposed the claimant to asbestos and the claimant contracts mesothelioma, the defendant would be liable in tort "whether by reason of having materially increased a risk or for any other reason." Whether and in what circumstances liability attached to the defendant was still a matter for the common law.
The Supreme Court, however, considered that the "doubles the risk" test put forward by the defendant was unsuitable as a test for causation in mesothelioma cases.
The idea is borrowed from epidemiology, which is the study of the occurrence and distribution of events such as disease over human populations. If statistical evidence indicates that the wrongdoer's act has more than doubled the risk that the victim would suffer the injury, the argument goes that it is more likely than not that the wrongdoer caused the injury.
The Supreme Court concluded that, as long as medical science is unable to demonstrate the exact origin of mesothelioma, data relating incidence to exposure was not a satisfactory basis for making findings of liability.
What constitutes a material increase in risk? Something more than minimal. But Lord Phillips said: "I doubt whether it is ever possible to define in quantitative terms what for the purposes of the application of any principle of law is de minimis. This must be a question for the judge on the facts of the particular case."
He continued: "In the case of mesothelioma, a stage must be reached at which, even allowing for the possibility that exposure to asbestos can have a cumulative effect, a particular exposure is too insignificant to be taken into account, having regard to the overall exposure that has taken place."
This case involved low levels of exposure. But currently there is no known lower threshold of exposure that determines whether or not a person contracts the disease. In any event, the Supreme Court was satisfied that the exposure in this case materially increased Mrs Costello's risk of developing mesothelioma.
The decision could pave the way for claims by mesothelioma victims who have been exposed to levels of asbestos that, until now, might have been considered too low to be actionable.
The Supreme Court judges resisted any attempt to limit the applicability of the Fairchild exception or the Compensation Act to "multiple exposure" mesothelioma cases. As Lord Phillips commented:
"The 2006 Act, coupled with Fairchild, has draconian consequences for an employer who has been responsible for only a small proportion of the overall exposure of a claimant to asbestos dust, or his insurers, but it would be wrong to have regard to that fact when considering the issues raised by these appeals. Parliament has willed it so."
Comments made by some members of the Supreme Court, however, questioned the wisdom of creating special causation rules, even for such a disease as mesothelioma.
Lord Brown doubted whether special treatment could be justified. "Although […] mesothelioma claims must now be considered from the defendant's standpoint a lost cause, there is in my mind a lesson to be learned from losing it: the law tempers with "but for" test of causation at its peril."
Lord Rodger looked forward to a day when medical science can identify which fibre or fibres caused the disease, at which point the problem that gave rise to the Fairchild exception "will have ceased to exist".
Senior financial services staff should consider potential D&O liability following Brexit