The Supreme Court has adopted a purposive approach to differently worded employers’ liability insurance policies, holding that cover for mesothelioma claims is triggered at the date of exposure to asbestos regardless of whether the policy wording refers to injury “caused” or “sustained/contracted”.
The litigation involved several test cases concerning the scope of an insurer’s obligation to indemnify employers against liabilities to employees who contracted mesothelioma, a form of cancer caused by exposure to asbestos. There is usually a very long period of gestation between exposure and manifestation. Proceedings were brought by a mix of employees suffering from mesothelioma, their families or estates and the employers liable to them (“Claimants”) who sought to recover from the insurers (“Defendants”) under employers’ liability insurance policies.
The policy wordings differed. The main issue in dispute concerned construction of the relevant provisions and whether policies referring to injury “sustained” and/or disease “contracted” meant the insurer at the time of exposure or the insurer at the time of manifestation (i.e. when the tumour developed) was liable to indemnify the employer. The Defendants argued that liability fell to the insurer at the time of manifestation whilst the Claimants argued that liability fell to the insurer at the time of exposure.
The High Court originally held that all the policy wordings required insurers to respond on an exposure basis. On appeal, the Court of Appeal concluded that policies containing the words “contracted” would be determined on an exposure basis, as distinct from other policies (particularly those containing the words “sustained”) which should respond on a manifestation basis. The leading judgment of Rix LJ in the Court of Appeal reflects some concern that the result was at odds with the commercial purpose of employers’ liability insurance. However, the Court of Appeal was bound by the decision in Bolton MBC v Municipal Mutual Insurance Ltd  EWCA Civ 50, a public liability mesothelioma case, which held that insurance cover is triggered when the injury “occurs”.
Both the Claimants and the Defendants appealed to the Supreme Court. The justices decided that a wider approach to interpretation was appropriate when considering the policies providing for injury “sustained”. Lord Mance observed that: “it is necessary to avoid over-concentration on the meaning of single words or phrases viewed in isolation, and to look at the insurance contracts more broadly”. He also referred to the comments of Lord Mustill in Charter Reinsurance Co Ltd v Fagan  AC 313 that the words: “must be set in the landscape of the instrument as a whole” and be verified in the context of the factual and commercial background. Lord Mance found that whilst “sustained” may initially appear to refer to manifestation, the only approach consistent with the nature and underlying purpose of the insurance was one which looks to the initiation or causation of the accident or disease which injured the employee. The Supreme Court held that the disease may properly be said to have been “sustained” by an employee in the period when it was caused or initiated even though it only manifested itself later.
The Supreme Court inevitably had to consider the issue of causation as no cause of action arises from exposure alone, and decided to relax the ordinary rules of causation, as applied previously in Fairchild v Glenhaven Funeral Services Ltd and Barker v Corus UK Ltd (as modified by s3 of the Compensation Act 2006). The Supreme Court held that there was sufficient causal link between the exposure and the subsequent manifestation to trigger the insurer’s obligation to indemnify the employer. It was also made clear that manifestation must subsequently occur for damage and a cause of action to arise.
The Supreme Court decision demonstrates the Courts willingness to adopt a flexible approach to legal principles where necessary to achieve a fair and commercial outcome. This landmark ruling will be welcomed by victims and their families, ensuring appropriate compensation following protracted Court proceedings. In view of the resulting discrepancy between construction of public liability and employers’ liability policies, the Court of Appeal decision in Bolton appears ripe for challenge.
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