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Published online by Cambridge University Press: 02 January 2018
The dreadful disease of mesothelioma, caused by exposure to asbestos, has a number of features that pose almost intractable problems for tort law and liability insurance, notably the time lag of some 35 years between exposure and injury, and the accepted current impossibility of science proving exactly which exposure has given rise to the disease. The Supreme Court has addressed tort and insurance issues on no fewer than six occasions, most recently in Zurich Insurance PLC UK Branch v International Energy Group Ltd (IEG), a case in which a specially convened seven-judge panel split 4:3 on the correct analysis of the insurance position. This paper analyses the reasoning and its implications. As will be seen, IEG is unlikely to be the end of the story. Most of the cases have involved exposure of employees to asbestos, and discussion is directed primarily to that context. A brief outline of the authorities will suffice to set the background to IEG.
The author is grateful to Michelle George of Chadbourne & Parke LLP, and also to two anonymous referees, for valuable comments on an earlier draft of this paper.
1. Merkin, R and Steele, J Insurance and the Law of Obligations (Oxford: Oxford University Press, 2013) ch 12.Google Scholar
2. Seven, if the abortive attempt by the Welsh Assembly to impose retroactive tort and insurance liability for the costs of treating mesothelioma is counted: Re Recovery of Medical Costs for Asbestos Diseases (Wales) Bill [2015] UKSC 3.
3. [2015] Uksc 33.
4. Lords Mance, Clarke, Carnwath and Hodge; Lords Neuberger, Reed and Sumption dissenting. The majority judgment was delivered by Lord Mance, with a short supplementary judgment by Lord Hodge; the dissenting judgment was written by Lord Sumption, with Lords Neuberger and Reed adding some concluding comments.
5. In that tort is the ‘gatekeeper’ of access to insurance funds: see Merkin and Steele, above n 1, p 278.
6. The traditional view to the contrary of J Stapleton ‘Tort, insurance and ideology’ (1995) 58 Mod L Rev 820, has not – it is submitted – withstood scrutiny: Abraham, Ks The Liability Century (Cambridge, MA: Harvard University Press, 2008); T Baker ‘Liability insurance as tort regulation: six ways that liability insurance shapes tort law in action’ (2005) 12 Conn Ins L J 1; J Morgan ‘Tort, insurance and incoherence’ (2004) 67 Mod L Rev 384; R Merkin ‘Tort, insurance and ideology: further thoughts’ (2012) 75 Mod L Rev 301.Google Scholar
7. [2002] UKHL 22; [2003] 1 AC 32.
8. The literature is voluminous. See: Clerk & Lindsell on Torts (London: Sweet & Maxwell Google Scholar, 2121st edn, 2014) ch 2; J Morgan ‘Lost causes in the House of Lords: Fairchild v Glenhaven Funeral Services’ (2003) 66 Mod L Rev 277; C Miller ‘Judicial approaches to contested causation: Fairchild v. Glenhaven Funeral Services in context’ (2002) 1 Law, Prob & Risk 119; A Porat and A Stein ‘Indeterminate causation and apportionment of damages: an essay on Holtby, Allen, and Fairchild’ (2003) 23 Oxford J Legal Stud 667; K Amirthalingam ‘Causation, risk and damage’ (2010) 126 Law Q Rev 162; SH Bailey ‘Causation in negligence: what is material contribution?’ (2010) 30 Legal Stud 167.
9. R Merkin ‘Insurance claims and Fairchild’ (2004) 120 Law Q Rev 233.
10. [2006] UKHL 20. See P Laleng ‘Causal responsibility for uncertainty and risk in toxic torts’ (2010) 18 Tort L Rev 102.
11. [2012] UKSC 14; [2012] 1 WLR 867. See: N Mcbride and S Steel ‘The “trigger” litigation’ (2014) 4 Prof Negl 285; R Merkin and J Steele ‘Compensating mesothelioma victims’ (2011) 127 Law Q Rev 329; Merkin, R and Steele, J ‘Historic asbestos exposure and liability insurance: issues of aggregation and reinsurance’ in Steele, J and van Boom, W (eds) Mass Justice: Challenges of Representation and Distribution (Cheltenham: Edward Elgar, 2011) p 208.Google Scholar
12. Ambient exposure to asbestos can, however, be all but discounted following Sienkiewicz v Greif (UK) Ltd [2011] UKSC 10, [2011] 2 AC 229.
