After a wait of almost a year and a last minute false start last week, the final version of the Court of Appeal's judgment in the "EL Trigger" litigation has now been handed down. It is the latest, but almost certainly not the last, chapter in the string of cases dealing with mesothelioma claims. However, it has implications not just for mesothelioma cases but for all occupational disease claims and liability insurance in general.
The appeal arose in what has become known as the "EL Trigger litigation". Burton J at first instance had held that, notwithstanding the precise wording of the attachment provisions in the policies concerned, mesothelioma claims attached to Employer's Liability policies on an "exposure" basis over the claimants' entire period of material exposure to asbestos dust. The rationale for this was, broadly, (1) that the policies must be interpreted in line with the parties' understanding of their application when they were made, and (2) they must all attach on the same basis.
This differed from the approach adopted in the case of public liability policies following the decision in Bolton v MMI where it was held that claims would attach to the policy in force when the individual was deemed to have suffered an "injury".
- The appeal was allowed (2:1, Smith LJ dissenting).
- The EL policies in question contained two sets of attachment language:
- Those responding when the claimant "sustained" the disease. Even though it was accepted that everyone had understood that the policies responded on an exposure basis when they were placed, this was not what the policies said. "Sustained" had a clear dictionary meaning and it meant that point at which the disease had actually developed (ie the same attachment test applied to public liability policies under Bolton v MMI).
- Those responding when the claimant "contracted" the disease. Those policies did respond on an exposure basis.
- By a majority (albeit for different reasons) the court held that the effect of the Occupational Diseases (Compulsory Insurance) Act 1969 was that all policies issued after 1972, even those containing a "sustained" wording, would respond on an exposure basis.
- Where claims attached on a "sustained" basis the date on which the cancer developed was deemed to be five years prior to diagnosis (not ten years as found in Bolton).
We understand that notices of appeal have already been lodged and the Court of Appeal is likely to recommend that the appeal process before the Supreme Court is expedited.
It seems that the market will now face a hiatus pending determination of the Supreme Court appeal. The Supreme Court decision is likely to be finely balanced. However, in our view the three most likely potential outcomes are:
- The court will uphold the decision below on the basis that to do otherwise would unduly strain the rules of contractual interpretation. In this case legislative intervention may well follow.
- The court will hold that the first instance decision was correct (although possibly for different reasons) and that, on their proper construction, all the policies attach on an exposure basis. If the Supreme Court does this, it may have far reaching implications for the extent to which the parties' intention at the time the policy was taken out can be taken into account when deciding coverage issues.
- The court may hold that Bolton v MMI was wrongly decided and that all policies, whatever their attachment wording, attach on an exposure basis. Rix LJ, in the Court of Appeal was strongly in favour of this approach.
There are a number of difficult issues arising from the judgment:
- The judgment cuts across current market practice and requires significant reserve adjustments in both the employer's liability and public liability markets
- There is considerable uncertainty whether the Supreme Court will uphold the decision. Whilst a decision is pending this creates uncertainty in settling claims, particularly given the possible reinsurance difficulties that may result
- Where pre-1972 policies are written on a sustained basis, there is a potential coverage "black hole" which, where employers are no longer in business, could leave individuals and their families without compensation
- The sustained/date of injury attachment test creates additional cost and uncertainty ascertaining the date of injury through specialist medical evidence
- The distinction is arguably arbitrary as it seems that the market saw no practical distinction between the different wordings and produces a nasty surprise for some and an unexpected windfall for others
- The lack of clarity over the basis of which compulsory EL coverage must be placed creates a conundrum for brokers regarding the correct basis on which to place EL business in the period between the judgment and the Supreme Court's ruling on the meaning of the Occupational Diseases (Compulsory Insurance) Act 1969