Durham v BAI (Run Off) Ltd – insurers’ partial success on appeal  EWCA Civ 1096 www.bailii.org/ew/cases/EWCA/Civ/2010/1096.html
The Court of Appeal has given judgment in six test cases concerning asbestos-related mesothelioma claims and the liability of insurers under employers’ liability (EL) policies written many decades ago. They reversed in part the decision of Burton J which allowed all of the test claims.
Where the policy offered cover in respect of injuries “caused” during the period of the insurance, the trigger in mesothelioma cases is agreed to be the exposure to or inhalation of asbestos fibres. Problems arise, however, with other EL policy wordings which refer either to the date on which the injury is “sustained” or the date when the disease is “contracted”. Burton J held that “sustained” and “contracted” wordings were to be interpreted as have the same meaning as “caused”. The Court of Appeal, by a majority (Rix and Stanley Burnton LJJ), reversed this decision, holding that policies with a “sustained” wording responded at the date when the injury was “suffered”. Following the Court of Appeal decision in Bolton Metropolitan Council v MMI in the context of public liability insurance, this means that the injury occurred at the earliest at the date of onset of malignancy. Rix LJ was not happy about this conclusion but considered the court to be bound by the decision in Bolton, the correctness of which he questioned.
By contrast, the Court of Appeal concluded that the “contracted” wordings were capable of referring to the disease’s origins and the trigger for indemnity was therefore the date of exposure or inhalation.
Anyone who has attempted to read the 100 plus page judgment will be aware that the summary above is a gross simplification of the decision and that the judges disagreed with each other on most issues to a greater or lesser extent. Acknowledging the confusion, the Court of Appeal gave the appellant insurers permission to appeal to the Supreme Court and it is likely that the appeal will be expedited.
One question of universal application does shine through the confusion - to what extent can or should the court give effect to the commercial purpose of a contract when interpreting its terms? It is disappointing that the answer is still unclear despite the review of the principles of interpretation by the House of Lords last year in Chartbrook Ltd v Persimmon Homes Ltd but perhaps not surprising – see the comment made in Mills & Reeve’s Insurance Update August 2009 that “this decision leaves the observer with an uncomfortable feeling that contractual interpretation is not subject to proper rules, despite all the fuss made about them”.
Burton J found as a fact that it was the universal practice within the EL insurance industry during the relevant period to treat the date of exposure as the indemnity trigger and that claims were paid out in accordance with this common understanding. Smith LJ agreed with his approach and held that the policies had to be construed objectively from consideration of the words in the context of the contract and set in the factual matrix, which included the universal practice, available to the parties at the time the contract was entered into.
At the opposite extreme, Stanley Burnton LJ held that little if any assistance was to be gained by reference to the commercial purpose of EL insurance. Since it was agreed that the practice of insurers accepting liability before the decision in Bolton did not constitute a legally binding usage, he concluded that it was irrelevant to the interpretation of the policies.
Rix LJ sat somewhere between the two. He acknowledged the relevance of the factual matrix and the commercial purpose of EL insurance but disagreed with Smith LJ that there was an understanding at the time of the policies in question that the “sustained” wording should be given the same meaning as the “causation” wording. He concluded that the fact that policies with different wordings were treated the same does not mean that they had the same meaning. He was also unhappy with Smith LJ’s conclusion that the same wording can change its meaning over time. We can only hope that the Supreme Court enlightens us.