Asbestos and the consequences of exposure to its dust continues to be an issue to insurers and their insureds.
Ten years ago, the surge in the number of claims was expected to have passed by now. Instead, analysts are predicting that mesothelioma claims will not peak until 2020. HSE statistics revealed that there were more than 2,500 recorded deaths in 2013, 200 more than in 2011.
The cost of such claims to insurers is significant. Quantum can be as high as hundreds of thousands of pounds and, with no fixed costs regime in place, claimants’ costs are also considerable. The Government has indicated that there will be a review of LASPO within the next 2 years and, at which time, further deliberation will be given to introducing fixed costs to these claims. The issue was debated previously and claimant lobbyists argued that the special circumstances surrounding mesothelioma claims meant that they should not be taken into the LASPO provisions. That argument may find less favour when the debate reopens, given that fixed costs are now being considered in clinical negligence actions. Insurers would have greater certainty in reserving if a fixed costs regime was in place. The Diffuse Mesothelioma Payment Scheme set up following the Mesothelioma Act 2014 provides for fixed costs of £7,000 to be paid in respect of a claimant’s solicitor’s costs of applying to the Scheme. This sum is a fraction of the sums claimed in litigated mesothelioma cases.
Recent civil cases and their impact
There have been some significant judicial decisions impacting on asbestos litigation over the past 10 years. Most recently, the Court of Appeal has found in favour of the defendant respondents in the lung cancer case of Heneghan v Manchester Dry Docks and others. This was a claim involving several defendants and where the Appeal Court has undertaken a review of the causation and apportionment issues in multi-party lung cancer cases. The claimant was arguing that each employer who had tortiously exposed his father to asbestos should be jointly and severally liable for the resultant lung cancer. The defendants won with their argument that each exposure materially increased the risk of the disease such that there should be an apportionment in line with the decision inBarker v Corus 2006. The Compensation Act 2006, which was amended to reverse the Barker principle, applies to mesothelioma claims only. The case of Knauer v Ministry of Defence is also of importance to insurers. It centred around the services dependency payable to a widower for the lost services previously provided by his late wife. Notwithstanding that no actual services had been bought in by the widower, the Court held that he was entitled to the commercial cost of replacing these such that his overall award amounted to £694,000.
Unless or until any challenge is made in relation to the approach to the dependency element of the claim, insurers and their lawyers will need to look at differentiating factors to rebut the Knauer arguments and, having dealt with such claims very recently, it appears to be accepted that there is a risk to both sides in pursuing the argument at a further trial. The claimant also appealed on the discrete issue as to whether the date of death or date of trial should be used when applying multipliers in Fatal Accidents Act claims. The Appeal Judges overruled the longstanding Cookson v Knowles 1978 decision and found that, in line with the Ogden Tables approach, the multipliers should be applied from the date of trial. In the Knauer case, the appeal has meant an increase in the claim value of some £50,000.
Asbestos and regulatory issues
Alongside the historic asbestos claims, on 1 February 2016 the new sentencing guidelines came into force for health and safety offences. With the Health and Safety Executive’s focus shifting with health being considered as much as safety in its prosecutions, this may lead to an increased number of cases involving asbestos exposure.
There have been some high profile cases involving companies facing prosecution for one-off exposures to asbestos. Marks & Spencer were fined over £1million from an incident at their Reading store in 2011.
The new guidelines provide that fines against companies are based upon turnover rather than profit. Fines are unlimited and culpability and degree of harm are also considered when assessing the level.
Company officials have long faced individual prosecution and punishment for health and safety offences where their individual culpability is considered alongside their corporate entities. The new guidelines mean that there is an increased chance of imprisonment. It remains to be seen how this will apply in asbestos exposure cases, given the latency of the development of asbestos disease. In November 2015, a director of an independent cinema was prosecuted for endangering the health of workers attending the site to refurbishment without having undertaken proper checks to identify and deal with asbestos. Even after it was detected and an order in place to keep people off site, the director continued to allow people onto the premises and where they were then potentially exposed. He was fined and ordered to pay cost.
The practical effect of these guidelines is that businesses must be aware of their risks that they face. The extent of the fines means that companies will want to test the evidence put forward by the HSE in the courts rather than submitting to the levels of fines previously imposed and there will also be an increase in the costs of claims generally.
Insurance policies do not often cover prosecution costs in HSE matters and companies cannot insure themselves against fines levied in criminal proceedings. Some policies, however, will cover the defence costs of prosecutions and, in cases of asbestos exposure, and where conviction may result in indefensible civil claims in many years to come, insurers and their policy holders will need to give careful consideration to the extent of policy cover and the potential financial impact when undertaking renewals. There will be a financial cost to both parties – the insured’s policy premiums and excesses are likely to increase and insurers will need to consider their reserving strategies for future risks as well as estimating the financial impact to them on the increased levels of defence costs which their policy terms may render them liable to pay.
This article was first written for Insurance Day and published on 16 March 2016.