The Supreme Court handed down judgment in the employers’ liability policy trigger litigation on 28 March 2012. This overturns the Court of Appeal’s judgment of 08 October 2010 regarding the meaning of “disease sustained” policy wording in employers’ liability (EL) cases and reinstates the market practice that policy cover for mesothelioma claims is triggered by the date of exposure to asbestos and not by the deemed date of injury many years later.
This Adviser provides a recap on the developments leading up to this judgment and what effects the Supreme Court’s decision has on businesses.
Bolton v Municipal Mutual Insurance (MMI) set the scene in 2006. This was a public liability (PL) case in which it was held that in a mesothelioma claim, injury “occurs” when the tumour starts to develop, ten years prior to the onset of symptoms.
The EL policy trigger litigation arose because four insurers (Builders Accident Insurance, Excess Insurance, Independent Insurance and MMI) had EL wordings with ‘disease sustained’ or ‘disease contracted’ in their EL policies. Those insurers felt these were worded in a similar way to the Bolton PL policy and therefore decided to decline claims on the basis of the ruling in the Bolton case.
A group of claimants sought to reverse the stance taken by these four insurers by issuing proceedings which became known as the employers’ liability policy trigger litigation.
The High Court
The High Court reached a decision in November 2008 and found that whatever the wording was in an EL policy, the policy was to be construed as having been triggered by the date of inhalation. Therefore, it was the insurer who was on risk at the date of inhalation which was liable to indemnify in respect of the disease.
- EL policies using disease ‘sustained’, ‘contracted’ or similar wording were to be interpreted to mean the same as ‘caused’ during the policy period.
- The ‘caused’ date was the period of exposure to asbestos.
- A “causation” wording was necessary in an EL policy in order to give effect to the intentions of both parties and to meet an employer’s obligations under the Employers’ Liability (Compulsory Insurance) Act 1969.
- The observations forming part of the detailed medical views indicated that the mesothelioma tumour could first occur only five years prior to the onset of symptoms.
The Court of Appeal
The litigation was appealed to the Court of Appeal which reached a decision in October 2010. It produced a complex judgment which caused many insureds to have gaps in their EL insurance due to the different policy wordings adopted by different insurers.
The main decisions of the Court of Appeal were that:
- Where the EL policy wording used is ‘disease sustained’, the policy which responds is the one in force when the mesothelioma tumour starts to develop.
- Where the EL wording used is ‘disease contracted’ (deemed to be synonymous with the word “caused”) then the policy in force at the time of exposure responds.
The Supreme Court’s decision
The final appeal occupied the Supreme Court from 5 to 15 December 2011 and the judgment was handed down on 28 March 2012.
The Supreme Court held that EL policies will respond whether the wording of the operative clause is “caused”, “contracted” or “sustained”. This endorses the historical “causation” approach to policy interpretation.
The effects of the Supreme Court’s decision
- The judgment aligns the meaning and effect of “caused”, “sustained” and “contracted” and avoids different treatments of similar EL policies.
- The affected policyholders will no longer be forced to self-fund costly mesothelioma claims.
- The blockage of stayed claims can now be cleared.
- The exposure trigger applies equally to other asbestos and occupational diseases where there is a latency period between exposure and injury and therefore averts further market disruption.
- Significant liabilities will revert back to insurers and this will have a negative impact upon their financial exposure.
- The overall effect of the judgment is to restore clarity to the EL claims handling process.
- There remains an issue with PL claims as to whether the trigger should be ten years or five years prior to manifestation. The Supreme Court judgment does not resolve this point.
What should you consider?
Companies should seek to assess whether they have:
- Claims against historic EL policies with insolvent insurers.
- A comprehensive understanding of their historic EL insurance including acquisitions.
- Financial provisioning in place to meet the cost of future uninsured mesothelioma claims.
- Claims which now fall within policies with these insurers.
How can we assist you?
With Insolutions’s skills, resources and award-winning initiatives* in the field of disease liabilities and insurance archaeology, it is very well placed to meet the needs and requirements of any company with such liabilities; and not only in relation to short-term benefits but in relation to lasting corporate solutions.
For further information, please contact :
Marsh Risk Consulting
Occupational Disease Claims Practice
Marsh Global Claims
* Winner of the Manchester CII Insurance Awards 2011 – Claims Initiative of the Year
The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.
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