13. Although the Financial Services Compensation Scheme by the Compensation Act 2006 (Contribution for Mesothelioma Claims) Regulations 2006 (Si 2006/3259), authorised the extension of the Financial Services Compensation Scheme, as set out in the Compensation COMP section of the Financial Conduct Authority Handbook, so that a victim may recover under the Scheme where the employer's insurers are insolvent.
14. It may also be added that there is a statutory compensation scheme in the Mesothelioma Act 2015 for victims first diagnosed with the disease on or after 25 July 2012, but benefits are conditional on no claim for damages having been brought.
15. There are exemptions to this rule including government departments and agencies, local authorities, nationalised industries, police authorities and health service bodies.
16. Following amendments under the authority of the Insurance Act 2015, correcting technical errors in the 2010 Act that prevented its implementation. Inexplicably, the promised implementation in 2015 did not take place.
17. [2006] Ewca Civ 50; [2006] 1 WLR 1492.
18. Cf Rothwell v Chemical and Insulating Co Ltd [2007] UKHL 39; [2008] AC 281.
19. Nothing appears to be written on the point, but the present author can testify to the strength of feeling expressed by an audience of London market liability insurers at a seminar shortly after the Bolton ruling: the author escaped only by pleading the ‘don't shoot the messenger’ defence.
20. Claims made policies were originally developed for the professional indemnity market, and after a brief flirtation with other forms of liability insurance in the 1980s and 1990s have now been restored to their original function. A claims made policy will generally contain a ‘retroactive date’ (typically the date on which the insurer first came on risk) that cuts out liability for acts of negligence committed before that date. Bolton deprived the insurers of the possibility of that protection.
21. Leaving the somewhat unsatisfactory outcome that the same words bear different meanings in different classes of insurance. Lord Mance, in argument in Trigger, made it clear – with apparent relief – that the correctness or otherwise of Bolton was not at stake and was to be left to another day.
22. The issues are discussed in more detail in Merkin and Steele, above n 1, ch 12 and G Meggitt ‘the “rock of uncertainty”: mesothelioma, insurers and the courts’ [2013] (6) J Bus L 563.
23. Guidelines issued by the Industrial Disease Claims Working Party in 2006, revised in 2008.
24. [2013] Ewca Civ 39.
25. [2015] Uksc 33, para 108.
26. At paras 39, 46.
27. [1998] EWCA Civ 946; [1998] Lloyd's Rep Ir 421.
28. [1998] Lloyd's Rep Ir 421, 436.
29. [2009] UKHL 40; [2010] 1 AC180.
30. Deliciously ironic, because Jonathan Sumption Qc, as he was then, appeared for the reinsured in Wasa, but failed to convince a panel, which included Lord Mance, that cover could exceed temporal limits.
31. That is, a one-off reinsurance of this single policy.
32. The authorities are discussed in the judgment of Lord Sumption in Ieg.
33. Forsakrings Vesta v Butcher [1989] Ukhl 5; [1989] Ac 852, where the House of Lords was prepared to apply Norwegian rules of construction to an English law facultative reinsurance in order to match the cover provided by the identically worded Norwegian direct policy.
34. Insurers have to take the risk of the law changing, so that they have to bear additional liabilities. That established principle was indeed one of the key elements relied on by Lord Mance in Trigger in support of the outcome.
35. A Mecz and A Bailey ‘Wasa International Insurance Co Ltd v Lexington Insurance Co: buyer beware’ [2010] (1) J Bus L 1; A Schaff ‘Wasa International Insurance Co Ltd v Lexington Insurance Co: the limits to the “back to back” presumption’ [2010] (1) J Bus L 9; O Gurses ‘Reinsurance contracts: is Wasa v Lexington the exception or the rule?’ (2010) 73 Mod L Rev 119; R Merkin ‘Commercial certainty in the reinsurance market’ (2010) 126 Law Q Rev 24.
