The Supreme Court’s decision in Zurich Insurance PLC UK Branch v International Energy Group Limited provides some clarity to the position of Clubs who face long-tail work related illness claims where multiple employers or insurers were involved during the exposure period.

The Facts

International Energy Group Limited (“IEG”) was the successor in title of Guernsey Gas Light Co Limited (“GGLC”) which was the employer of Mr Carré from 1961 to 1988.  During his employment Mr Carré was exposed to asbestos dust and subsequently contracted mesothelioma. 

It was accepted by the parties 1) that Mr Carré has been exposed with the same degree and frequency throughout the 27-year period of employment, 2) that such exposure had materially increased the risk of his contracting mesothelioma and, 3) that such exposure was a breach of duty by GGLC.

IEG settled Mr Carré’s claim for compensation plus legal costs and subsequently sought an indemnity from Zurich Insurance PLC UK (“Zurich”) in respect of the same.  Zurich was the successor to the liabilities of one or the two liability insurers providing cover for GGLC during Mr Carré’s employment with them and period of exposure.  The first policy had been with Excess Insurance Co Ltd (“Excess”), which provided insurance for two years and the second was Zurich’s predecessor, Midland Assurance Ltd (“Midland”), which provided insurance for six years.

In total therefore, GGLC had cover for eight years of Mr Carré’s exposure meaning that for 19 years GGLC were un-insured. 

According to the special rules established by the House of Lords in Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22, a person contracting mesothelioma after being exposed to asbestos dust originating from different sources over the same or different periods can sue any person who negligently or in breach of their duty was responsible for any such source of exposure.  This is the case even though they might be unable to show which exposure actually led or contributed to the disease. 

The House of Lords in Barker v Corus (UK) PLC [2006] UKHL then sought to limit a defendant’s potential liability to a proportion to the contribution they have made to the risk of that harm occurring, which is most often the period the claimant was employed with them and thus exposed to asbestos. 

This decision was quickly countered by virtue of the Compensation Act 2006 (which was in force in England but not Guernsey) which made a defendant jointly and severally liable for the whole of the damage caused.  Thus a claimant would be able to recover in full from a single defendant, who would usually only be responsible for a small part. 

The issue in the Zurich case was therefore to what extend Zurich was bound to indemnify IEG; in full or for a proportion reflective of the policy period/whole the period of exposure (six out of 27 years).

The Court's Decision

As above, the Compensation Act 2006 is applicable to all mesothelioma cases in England but was not in force in Guernsey, thus allowing the Court to find that Barker remained good common law and the principles established therein were applicable. 

The result of such a finding was that Zurich was held to be under an obligation to indemnify their insured in respect of the compensation paid to Mr Carré but only to the extent that was proportionate to the period it was on cover in relation to the total period of exposure.  That is six years out of the total 27 year period.

The Supreme Court also gave guidance on situations where a claim is covered by the Compensation Act and Barker would not apply.  It was held that it would have been unjust for an insurer, who was on cover for a small proportion of the period of exposure, to carry the whole of the employer’s liability without any recourse against others in respect of the remaining periods of exposure. 

The Court therefore created a new equitable right of recoupment for cases where the special causation rules established in Fairchild v Glenhaven applied.  

As a result, an insurer who insured an employer for only part of the exposure period must indemnify the liability of the employer in full.  There is however, a right of recoupment to recover contributions on a pro-rata basis from successive insurer of the employer and from the employer itself in circumstances where there was a period of no insurance cover or where the insurer cannot be traced, provided the employer is solvent. 

However, the proportionate recovery rule above was not considered be appliable to defence costs.  IEG had a right to recover the same from Zurich under the contract of insurance and there was no grounds to limit the same on a proportionate basis.  In any event, there was no evidence that the costs incurred in defending the claim would have been any less had IEG’s defence been confined to the six year period that Zurich were on risk.

Comment

The Court has acknowledged the difficulties created by the decision in Fairchild, including the injustices an insurer would face if it were required to pay for the entirety of a claim when it was only on cover for a small proportion of the period of exposure.  This case is therefore the judiciary’s latest effort to unravel the complexities surrounding the mesothelioma case-law. 

The Supreme Court in introducing a right of recoupment, has now taken away any uncertainty that may have previously existed regarding the relationship between the different insurers on risk, in situations such as this.