After a year of deliberation, the Court of Appeal, in a majority judgment, today partially overturned the first instance judgment and decided (using different routes) that an insurer's obligation to indemnify under an EL policy using an injury “sustained” wording is to be given the “Bolton” meaning. That is to say, the obligation is triggered by the deemed date of injury. However, in the case of an EL policy using a disease “contracted” wording, that policy is still to be interpreted as referring to the time when the disease was caused. Likewise, an EL policy with a "causation" wording is triggered by the date the disease was caused.
Background
The EL policy trigger litigation (as it has been termed) arose because a group of insurers in run off asserted that “sustained” or “contracted” in their EL policies had the same effect as “injury occurring” in a PL policy (as had been determined by the Court of Appeal in Bolton MBC v Municipal Mutual Insurance and another [2006]). Thus, the insurers argued that their policies were triggered by the deemed date of injury, which, in a mesothelioma claim, was when the mutation of the mesothelial cell occurred. This injury date was after their period of cover and effectively left many mesothelioma victims uncompensated and certain policyholders (including many local authorities) without EL cover.
In his first instance judgment (which was upheld in all respects by Smith LJ), Mr Justice Burton had found that:
- EL policies using injury “sustained”, “contracted” or similar wording were to be interpreted to mean the same as “caused” during the policy period
- The “caused” date was the date or period of inhalation
- 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
Court of Appeal
In his lengthy and sometimes complex leading judgment, Rix LJ said that, had he been free to do so, he would have made a finding that, in a mesothelioma claim, inhalation amounted to “injury” within the meaning of the policy. However, he felt constrained by his duty to follow precedent and thus endorse the Bolton judgment in relation to “sustained” wordings. He did, however, support the first instance judgment to the extent that “contracted” should mean “caused” and that the 1969 Act at least protects mesothelioma victims but not EL policyholders.
Burnton LJ saw the issue as one of pure construction and, in doing so, found that the commercial purpose of EL insurance was to provide the cover as defined in the policy. Further, he found that the conditions and exclusions in standard form EL policies made it impossible to maintain that insurers gave, or that employers contracted for, cover more extensive than the precise terms used. He disagreed with Rix LJ, by finding that the Bolton logic about “sustained” wording is correct, and that the 1969 Act does not require a “caused” wording. However, he went on to agree with Rix LJ that “contracted” means the date of exposure.
Implications
The Court of Appeal's judgment will have serious implications for mesothelioma victims and the long tail EL market, including:
- Where asbestos exposure was during a period where the policy included a “sustained” wording, many asbestos victims will now go uncompensated and many policyholders will be left to fund asbestos claims from their own pockets.
- Any “live'” EL insurers still using a “sustained” wording will now have to re-reserve for mesothelioma claims manifesting during their policy period.
- Whereas the first instance judgment avoided the controversy as to which insurer was on risk at the date of the injury, the Court of Appeal's judgment is likely to result in disputes between insurers using contrary medical opinions to determine the date of the injury. Those policyholders who have recovered their outlays from insurers on the basis of the first instance judgment may have to refund all or some of those monies.
- Brokers and underwriters will have to try to untangle the coverage implications of competing policy wordings throughout a policyholder’s EL insurance history.
- From the point of view of insurers and lawyers dealing with asbestos claims on a day to day basis, the certainties and the relatively straightforward claims handling procedures afforded by the first instance decision have suddenly disappeared and the darkness which followed the Bolton judgment is about to return.
Further challenges
The judgment throws up a range of further issues, for example:
- Some of the parties involved may seek to argue about the consequences and scope of the judgment
- The Court of Appeal must determine any applications for a further appeal to the Supreme Court and whether the current Practice Direction staying similar claims is to remain in force
- Some of the current parties may go no further. Conversely, some other interested parties may yet seek to intervene in any further appeal
- The present judgment leaves scope for similar technical challenges in relation to other latent diseases
- Any further appeal to the Supreme Court might overturn the Bolton judgment and alter the PL policy trigger from injury to exposure, thus transferring these liabilities to an earlier PL insurer
In an area that deserves clarity, to ensure the efficient functioning of the compensation system for the mutual benefit of claimants, employers, and insurers, the judgment poses almost as many questions as it provides answers. The policy triggers saga is unlikely to finish here.
Kennedys partners, Kieron West (Head of Occupational Disease Unit) and Mark Burton represented two of the local authorities at first instance and in the Court of Appeal.
Kennedys offer a national team of disease specialists, including more than ten partners spread over seven offices, giving practical and pragmatic advice including claims handling for insurers and advising policyholders on corporate solutions for their uninsured liabilities.