36. [2013] UKSC 57.
37. Cox v Bankside Members Agency Ltd [1995] 2 Lloyd's Rep 437.
38. The actual dispute arose at the reinsurance level. Bv was insured by its captive, which had matching outwards reinsurance. Liability under the insurance nevertheless determined liability under the reinsurance, and so the arguments related to the insurance coverage.
39. In a sequel decision, Teal Assurance Co Ltd v W R Berkley Insurance Europe Ltd (No 2) [2015] Ewhc 1000 (Comm), Eder J held that the assured's payment of an agreed sum into an escrow account, from which drawings could be made to fund repairs to defective products supplied by the assured, did not establish and quantify the assured's liability, although the drawdowns themselves had that effect. The claim was non-US, and the ruling had the effect of postponing the assured's liability, exactly the result that it wanted.
40. See, generally, Mitchell, C The Law of Contribution and Reimbursement (New York: Oxford University Press, 2003).Google Scholar
41. Monksfield v Vehicle and General insurance Co Ltd [1971] 1 Lloyd's Rep; Eagle Star Insurance Co v Provincial Insurance Plc [1993] UKPC 22; [1993] 3 All ER 139; Bolton Metropolitan Borough Council v Municipal Mutual Insurance & Commercial Union Assurance [2006] EWCA Civ 50; [2006] 1 WLR 1492. The contrary view also has its supporters – rightly so, because it cuts out the possibility of a defence arising between loss and payment: Legal and General Insurance Society Ltd v Drake Insurance Co Ltd [1992] 1 All ER 283; O'Kane v Jones [2005] Lloyd's Rep IR 174. Australian authority is unanimous in support of the latter view. See eg Limit (No.3) Ltd v ACE Insurance Ltd [2009] NSWSC 514.
42. Bovis Construction Ltd v Commercial Union insurance Co Ltd [2001] Lloyd's Rep Ir 321.
43. The summary of Gavin Kealey QC in the most recent decision, National Farmers Union Mutual Insurance Society Ltd v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm); [2011] Lloyd's Rep IR 86, at para 15, cited with approval by the majority in IEG.
44. [2004] Lloyd's Rep Ir 426.
45. National Employers Mutual General Insurance Association Ltd v Haydon [1980] 2 Lloyd's Rep 149, reversing [1979] 2 Lloyd's Rep 235.
46. The majority cited AMP Workers Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267 and Zurich Australian Insurance Ltd v GIO General Ltd [2011] NSWCA 47 as illustrative decisions. The most recent authority is Zurich Australian Insurance Ltd v The Workers Compensation Nominal Insurer [2013] NSWSC 915, which in fact restricts the principle. See Enright, I and Merkin, R Sutton's Law of Insurance in Australia, vol 2 (Sydney: Thomson Reuters, 44th edn, 2014) para 19.50.Google Scholar
47. Ieg, para 59. the majority also found support from the views expressed by the present author in Merkin and Steele, above n 1, p 378.
48. See O'Kane v Jones [2005] Lloyd's Rep Ir 174 for discussion of them.
49. The statutory minimum, of £5 million for any one occurrence, is not found in practice.
50. Because that would be damages on damages: Sprung v Royal Insurance [1999] Lloyd's Rep Ir 111. Law Commission proposals to reverse the Sprung rule were rejected by the government and omitted from the Insurance Act 2015.
51. Hellenic Industrial Development Bank v Atkin, The Julia [2005] Lloyd's Rep IR 365.
52. Callaghan v Dominion Insurance Co [1997] 2 Lloyd's Rep 541.
53. In reliance on general propositions put forward in A Burrows The Law of Restitution (Oxford: Oxford University Press, 33rd edn, 2011) pp 88–91. See also Mitchell, C, Mitchell, P and Watterson, S Goff and Jones: The Law of Unjust Enrichment (formerly The Law of Restitution ) (London: Sweet & Maxwell, 88th edn, 2011) Pt 3.Google Scholar
54. The minority reasoning is to similar effect: see para 187. See also the almost summary view of the lower courts in rejecting the suggestion: [2012] EWHC 69 (Comm) (J Burton, para 42); [2013] EWCA Civ 39 (LJ Toulson, para 37, with whom Maurice Kay and Aikens LJJ agreed). See also [1993] AC 713.
