The High Court judgment in the EL policy triggers test litigation which was handed down today validates the longstanding market practice that policy cover for mesothelioma claims is triggered by the date of inhalation of asbestos and not by the date of injury many years later.
The key aspect of Burton, J’s long and sometimes complex judgment, is that EL policies using injury “sustained”, “contracted”, or similar wording should be interpreted to mean the same as “caused” during the policy period. The “caused” date is the date or period of inhalation of asbestos.
The test litigation arose because the Defendants, a group of ‘run-off’ insurers, asserted that “sustained” or “contracted” had the same effect as “injury occurring” in a PL policy and relying on the judgment of the Court of Appeal in Bolton MBC v Municipal Mutual Insurance & Commercial Union (2006), contended that their EL policies were triggered by the date of sub-clinical injury back-calculated 10 years prior to symptoms. Following the Bolton decision they refused cover for EL mesothelioma claims where the deemed date of injury fell outside the period of the policy.
The Claimants included mesothelioma victims left uncompensated by a combination of refusal of cover and an insolvent policyholder; Zurich representing the ‘live’ market (which stood to inherit the mesothelioma liabilities if the policy trigger was switched from historical inhalation to present-day injury); and various affected policyholders, including a collective of 10 local authorities refused cover by Municipal Mutual Insurance and therefore forced to fund mesothelioma claims and costs from their own pockets.
The main findings underlying the judgment on policy interpretation are as follows:
- The judgment in Bolton was distinguished because the policy involved it was a PL not an EL policy and involved different wordings.
- Public policy underlying previous mesothelioma case law has been that so far as possible, victims should not be left uncompensated.
- The injury trigger contended for by the Defendants would have left victims who had ceased to be employed by the date of their tumour without insurance cover.
- When interpreting the policy wording the relevant factual matrix, particularly of workers’ compensation, is that EL insurance is intended to cover injury to employees during the policy period.
- The Employers Liability (Compulsory Insurance) Act 1969 does not dictate a particular policy trigger, but an inhalation trigger is the best way of ensuring that cover is maintained, because an injury trigger has to be continuously renewed to achieve uninterrupted cover.
The practical implications for the functioning of the long-tail EL market are as follows:
- Asbestos victims will be compensated, and the affected policyholders will no longer be forced to self-fund costly mesothelioma liabilities from other budgets.
- The ‘live’ market will not have to re-reserve for long-tail claims it never expected to pay.
- The “caused” formulation applies equally to other asbestos and occupational diseases where there is a latency period between exposure and injury, provided that the relevant EL policy is not explicitly written on a “claims made” basis. The judgment therefore averts significant market disruption from prospective challenges along similar lines in relation to other diseases.
- The date of inhalation is a relatively straightforward benchmark for establishing which EL insurer was on risk and avoids the controversy which would have arisen had the date of sub-clinical injury been held to be the policy trigger. Such a decision would have generated satellite disputes between consecutive insurers using contrary medical evidence to pinpoint the deemed date of injury according to the predicted growth rate of the tumour.
- EL policyholders who have been refused mesothelioma cover by ‘run-off’ insurers and who have been forced to settle the underlying claims themselves are now free to begin recovery proceedings against the defaulting insurer. The limitation period for such a claim is 6 years from the date of refusal of cover. In the event of an appeal by the Defendants, it may be necessary for any recovery proceedings to be stayed or for the parties to any potential recovery claim to enter into a “standstill” agreement under which time will cease to run (for limitation purposes) against the party seeking to make a recovery until say 28 days after final resolution of any appeal in the EL Policy Trigger Litigation.
- The High Court heard more expansive medical evidence than was available to the Court of Appeal in Bolton, including the opinion of cancer biologists as to when injury occurs at a molecular level. Whilst not relevant to the judgment on policy interpretation, the latency period between sub-clinical injury and manifestation of symptoms was held to be 5 years not 10. However, this 5-year back-calculation is arguably limited to EL cases, and strictly speaking for this to cross over into PL would require test litigation distinguishing Bolton at least at Court of Appeal level or higher.
The overall effect of adopting an inhalation trigger for mesothelioma and other latent diseases is to restore calm to the market and reinstate the relatively straightforward claims handling protocols that have served insurers well for many years.
As might have been expected given the importance of the issues involved, the Defendants have been granted permission to appeal and the test litigation will now proceed to the Court of Appeal. It is to be hoped that, like the High Court proceedings, the appeal process can be expedited to avoid further disruption to claims handling and ensure that those affected, particularly the asbestos victims and their families, do not have to wait any longer than is strictly necessary for clarification of their position.