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Risk. Reinsurance. Human Resources.

Technical Bulletin Mesothelioma – Yesterday’s problem today

Date: September 2015

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In January 2014 we reported on the introduction of the Mesothelioma Levy Scheme, a compulsory payment scheme for mesothelioma victims who might otherwise receive nothing where neither a liable Employers’ Liability (EL) insurer nor a solvent liable employer could be traced. Following on from this a recent Supreme Court decision has provided a timely reminder that where at least one solvent employer remains traceable they may ultimately find themselves responsible for the entirety of the victim’s compensation award, notwithstanding that they may be able to show adequate EL insurance for at least some of the time of exposure.

This decision highlights not only the importance of an insured being able to trace the entire EL history of their own company, but, as this liability would generally be inherited by any acquiring company, the entire EL history of any past acquisitions (or acquisitions of acquisitions). It also acts as a reminder that full details of the EL history of any possible future acquisitions should be established as part of a potential acquirers due diligence procedures.

The case: Zurich Insurance PLC UK Branch v International Energy Group Limited [May 2015] International Energy Group Limited (IEG) was responsible for all of the liabilities of a predecessor company, Guernsey Gas Light Co Ltd. Having settled a mesothelioma claim in relation to a previous employee, Mr Alan Carré, IEG sought recovery under certain of its EL policies in relation to the payment of damages along with defence costs.

The policies in question were issued by Midland Assurance Ltd over a 6 year period (from 1982 to 1988) and whose insurance liabilities had subsequently been acquired by Zurich Insurance Plc UK (Zurich).

IEG had, via Guernsey Gas Light Co Ltd, employed Mr Carré for a total of 27 years (from 1961 to 1988). Throughout the entirety of that period, Mr Carré was negligently exposed to asbestos by his employer, which subsequently led to his death from mesothelioma.

Whilst the liability of IEG was not in dispute, the proportion of damages recoverable under the Zurich owned policies was. The question that needed to be answered by the Supreme Court was whether IEG was entitled to recovery from the insurer for the full amount of its outlay (circa GBP275,000 including defence costs) or if it was entitled only to the proportion that the 6 years coverage provided by Midland Assurance bore to the 27 years over which the late Mr Carré was negligently exposed to asbestos.

As the case was governed by the law of Guernsey the decision in itself is not terribly significant. In this case because the law of Guernsey, does not have an equivalent of the Compensation Act 2006, the House of Lords decision in Barker v Corus [2006] was found to remain good law and consequently “proportionate Liability” applied i.e. 6/27ths of the final compensation award). However, the wider implications of the judgment come from the decision of the Supreme Court to opine on the comparable position under English law and in particular, the impact of Section 3 of the Compensation Act 2006.

Section 3 of the Compensation Act 2006 effectively overrides the decision in Barker. It deems any tortfeasor (whether an employer or not) who created a material risk of mesothelioma, to have caused that mesothelioma in the event that it later materialises. Each tortfeasor is jointly and severally liable for the full amount of any damages and who, upon payment of compensation for such liability, obtain the right to seek equitable contribution from any other tortfeasor who also created such material risk.

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In the opinion of the Supreme Court the combined effect of the various preceding judgements and legislation was as follows

Each employer is jointly and severally liable for the injury suffered. (Fairchild v Glenhaven Funeral Services Ltd [2002], reinstated by Section 3 of the Compensation Act 2006).

Mesothelioma is caused in each and every period of any overall period of exposure (Durham v BAI (Run Off) Ltd [2012]).

The “proportionate liability” approach, established in Barker is overridden in any circumstance where Section 3 of the Compensation Act 2006 applies.

The opinion applies only to EL insurance. (In respect of Public Liability policies the ruling in Bolton v MMI [2006] remains good law)

The fact that mesothelioma is deemed to have been caused in each and every period of any overall period of exposure a victim of mesothelioma is entitled to bring a claim against any available employer who may be liable. In turn that employer could claim against any available insurer who provided them with insurance during the overall period of exposure (regardless of their actual time on risk); however, whilst such an insurer would be required to provide full indemnity (including defence costs), they would, upon payment, obtain an equitable right of contribution against

any other insurer on risk during the period of exposure,

the insured themselves for any period where no insurance was in place (or was untraceable) and,

presumably, any other tortfeasor who created a material risk of contracting mesothelioma (or their insurers).

It should be noted that the court decided that that the defence costs would not be subject to this special rule, as such amounts would have been payable by the first insurer in any event.

Comment The fact that this opinion suggests that an insured would be ultimately liable for any period during which either

there was no insurance, or

insurers could not be traced

provides a timely reminder to policyholders of the importance of being able to trace their full EL insurance history. This needs to include any past acquisitions (or, indeed, acquisitions of acquisitions) as well as ensuring that a full EL history is established as part of any due diligence for new acquisitions. In cases where gaps in the insurance history are established and, after diligent investigation insurance records cannot be traced, it may be possible in certain circumstances to obtain cover to infill at least some elements of the missing periods Please contact your usual Aon contact for more information.

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Contact Information Stewart Donovan Technical Consultant ARS UK Broking / Technical Services and Design +44 (0)207 086 3673 stewart.x.donovan@aon.co.uk

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