Zurich Insurance PLC UK Branch v International Energy Group Limited [2015] UKSC 33

Is an employers’ liability insurer liable to indemnify an employer for the whole of a mesothelioma claim, or just for the proportion of time on risk?

Background

International Energy Group (IEG) employed Alan Carre for 27 years from 1961 to 1988, during which he was negligently exposed to asbestos.  Zurich Insurance plc UK (Zurich) provided insurance to IEG for six of those 27 years. Mr Carre worked for a different employer until his retirement in 2008, shortly after which he died. 
   
Mr Carre’s mesothelioma claim was settled by IEG who claimed indemnity from Zurich under its employers’ liability insurance policy.  Zurich argued that, as they had only been on risk for 6 of the 27 years of the deceased’s employment by IEG, they were only liable to IEG for 6/27ths of the sum paid by IEG.

The original claim was pursued in Guernsey which has no equivalent to the Compensation Act 2006. The 2006 Act makes each employer liable in full, with rights of contribution among themselves.

The decisions of the lower courts: mixed fortunes

The High Court found in favour of Zurich. It ordered Zurich to pay 22.08% of the compensation claim, but 100% of the defence costs.

The Court of Appeal overturned that decision, ordering Zurich to pay 100% of both the compensation and defence costs.  In doing so, the Court analysed the Trigger[1] litigation and Fairchild[2] principles and found that, once the causal requirement was met, IEG had a contractual right of indemnity under the policy against that liability. It was irrelevant that the deceased may have been exposed to asbestos while working for other employers, as this did not affect IEG’s contractual right to be indemnified under the policy.

The Court of Appeal was strongly influenced by the commercial purpose of the policy, which was to provide cover to the employer against liability arising from its conduct during the policy period.  Any other construction would leave not only employers but employees or ex-employees at risk of being under-protected.

Supreme Court decision

The Supreme Court unanimously allowed Zurich’s appeal (in respect of compensation).  Only 22.08% of IEG’s loss was attributable to the period of insurance for which Zurich was on risk.

Reasons

As Guernsey does not have an equivalent to the Compensation Act 2006, the case fell to be decided on the basis of Barker[3] which decided that an employer was only liable pro rata to the period which exposure by it bore to the total of all periods of exposure.

Had Guernsey had an equivalent to the 2006 Act, the majority decided that IEG would have been liable for the full 100% of loss and as such, Zurich would have to answer for the full 100% loss in the first instance. However Zurich would have had an equitable right to contribution pro rata from any other insurers able to contribute – and from IEG itself in respect of any period where there was no such insurer. The minority decided that Zurich would only have been liable to IEG in the first instance for 22.08%.

The defence costs were treated differently as they would have been incurred in defending the claim no matter the period of exposure. 

What does this mean for insurers?

Although the Supreme Court decision is of limited applicability given that it was decided under Guernsey law, it does contain some useful indicators of the current Supreme Court thinking. Useful commentary is made to the effect that neither the 2006 Act, nor the Trigger litigation has been directly inconsistent with or undermined the decision in Barker.  This gives some hope to insurers that the proportionate recovery principle in Barker would still hold considerable weight before a Court.

Lord Mance also considers the position under the Third Party (Rights Against Insurers) Act 1930, concluding that, had IEG been insolvent, it is likely that Mr Carre would have been able to look to Zurich for his full 100% loss.

The full judgment of the Supreme Court can be found here:https://www.supremecourt.uk/cases/docs/uksc-2013-0057-judgment.pd