55. [2010] Sghc 224.
56. Following the lead of the Court of Appeal in Drake Insurance Plc v Provident Insurance Plc [2003] Ewca Civ 1834; [2004] QB 601.
57. [2009] Nswsc 514.
58. Assuming no excess and no average clause.
59. Marine Insurance Act 1906, s 78(1). The right to payment is stated by the section to arise only where there is a suing and labouring clause in the policy: as that is invariably the case, there is no need here to consider the position where the policy is silent.
60. Royal Boskalis Westminster v Mountain [1997] 2 All ER 929; Atlasnavios v Navigators Insurance Company Ltd, The B Atlantic [2014] EWHC 4133 (Comm).
61. [2012] Ewca Civ 1713.
62. [1997] Ukpc 37; [1997] 1 Wlr 1237.
63. The scope of the mistake defence in these circumstances is limited as a result of Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, The Great Peace [2002] EWCA Civ 1407; [2003] QB 679, disapproving the invoking of a wider equitable jurisdiction in these precise circumstances in Magee v Pennine Insurance Co Ltd [1969] 2 QB 507.
64. Norwich Union Fire Insurance Society Ltd v William Price Ltd [1934] AC 555.
65. Hayward v Zurich Insurance Co plc [2015] EWCA Civ 327, where a distinction was drawn between an insurer who settled unaware of fraud (entitled to avoid), and an insurer who settled aware of fraud but who later discovered further evidence of fraud (not entitled to avoid) – Hayward was of the latter type.
66. See the discussion of policy excesses, below.
67. Subrogation is the right of an insurer, or indeed any contractual indemnifier, to recover its payment from a third party responsible for the loss suffered by the indemnified party in respect of which the indemnity was provided.
68. (1877) 3 App Cas 279.
69. But see PS James ‘The fallacies of Simpson v Thomson’ (1971) 34(2) Mod L Rev 149.
70. If the interests of a and B are indivisible (as with spouses) the policy is ‘joint’ and their rights stand and fall together, so the point does not there arise.
71. Gard Marine & Energy Ltd v China National Chartering Co Ltd [2015] EWCA Civ 16.
72. Rathbone Brothers Plc v Novae Corporate Underwriting Ltd [2014] EWCA Civ 1464.
73. As in Rathbone, where the events giving rise to the claim against a under a liability policy predated B's involvement with a.
74. The majority view in Rathbone. It may be noted that, before Rathbone, the implied policy term had been thought to be the route to B's immunity. The authorities are discussed at length in that decision.
75. The same comment was made by Burton J at first instance, [2012] EWHC 69 (Comm), para 42. See also Associated Forest Holdings Pty Ltd v Gordian Runoff Ltd [2015] TASFC 6, where the Full Court of Tasmania treated an employer exempt from workers compensation legislation as a ‘self-insurer’ so that its outward protection was reinsurance rather than insurance: the policy was indeed in the form of an excess of loss reinsurance treaty rather than one of liability insurance
76. [1993] Ac 713.
77. The Commonwealth [1907] P 216.
78. There may also be an aggregate excess, based on losses or claims arising out of any one event or originating cause,
79. A form of cover known as ‘deductible buy-back’.
80. Halvanon Insurance v Central Reinsurance [1984] 2 Lloyd's Rep 420.
81. SA d'Intermediaries Luxembourgeios v Farex Gie [1995] LRLR 116.
82. As reclassified by the Insurance Act 2015 from the old duty of utmost good faith.
83. Policies issued before the 1969 Act came into force were generally not subject to any excess. Where there is an excess, insurance can be obtained against liability to repay the excess, a device adopted by Turner & Newall, a leading supplier of asbestos products, whose policy set out a deductible of £690 million. For the most recent stage in the lengthy litigation, see Federal Mogul Asbestos Personal Injury Trust v Federal-Mogul Ltd [2014] EWHC 2002 (Comm).
