On 8 October 2010, the Court of Appeal handed down its long awaited judgment in the employers’ liability policy trigger litigation.
The mammoth judgment (which runs to over 160 pages) has huge implications for the insurance market. However, the divergent (and often conflicting) approaches taken by the three judges deciding the case has resulted in a decision which leaves too many issues still open to question.
So, what went wrong and what are the key implications of the judgment for insurers?.
The judgment concerned six test cases which all centred around policy coverage for claims involving mesothelioma (a virulent form of cancer caused by the inhalation of asbestos). One of the problematic features of mesothelioma from a coverage perspective is that it can be more than 40 years from the date of inhalation before the victim experiences symptoms.
So, what exactly is the “trigger” which identifies the employers’ liability (“EL”) policy which responds in a case involving mesothelioma? Some policies provide cover for injuries “caused during the period of insurance”. In such cases, the “trigger” (in mesothelioma cases) is the exposure to or inhalation of asbestos. However, many other policy wordings refer only to injuries which are “contracted” or (alternatively) “sustained” during the policy period.
In a nutshell therefore the question for the Court of Appeal to decide was this: What is the relevant date on which injury is “sustained” or “contracted” in mesothelioma cases? Is it the date of inhalation or is it the date of the tumour (which may not occur for decades later)?
The policies of the four defendant insurers involved in the test cases all contained “sustained” or “contracted” wordings. The defendants therefore argued that they were not liable under their policies because an injury is not “sustained” or “contracted” in a mesothelioma case until a tumour has actually developed. In contrast, the claimants (including victims of mesothelioma and insured employers who would otherwise find themselves liable for claims) argued that the policies should be interpreted in line with causation-based policies. In other words, that the defendants were liable for claims.
The case was decided by Rix, Smith and Stanley Burnton LJJ.
All three Court of Appeal judges chose to deliver separate judgments and took divergent approaches to many of the key issues. The result is a judgment which (at times) is confusing to read and from which it is difficult draw conclusions with any real certainty.
However, the two main principles which emerge from the three judgments are that:
- where the wording used is “sustained”, the policy which responds is the one in force when the tumour starts to develop (not the earlier date of inhalation); and
- in contrast, where the wording used is “contracted”, this is the same as a causation-based policy. In other words, the policy which responds is the one in force at the time of exposure (even though the tumour will not have developed until later).
In addition, all three Court of Appeal judges concluded that “injury” (for the purposes of mesothelioma cases) occurs at the date of the tumour, not at that date of inhalation.
Key implications and uncertainties
The Court of Appeal’s decision will obviously be welcomed by those insurers who faced exposure for claims under historic policies written on an injuries “sustained” basis. However, for the wider market, the decision still leaves too many questions without proper answers.
For example, the judges were unable to agree on whether the Employers Liability Compulsory Insurance Act 1969 required a “causation” wording. Such a finding would enable employees to recover against policies which came into force after the Act – even if those policies were written on a “sustained” basis. While this would leave insurers with a claim against the employer, many such companies are insolvent or have ceased to exist.
From a practical perspective, the impact of the Court of Appeal’s decision means that there will inevitably be coverage “black holes” where (for example) policy wordings have changed over a period of time or where the employer has failed to maintain cover through insolvency.
It is also remains unclear from the judgment how the court will decide cases where policies have multiple (but conflicting) “trigger” provisions. In other words, where policies refer to both injuries “sustained” and injuries “contracted”. Which of those wordings will take precedence? The judgment also leaves open the possibility that injury “contracted” wordings could operate as a continuing trigger and give rise to double insurance issues.
There was also a major split between the three judges on the question of whether the court can take into account a wider commercial purpose of a policy when interpreting the meaning of its terms or whether that purpose is to be found solely from within the policy itself. This single issue (which was left unresolved by the Court of Appeal) could have wide-ranging implications for all policy coverage disputes and insurance law more generally.
With permission to appeal to the Supreme Court already granted and the peak of expected deaths from mesothelioma cases still yet to come, the only thing that can be said with certainty is that the Court of Appeal’s judgment will not be the last word on the matter.