Supreme Court confirms that trigger is exposure not injury
The Supreme Court judgment in the EL policy triggers test litigation was handed down today. The judgment overturns the Court of Appeal’s majority decision regarding the meaning of a “sustained” policy wording in EL cases and reinstates the longstanding market practice that policy cover for mesothelioma claims is triggered by the date of exposure to asbestos and not by the deemed date of injury many years later.
Policy construction issue
The Court was unanimous in the following respects:
- Both “sustained” and “contracted” means caused or initiated by exposure to asbestos during the policy period.
Lord Mance identified “five points” of policy construction applicable to a “sustained” wording:
- The wordings require injury to be sustained during employment.
- They demonstrate a close link between the business activities at the time and the calculation of the premium payable, which makes it improbable that the policy would cover historic activities when risks might have been quite different.
- Any formulation leading to gaps in cover where exposure occurs in one policy period and injury or disease in another should be avoided.
- Employers should not be left vulnerable to any insurer decision not to renew, especially when this might arise from disclosure of past exposure that had not yet resulted in manifestation of asbestos-related disease.
- The territorial limits of the policies could produce curious effects if “sustained” means the date of injury, including that injury or disease would not be covered if first experienced while abroad.
- The Workers Compensation Acts emphasised the causation of disease, to avoid the practical difficulty for employees of identifying when a disease begins and which employer to sue.
- The Employers Liability (Compulsory Insurance) Act 1969 requires a causation wording triggered by exposure, because only this guarantees that future injury or disease will be covered and avoids the risks of employer insolvency or non-compliance with the compulsory insurance provisions.
- The EL and PL regimes are different. The Supreme Court was therefore not obliged to follow the PL judgment in Bolton MBC v Municipal Mutual Insurance & Or (2006) or to consider the question of PL triggers.
The causation issue
Lord Phillips, the President of the Supreme Court, identified a causation issue that had “lurked” throughout the hearing but was not argued in the courts below, namely that claims made under the “special rule” of risk of injury - as developed in the cases of Fairchild v Glenhaven Funeral Services Ltd (2002) and Barker v Corus UK Ltd (2006) and modified by the Compensation Act 2006 – would not satisfy the concepts of injury or causation required for policy liability.
Lord Mance found this strict approach too simplistic, and proposed a “weak” or “broad” causal link based on the purpose of the policy being to cover liability for disease flowing from negligent exposure during the insurance period. Lords Kerr, Clarke, and Dyson agreed. The causation issue therefore did not affect the overall outcome.
The practical implications for the functioning of the long-tail EL market are as follows:
- Asbestos victims will be compensated, and the affected policyholders will no longer be forced to self-fund costly mesothelioma liabilities from other budgets.
- The judgment aligns the meaning and effect of “caused”, “sustained” and “contracted” and avoids different treatment of similar EL policies.
- The “live” market will not have to re-reserve for long-tail claims that it never expected to pay.
- The exposure date is a relatively straightforward benchmark for establishing which EL insurer was on risk.
- The judgment closes the previous loophole for ex-employees who did not sustain injury during the course of their employment.
- Brokers and underwriters have been spared the potential complication of auditing historic wordings and business activities when renewing EL policies.
- The blockage of stayed claims can now at last be cleared.
- The exposure trigger applies equally to other asbestos and occupational diseases where there is a latency period between exposure and injury, and therefore averts significant market disruption from prospective challenges along similar lines in relation to other diseases.
- A legacy of the High Court judgment is that, in EL cases, the latency period between sub-clinical injury and manifestation of symptoms was held to be 5 years. This now has no practical application in EL because the policy trigger is exposure and the exercise of back-calculating the date of sub-clinical injury will not arise. However, in PL cases a “sustained” policy wording is triggered by the date of injury according to Bolton and the latency period remains 10 years unless there is further test litigation distinguishing Bolton at least at Court of Appeal level or higher.
The overall effect of the judgment is to restore calm to the market and reinstate the relatively straightforward claims handling protocols that have served insurers well for many years. The judgment will be available online at www.supremecourt.gov.uk.