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UK Supreme Court judges show little appetite for extending ‘Fairchild’ exception to other scenarios, says expert

Out-Law News | 26 May 2015 | 3:53 pm | 5 min. read

Comments made by some of the UK’s top judges during a recent ruling appear to signal their reluctance to extend the so-called ‘Fairchild’ exception to the normal rules of causation to cover any more types of damage or injury, an expert has said.

A panel of seven Supreme Court judges unanimously found that because the 2006 Compensation Act did not apply in Guernsey, insurer Zurich was only liable for a proportion of compensation paid to an employee who died of asbestos-related lung disease calculated according to the length of time it insured his employer, International Energy Group (IEG).

Litigation expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com, said that the judges’ lengthy discussion illustrated some of the legal complexities caused by the House of Lords’ decision in a case involving a Mr Fairchild and Glenhaven Funeral Services Ltd in 2002. The case established the legal precedent that any employers that had “materially increased the risk” that one of their employees would later develop mesothelioma could be held liable for the damage suffered if that employee became sick.

“Since Fairchild broke the key causation barrier, the question uppermost in the minds of industry and their advisers was whether that breach, once made, could be confined to mesothelioma cases,” said Connal. “The worry was that it would creep into other cases where science found it impossible to ascribe responsibility for damage to one source; or in this case, one party.”

A 95-page judgment with a number of lengthy opinions, not all speaking with the same voice, may not be the easiest place to find certainty, or even guidance. It seems to me that, on a formal level, the judges are careful to state that Fairchild is not confined to mesothelioma cases. However, there are so many comments about the benefit of hindsight and the need for caution before making radical changes in the interests of individual justice that it is clear there will be little appetite to extend the ‘Fairchild enclave’. Commerce – and their insurers – will breathe a sigh of relief if that prognostication proves correct,” he said.

To successfully claim damages a party must usually be able to show that it is more likely than not that the harm suffered was caused by a breach of duty by the party being sued. The Fairchild exception relaxes this requirement, so that any one party whose breach of duty materially increases the risk of mesothelioma developing becomes jointly and severally liable for the damage suffered if mesothelioma does in fact develop. The exception allows an employee who develops the asbestos-related disease to pursue one or all of his former employers, who would then have to pursue the others to recover their shares of the damages claim. The exception reflects the fact that medical science cannot determine which particular asbestos fibre or fibres caused the condition to develop, often decades later.

In 2006, another asbestos-related case came before the House of Lords and required it to rule on how liability should be divided if one of the employers responsible for materially increasing the risk of harm had gone insolvent. The House of Lords accepted the argument that the solvent employers should not have to cover the proportion for which the insolvent employer would have been responsible. In response, the UK government passed the 2006 Compensation Act to reverse the effect of this ruling, but only in cases involving mesothelioma.

In the latest case, the Supreme Court had to consider whether the proportionate approach adopted by the House of Lords in the 2006 case was still “good law” in Guernsey, which was not covered by the Compensation Act. The difficulty here was that the employee, Mr Carré, could have been exposed to the asbestos that caused the mesothelioma from which he later died at any point during his 27 years working for IEG in Guernsey, but only during six of those years was IEG insured by Zurich. IEG had already settled Mr Carré’s claim, but was now seeking an indemnity from Zurich.

In the Court of Appeal, the judges had ruled that there was sufficient causal link between Mr Carré’s exposure to asbestos during the six years that Zurich insured the employer and his eventually developing mesothelioma that IEG was legally liable for causing the disease and that Zurich was contractually obliged to indemnify the whole of that liability. It also found that the insurer was liable for the entirety of IEG’s legal costs when settling Mr Carré’s claim. The Supreme Court disagreed, finding that the proportionality principle still applied in Guernsey. However, the insurer was liable for the full extent of the legal costs, as these were incurred with the insurer’s consent and would have been the same whatever the period of exposure.

The judges then went on to look at what the position would be under UK law, bearing in mind the effect of the 2006 Act in reversing the proportionality rule. By a four to three majority, albeit one without legal effect as the question was not one that they had been asked to officially rule on, the Supreme Court held that Zurich would have been liable for the full extent of the loss. It would, however, have the same right to recover its share of the loss from any other insurers, or directly from IEG in respect of the periods for which the company had no insurance.

Lord Hodge said that the case had been a “difficult” one to decide, “not least because I am generally averse to developing the common law other than by the application of general principles”. However, he said that he was “not as concerned” as some of the other judges about “the danger of infecting other areas of the common law with uncertainty”.

“The court is crafting a solution for the problems that stem from the alternation of the rules of causation and the solution applies only to cases to which the altered rules of causation apply,” he said.

“The House of Lords … has been careful not to allow the relaxation of the established rules of causation more widely by applying a weak rule of causation outside the Fairchild enclave. The courts will have to police the boundaries of the enclave. So long as (a) the rights of recourse against other insurers and the insured employer are recognised for what they are, namely as a means of avoiding anomalies as a result of the special rules of causation and (b) those special rules are confined to the circumstances which Fairchild addresses, there is no reason why the boundaries of the Fairchild enclave should not be preserved,” he said.

Lord Neuberger and Lord Reed said that, although “well-intentioned”, the Fairchild decision had created “a sort of juridical version of chaos theory”.

“The unfortunate fact is that the courts are faced with comparable rocks of uncertainty in a wide variety of other situations too, and that to circumvent these rocks on a routine basis would turn our law upside down and dramatically increase the scope for what hitherto have been rejected as purely speculative compensation claims,” they said in their joint ruling.