Supreme Court holds that an insurer must cover a mesothelioma claim in full (even if the total period of exposure was longer than the policy period), but a contribution can be claimed from other insurers/the insured

The earlier decisions in this case were reported in Weekly Updates 3/12 and 5/13. The background to the case is as follows:

The claimant, a solvent Guernsey company, employed Mr Carré for 27 years. Mr Carré was exposed to asbestos dust during the whole of his employment with the claimant and he contracted mesothelioma. The claimant took out insurance with the defendant insurer for 6 of those 27 years. Other than a two year period when another insurer was on risk, the claimant did not have any other insurance cover during the remaining period of Mr Carré's employment (compulsory employers' liability insurance only having come into force in Guernsey in 1993). The claimant reached a settlement with Mr Carré shortly before his death and sort to recover the full amount of that payment from the defendant. The defendant argued that it was only required to pay an amount proportionate to the relationship between the policy period and the total period of Mr Carré's exposure by the claimant (ie 6/27ths).

At first instance, the insurer won (the judge emphasising that the Compensation Act 2006 which had reversed the decision of Barker v Corus did not apply in Guernsey (broadly, Barker had held that an employer was only liable for his proportion of loss where more than one employer had exposed an employee to asbestos)). The Court of Appeal allowed the appeal from that decision, the majority having found that (following the Trigger Litigation case reported in Weekly Update 12/12) mesothelioma had been "sustained" during the period of the policy issued by the defendant (because mesothelioma requires a "weak" or "broad" causal link for the disease to be caused during a policy period) and that the insurer was therefore liable in full (regardless of the fact that exposure during the other 21 years was also an effective cause of the disease).

The Supreme Court has now unanimously allowed the appeal from that decision. It did so on the basis that Barker does continue to represent the common law position in Guernsey. Of more general interest though is the court's discussion of what the position would have been had the 2006 Act applied ie the position where an insurer has insured an employer for part only of the period of exposure (a situation not dealt with under the 2006 Act, which is only concerned with the employer's liability to its employee).

There was a split in opinion on this issue. The majority (Lord Mance, Lord Clarke, Lord Carnwath and Lord Hodge) held that the insurer must meet the whole of the employer's liability to the employee. However, they held that the insurer would then have the right to seek proportionate contributions not just from the other insurer which provided liability cover to the employer in a separate period, but also from the employer in respect of the period when no other insurance cover was in place.

This was an approach which was described by Lord Hodge as "radical". That was because it involved a departure from normal principles. However, Lord Mance said that the court would be "abrogating its role to achieve a just solution…if it does not adapt and develop conventional principles to meet an unconventional, indeed unique, challenge".

In relation to the "other insurer", Lord Mance advocated a "broad equitable approach to be taken to contribution" in a mesothelioma context, so that double insurance might arise here even though the insurers were on cover for different periods. Alternatively, the Civil Liability (Contribution) Act 1978 might apply. As for the employer, the majority took the view that it would be unfair to allow an employer to insure (and pay premium) for only some years and not others, and to then be able to seek a full contribution from the insurer(s) even though it had agree to, in effect, "self-insure" for some of the time. Although the law does not formally recognise a contract of self-insurance, Lord Mance took the view that "A person who does not insure at all is well understood to be undertaking a risk for his own account, for which he should answer accordingly".

Here the claimant was a solvent company. Had it been insolvent, it was held that the position under the Third Parties (Rights against Insurers) Act 1930 would have been different and the insurer would not have been able to raise the defence of a right of contribution from the employer as against the third party claimant (in part because a right of contribution only arises on payment by the insurer and also because the right of contribution does not arise "under" the insurance policy for the purposes of the Act).

Lord Sumption, Lord Neuberger and Lord Reed adopted a different approach. They held that the insurance contract was to be construed so that the defendant's liability for the loss was limited to the proportion of the policy years in which it provided cover relative to the whole period of exposure (ie the insurer was proportionately liable).

COMMENT: The view adopted by the majority of the Supreme Court in this decision might conceivably give rise to greater satellite litigation between insurers, and between insurers and employers. However, it is worth noting that there is currently a statutory compensation scheme (established under the Mesothelioma Act 2014) to address the situation where there is no insurance in place (and so, according to Lord Sumption, the majority's view will "simply transfer the risk from the statutory compensation schemes which were created to assume that risk, to an arbitrarily selected solvent insurer who has not agreed to do so").

Although the decision to relax the rules on contribution in a double insurance situation was confined to mesothelioma in this case, it is not inconceivable that the rationale behind that decision might lead to insurers arguing for its extension to other areas too in future. This case will also be of interest to those considering "spiking" at the reinsurance level (ie where the same insurer is on cover for the whole period but seeks reimbursement from a reinsurer who was on cover for only part of that period).