Employer’s liability claims, particularly those concerning mesothelioma caused as a result of exposure to asbestos, have kept the courts busy in recent times. In International Energy Group v Zurich Insurance Plc (UK) Branch2 the insurer, Zurich, challenged the insured’s entitlement to a full indemnity of a settled claim. At first instance, the Commercial Court held that the insurer only had to provide an indemnity in proportion to the time it was on risk. On appeal, however, the insured was successful in obtaining a full indemnity from the insurer regardless of the time it was on risk.

Background

The case proceeded on the basis of agreed facts. Mr Carré was employed by IEG for 27 years, during the last six of which IEG had taken out employer’s liability insurance with Zurich. During the course of his employment Mr Carré was exposed to asbestos fibres without adequate protection, contracted mesothelioma and later died. Before his death, he had made a claim for damages against IEG. His claim was settled and IEG sought to recover a full indemnity from its insurer, Zurich. A dispute arose over the extent of Zurich’s indemnity – was Zurich required to indemnify IEG for the full amount at which it settled Mr Carré’s claim, or should Zurich’s liability to indemnify IEG be limited to a proportion corresponding to the period it was on risk, namely six years?

The insurance policy provided cover for injury or disease sustained/caused during any period of employment and an indemnity against all sums for which the insured was liable. The insurance policy was subject to Guernsey law.

The first instance decision

At first instance, Mr Justice Cooke noted that the Compensation Act 2006 did not apply in Guernsey and, therefore, the issue had to be decided on the basis of common law in Guernsey.

Before addressing the extent of Zurich’s liability, however, Cooke J applied the test set out in the House of Lords decision in Fairchild v Glenhaven Funeral Services Ltd3. This case had relaxed the ordinary causal connection test required in tort and, in effect, created a special approach to causation in relation to mesothelioma, finding that where an employee had been negligently exposed to asbestos by different employers during different periods (but the limitations of medical science could not attribute the disease to any particular period of exposure), evidence that an employer’s wrongdoing had materially increased the risk of developing mesothelioma is sufficient to establish a causal connection giving rise to tortious liability.

Zurich relied on the House of Lords decision in Barker v Corus4 (where it was held by a majority that where an employee is exposed to asbestos by successive employers and develops mesothelioma, then each employer’s liability is proportionate to its contribution to the overall risk) to support its contention that it should only be liable for a “time on risk” basis, namely the last six years of Mr Carré’s employment with IEG. As the Compensation Act 2006 (which reversed the effect of the decision in Barker) did not apply in Guernsey and there was no equivalent Guernsey legislation, Cooke J found in favour of Zurich. IEG appealed.

The Court of Appeal found that Cooke J’s interpretation of Barker and the test for establishing causation was wrong. The appeal judges recognised, however, that Cooke J did not have the benefit of the Supreme Court’s judgment in the ‘Trigger Litigation5 (which was handed down two months later) to guide his decision.

In the Trigger Litigation, it was held by majority that when an employee has contracted mesothelioma as a result of being exposed to asbestos fibres at work, his cause of action rests on the fact that he has actually contracted mesothelioma. The cause of action is not the exposure to the risk of mesothelioma. The Trigger Litigation established that if a negligent employer is liable for an employee contracting mesothelioma following exposure to asbestos during a period covered by insurance, then for the purposes of the employer’s liability policy, the mesothelioma is caused within the policy period. Lord Mance referred to this as a “weak” or “broad” causal link between the exposure to asbestos during the policy period and the subsequent development of mesothelioma by the employee. In the Trigger Litigation the Supreme Court found that whilst the general policy of the courts is to apply the ‘but for’ test to determine causation, in some circumstances, the courts may as a matter of policy allow a “weaker causal relationship” to impose responsibility.

Applying these principles to the present case, and taking account of the policy wording, the Court of Appeal found that once IEG had demonstrated that Mr Carré’s mesothelioma was “caused during any period of insurance” it followed that Zurich was liable to IEG for “all sums for which the Insured shall be liable in respect of any claim for damages for... such disease”. Put simply, Zurich was found liable to indemnify IEG for the entire amount paid in settlement of Mr Carré’s claim – not just a proportion to reflect the period that it was on risk.

This is the latest of a series of cases which address the issue of liability for mesothelioma claims in those regions, such as the Channel Islands, which are not covered by the Compensation Act 2006. We understand that Zurich is seeking leave to appeal to the Supreme Court.