84. The operation of the 1969 Act was reviewed by the Department of Work and Pensions in 2002 (document now removed). It appears from this report that compliance ‘remains high’
85. Richardson v Pitt-Stanley [1995] 1 All ER 460.
86. Campbell v Peter Gordon Joiners Ltd [2015] CSIH 11.
87. There is lengthy discussion by the majority as to how a right of recoupment might operate where the employer is insolvent and the claim is brought directly against the insurer by the victim under the Third Parties (Rights against Insurers) Act 1930 or 2010. Lord Mance concluded that the insurer would not be entitled to set-off from the sums payable under the policy the amount of any recoupment claim, either because such a claim did not arise under the policy itself or (a point on which there is a conflict of authority) because set-off was precluded by the legislation. The minority pointed to this analysis as further evidence of the artificiality in the majority approach.
88. See Sienkiewicz v Greif (UK) Ltd [2011] UKSC 10; [2011] 2 AC 229; S Steel and D Ibbetson ‘More grief on uncertain causation in tort’ (2011) 70 Camb L J 451. If there was another period of exposure by a non-employer with a public liability policy, responding under Bolton to the year of injury, the fun would really start.
89. Interestingly, Lord Hodge was of the view (para 110) that the principles laid down by the majority in IEG were consistent with market practice and would not cause major practical difficulties. That statement is not borne out by the intervention of the Association of British Insurers in the proceedings, arguing for the ‘time on risk’ principle ultimately accepted by the minority. The statement is certainly aspirational rather than factual once attention is focused on the reinsurance implications.
90. But not always. There may be annual aggregate limits or deductibles for each year of the reinsurance, so full recovery is possible only if losses are spread across policy years.
91. Rr1 may face problems with its own outward reinsurance – retrocession – where there are different retrocessionaires on risk from year to year during Rr1's period of coverage of I, but that is the same problem, albeit once removed, as different reinsurers in the years of I's coverage, discussed in the text.
92. In practice, much of this type of business was insured by Lloyd's Syndicates.
93. By analogy, because the 1984 Act does not apply to reinsurance.
94. Camellia Properties Pty Ltd v Wesfarmers General Insurance Ltd [2013] NSWSC 1975, where the assured was held not to have been in breach of its contractual duty of utmost good faith, following a fire at his premises, by applying to the local authority for development consent with the effect that the rebuilding costs to be incurred by the insurers were raised.
95. Tavelers Casualty and Surety Co v Insurance Co of North America 609 F 3d 143 (2010); United States Fidelity and Guaranty Co v American Reinsurance Co 985 NE 2d 876 (2013).
96. See Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd [2014] EWHC 2105 (Comm).
97. But a further problem arises, based on the facts of Ieg, if Ieg had been insolvent. Zurich would then have been unable to recoup anything from Ieg, leaving itself with its own 6 years, two year contribution from Excess and a worthless 19 year recoupment claim from Ieg. Would that loss have been borne by Zurich alone, or would Excess have been required to contribute its proportion of the failed recoupment? in other words, could Zurich have sought contribution from Excess for the 19 years of non-insurance on a 6:2 ratio? It seems curious if that was not the case: the risk of unrecoupable sums would have fallen on the insurer chosen as the relevant defendant rather than split between the two insurers in proportion. Surely it is inconsistent with the reasoning in IEG that the loss should fall, fortuitously, on the insurer against whom proceedings are brought.
98. In Wasa, the reinsurers did not seek to pray in aid the argument that the Us judgment should be disregarded on the grounds of ‘manifest absurdity’, a defence potentially open to them: see Commercial Union v Nrg . However, a good deal of their oral submissions to the House of Lords were designed to cast doubt on the credibility of the US decision, and did so to some effect.
99. See Lords Neuberger and Reed, at para 211.