High Court rules claim for contribution is a claim for damages

High Court rules that a claim for contribution between indemnity insurers is a claim for ‘damages’ and falls within the Civil Liability (Contributions) Act 1978, and hence has a two year limitation period.

Tony McDonach successfully defended a claim for contribution by insurers some six years after the insurers settled the underlying claim.

Facts

In 2010 a Mr Merritt brought a claim against his ex-employer, Alick Whittle Ltd. (the company), for breach of duty in exposing him to asbestos fibres during his employment with them between 1975/76 and 1985/86, which Mr Merritt alleged had caused him mesothelioma. The company had been dissolved in 1996 and the claim was therefore made directly against the company’s insurers under the Third Party Rights Against Insurers Act 1930.

Mr. Merritt’s solicitors identified that Royal & Sun Alliance (RSA) provided employers’ liability insurance (EL insurance) to the company for the last six months of the employment period and the claim proceeded against them.

RSA settled the claim against the company in full on 17 January 2011. The 100% settlement was on the basis of the ‘Fairchild exception’ and the Compensation Act 2006 whereby a claimant in Mr Merritt’s position can recover all of their claim from one defendant or one insurer, notwithstanding that other parties or insurers would be liable to contribute on a straightforward apportionment basis.

The claim

Having carried out an unsuccessful search to trace other insurers under the Association of British Insurers’ system of tracing insurers early in the life of the claim, on 15 July 2015 RSA carried out another search under the ELTO system and discovered that Generali had insured part of the period of employment. RSA wrote to Generali seeking a contribution towards the total paid out to Mr Merritt. Generali refused the claim for contribution on the basis that it was statute barred: Generali said the claim was one for contribution within the meaning of the Civil Liability (Contributions) Act 1978 (the Contributions Act); there was a two year limitation period under s.10 of the Limitation Act 1980 (the Limitation Act); and the claim had been brought out of time.

RSA subsequently commenced proceedings on 13 January 2017 arguing that the claim was not a claim for damages within the meaning of s.1 of the Contributions Act, and therefore was not subject to a two year limitation period as per s.10 of the Limitation Act, but a six year limitation period. It followed, RSA argued, that the claim had been brought in time.

It was common ground between the parties that if the claim was brought in time Generali was liable to contribute towards the settlement with Mr Merritt.

Judgment

At a hearing in the High Court on 11 April 2018 HHJ Rawlings found for Generali.

The crux of the case was whether the underlying claim by the insured company against its insurers (whether RSA or Generali) was a claim for ‘damages’ or one for ‘debt’. The trial judge concluded that there was a long line of cases which have decided or confirmed that the liability arising under an insurance contract of indemnity is a ‘damages’ indemnity. HHJ Rawlings was bound by those cases and concluded that the company’s claim against RSA for an indemnity under its insurance policy, was a claim which sounded in damages rather than in debt.

It followed that RSA’s claim for contribution against Generali was also a claim in damages and as such did fall within s.1 of the Contributions Act.

Because RSA’s right of contribution from Generali fell within s.1 of the 1978 Act, it was subject to s.10 of the Limitation Act and a two year timebar. The claim for contribution should have been brought by 17 January 2013 at the latest and was statute barred.

This is an important judgment, albeit on a discreet point. It reconfirms that a claim under an indemnity insurance policy is a claim for damages and not debt. It establishes and clarifies that a claim for contribution by one indemnity insurer, who has settled an asbestos claim on the basis of the ‘Fairchild exception’, against another indemnity insurer, is subject to a two year limitation period under s.10 of the Limitation Act 1980.

Insurers settling asbestos claims under the ‘Fairchild exception’ and/or the Compensation Act 2006 are therefore well advised to carry out searches for other interested insurers promptly following first advices on the claim and not to delay in bringing claims for contribution following settlement with the claimant.