Zurich v International Energy Group [2015] UKSC 33

Facts

International Energy Group (IEG), a solvent Guernsey company, employed Mr Carré for 27 years. Mr Carré was exposed to asbestos dust during the whole of his employment and he contracted mesothelioma. IEG took out insurance with Zurich, for six of those 27 years.

Other than a two year period when another insurer was on risk, IEG did not have any other insurance cover during the remaining period of Mr Carré’s employment (compulsory employers’ liability insurance only having come into force in Guernsey in 1993).

IEG reached a settlement with Mr Carré shortly before his death and sort to recover the full amount of that payment from Zurich. Zurich argued that it was only required to pay an amount proportionate to the relationship between the policy period and the total period of Mr Carré’s exposure by IEG (i.e. 6/27ths).

First instance

At first instance, Zurich won, with the judge emphasising that the Compensation Act 2006 which had reversed the decision of Barker v Corus did not apply in Guernsey. Barker had held that an employer was only liable for his proportion of loss where more than one employer had exposed an employee to asbestos.

Court of appeal

The Court of Appeal allowed the appeal from that decision, the majority finding that mesothelioma had been “sustained” during the period of the policy issued by Zurich (because mesothelioma requires a “weak” or “broad” causal link for the disease to be caused during a policy period) and that Zurich was therefore liable in full (regardless of the fact that exposure during the other 21 years was also an effective cause of the disease).

Supreme court

The Supreme Court has now unanimously allowed the appeal from that decision. It did so on the basis that Barker continues to represent the common law position in Guernsey.

Of more general interest was the court’s discussion of what the position would have been had the 2006 Act applied, i.e. the position where an insurer has insured an employer for part only of the period of exposure (a situation not dealt with under the 2006 Act, which is only concerned with the employer’s liability to its employee).

There was a split in opinion on this issue. The majority held that the insurer must meet the whole of the employer’s liability to the employee. However, they held that the insurer would then have the right to seek proportionate contributions not just from the other insurer which provided liability cover to the employer in a separate period, but also from the employer in respect of the period when no other insurance cover was in place. Zurich would therefore have been able to claim a pro rata contribution from IEG in respect of the 21 years not covered by the insurance policy.

What can we learn?

  • The Judgment is good news for insurers as the Supreme Court has recognised the enormous injustice to insurers where they are required to pay the entirety of a claim against an employer despite providing cover for only a small proportion of the employees exposure
  • The new equitable right of recoupment recognised by the Supreme Court gives legal legitimacy to the recent informal practice among insurers of apportioning the claim between themselves dependent on their period of cover