The Supreme Court yesterday overturned the Court of Appeal's judgment in Zurich Insurance PLC UK Branch v International Energy Group Limited [2015] UKSC 33. This case dealt with the law in Guernsey on exposure to asbestos where there is no equivalent to the Compensation Act 2006. The case concerned whether an insurer is liable to indemnify an employer for the entire compensation the employer had paid to an employee (who had died from mesothelioma), despite the insurer only insuring the employer for six out of 27 years of the employee's employment.

The Supreme Court unanimously held that the rule of pro rata liability for the period of exposure, established in Barker v Corus (UK) plc [2006] UKHL 20, continues to apply inGuernsey and therefore Zurich was only liable to pay compensation in proportion to the period of cover it provided to IEG. Had Guernsey had an equivalent to the Compensation Act 2006 (which reversed Barker in the United Kingdom), by a 4-3 majority, the Court held that Zurich would have been liable for the full 100% loss, but with a right of recovery pro rata from other insurers and/or IEG to reflect the fact that it had only insured IEG for six of 27 years of exposure to asbestos.

Facts

During Alan Carré's 27 years of employment in Guernsey by IEG, he was negligently exposed to asbestos dust. For six of those 27 years, IEG was insured by Zurich under a standard form of employer's liability policy. In 2009, Mr Carré died from mesothelioma. Before his death, he issued proceedings against IEG and recovered £250,000 plus interest and costs.

First Instance

IEG claimed the full amount from Zurich in the Commercial Court. The issue was whether IEG was entitled to this or whether it was only entitled to a pro rata contribution for the period it insured IEG.

In January 2012, Cooke J held that IEG was entitled to a full indemnity for defence costs, but only a partial indemnity for the £250,000 compensation, based on Zurich only insuring IEG for six of the 27 years that Mr Carré was employed. The judge based this decision on the House of Lords decisions ofFairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22and Barker [2006], and found the Compensation Act 2006 was immaterial since it did not apply in Guernsey.

Court of Appeal

The Court of Appeal reversed the first instance decision, basing its decision largely on the Supreme Court decision in the Employers' Liability Insurance Trigger Litigation [2012] UKSC 14 which was "key" and which was handed down two months after the first instance decision.

The Court of Appeal found that since there was a sufficient causal link between the exposure to asbestos during the six years that Zurich had insured IEG and Mr Carré contracting mesothelioma, this was enough (on the wordings of the policies between Zurich and IEG) to attach liability to Zurich, and IEG could therefore claim 100% of the compensation it had paid. The Court of Appeal therefore followed the decision in the EL Trigger Litigation. It also agreed with the first instance decision to order Zurich to pay 100% of the defence costs.

Supreme Court

The Supreme Court unanimously held that Barker remains good law in Guernsey where the 2006 Compensation Act does not apply and the EL Trigger Litigation has not undermined the reasoning in Barker. The effect of this, as Lord Mance stated, was that,

"If Mr Carré had only been able to show six years of exposure with GGLCL [IEG's predecessor], but a further 21 years exposure elsewhere, he could not have claimed more than 22.08% of his total loss from IEG. Equally IEG cannot now claim from Zurich more than the same proportion (22.08%) of the whole compensation paid which it can properly attribute to the six years of the Midland insurance [Zurich's predecessor]."

Although the Court was not required to consider these issues, it felt the need to opine by a majority of 4-3 led by Lord Mance that, had there been the equivalent of the 2006 Act in Guernsey, Zurich would have been liable to compensate IEG for the full loss, irrespective of the fact that it had only insured IEG for six of the 27 years in which Mr Carré had been exposed to asbestos. Zurich would however have had equitable rights to contribution pro rata from any other insurer of IEG, or from IEG itself. This view is consistent with the special rule of causation which has been developed by the courts in Fairchild, Barker and the EL Trigger Litigation, to do justice to victims of wrongful exposure of asbestos; that mesothelioma is 'caused' in any period in which exposure to asbestos fibres materially contributed to the risk of contracting mesothelioma, but that obvious anomalies exist if there is no right contribution or recoupment. As Lord Mance said, "[t]he court is faced with an unprecedented situation, arising from its own decisions affecting both tort and insurance law" and "[a] principled solution must be found, even if it involves striking new ground". According to Lord Hodge, this would not, however, displace the general legislative policy that the employee victim "should be able to obtain damages for his loss in a straightforward way".

Defence costs were recoverable in full. This was on the basis that the full costs would have been incurred by IEG irrespective of the total period of exposure Mr Carré suffered whilst employed for IEG and were incurred by IEG "with the consent of [Zurich] in defending any such claim for damages". The Court unanimously held that there was therefore no reason why there should be a diminution in the insured's recovery. Cooke J's order at first instance was therefore restored in full.

Implications

Although this case is specific to the law in Guernsey, the Supreme Court's analysis of the position if the Compensation Act 2006 were to apply (albeit obiter) is of interest to UK insurers who may be fixed with 100% liability under the Compensation Act 2006 in respect of exposure caused by one employer. It indicates that they will have equitable rights of recovery on a pro-rata basis against other insurers and/or the employer. With the ongoing volume of mesothelioma cases, insurers will take comfort that where other insurers and/or the employer still exist, they will be able to recover pro rata compensation to ensure a fairer division of liability between those concerned. This reinforces the long-standing market practice of liability sharing between all relevant insurers and reaffirms claims handling practice in this area.