The Supreme Court of England handed down Judgment, on 28 March 2012, in the matter of Durham v BAI (Run Off) Ltd (In Scheme of Arrangement) and other appeals1 in which all five justices were unanimous in their interpretation of the policy wordings.
This appeal to the Supreme Court of England was lodged as a result of the judgment handed down by the Court of Appeals. This judgment was the culmination of a number of test cases instituted in order to ascertain when (in terms of the policy year) liability in terms of an employer's liability policy (EL policy) arises for employees who contract mesothelioma.
Mesothelioma is a cancer which results from asbestos fibres finding their way into the pleura (or lining of the lungs). The difficulty in terms of determining liability, in the case of such a cancer is that a person contracting the cancer does not do so at the time of inhalation of the asbestos fibre(s). Indeed, symptoms can take up to, and occasionally exceeding, 50 years from the date of inhalation.
Once these symptoms materialise, life expectancy is between 18 months and 2 years. It is generally accepted, however, that the tumour develops between 5 and 10 years prior to the symptoms materialising. The cancer is notoriously difficult to diagnose, often done only after death during a post-mortem. The cancer is incurable.
Prior to this series of test cases it was accepted in practice that the EL policy in respect of an employee who contracted mesothelioma was the policy in force at the time when the employee was exposed to and inhaled the asbestos fibre(s).
It is likely that this approach was adopted as a result of the decision handed down in the case of Fairchild v Glenhaven Funeral Services Ltd2 which developed an exception (in mesothelioma cases) to the usual rule in negligence cases, which is that the claimant must establish, on a balance of probabilities, that the defendant's negligence caused his or her injury or disease.
However, in the 2006 case of Bolton Metropolitan Borough Council v Municipal Mutual Insurance Limited and Commercial Union Assurance Company Limited3, the English Court of Appeal considered mesothelioma claims in the context of public liability policies (PL policies) and raised doubt as to whether this practice was correct. It is worth noting that the Supreme Court of Appeal took judicial notice of the Fairchild judgment although the Court of Appeal did not.
The court in the Bolton case was of the opinion that, in the case of mesothelioma, the injury does not occur at the time of inhalation of the asbestos fibres but rather at the time when the tumour develops. This was based on the wording of the PL policy in question and that of PL policies in general. These policies often provide cover if the insured becomes liable for injury or illness which occurs "during the currency of the policy" or "during the period of indemnity" and is therefore triggered at the time the illness or injury occurs.
In this case the PL policy would be triggered by the development of the tumour rather than the period during which the illness is caused (the exposure to the asbestos fibres). As a result of this, the court held that the insurers who effectively insured the employee at the time when the symptoms developed were the insurers liable rather than the insurers at the time of exposure.
As a result of the finding in the Bolton case a series of insurers became embroiled in six test cases relating to persons who had developed mesothelioma. Similarly to PL policies, EL policies provide for injuries "caused during the period of insurance". The insurers contested that EL policies in force at the time of exposure were liable where the EL policy refers to the date on which the injury is "sustained" or the disease is "contracted". These test cases were first heard in the High Court cited as Durham v Bai (Runoff) Ltd (in scheme of arrangement) and became known as the EL Policy Trigger Litigation.
In the judgment of the Court of Appeals, Lord Justice Rix held that there should be a distinction between policy wording referring to injuries or diseases "sustained" during the period of insurance, and those that refer to injuries or diseases "contracted" during the period of insurance. In the case of the former, Lord Justice Rix found that the decision in the Bolton case applied and therefore where the policy used the term "sustained" it referred to the time at which the tumour developed.
The court therefore held that "sustained" is not to be distinguished from the effect of the phrase "caused during the period of insurance". On the other hand, Lord Justice Rix found that the use of the term "contracted" referred to the cause of the disease and as such would trigger the policy in force at the time of inhalation or exposure to the asbestos fibres.
Therefore, before the matter was heard by the Supreme Court of England, the position was that where the wording used was "sustained" the policy in force when the disease starts to develop (i.e. when the tumour develops in the case of mesothelioma) is of effect; and where the wording used is "contracted" the policy in force at the time of negligent exposure responds (i.e. at the time of exposure or inhalation of the asbestos fibres).
Judgment in the Supreme Court of England (Lords Clarke, Dyer, Kerr, Mance and Phillips)
Specific wording and phrases
Lord Mance, held that the judgment handed down in Bolton (which held that in the case of mesothelioma, the injury does not occur at the time of inhalation of the asbestos fibres but rather at the time when the tumour develops) did not apply to EL policies and consequently, was not relevant. This is so despite the fact that the High Court and the Court of Appeal relied heavily on the decision handed down in Bolton.
Significantly, Lord Mance emphasised the close link between the actual employment of an employee during each insurance period and the premium in respect of the risks undertaken by insurers in respect of that period4. It was a result of this "link" that Lord Mance held that "courts should avoid over concentration on the meaning of single words and phrases viewed in isolation and look at the insurance contracts more broadly."
In respect of the issues pertaining to phraseology, as discussed above, the Supreme Court of England considered the meaning of the words "contracted" and "sustained". The court had no difficulty in interpreting the word "contracted" as being levelled at the catalyst of the disease. However, the Supreme Court of England noted that "disease sustained" did not fall within the same causative analysis.
Notwithstanding this, the court expressed its reluctance to view words or phrases in isolation, and decided that to read "sustained" as meaning "developed" or "manifested" would be to ignore the underlying focus of the insurance cover. Lord Mance held that "the disease may properly be said to have been sustained by an employee in that period when it was caused or initiated, even though it only developed or manifested itself subsequently"5.
Special approach to mesothelioma
The case of Fairchild and Barker provided a special consideration and exception to mesothelioma cases, in that the plaintiff need not prove that the negligence caused the damages suffered. This is because the symptoms develop a long while after the asbestos fibres are inhaled.
In this respect, Lord Mance concluded:
"the concept of a disease being caused during the policy period must be interpreted sufficiently flexibly to embrace the role assigned to exposure by the rule in Fairchild and Barker. Viewing the point slightly more broadly, if ... the fundamental focus of the policies is on the employment relationship and activities during the insurance period and on liability arising out of and in the course of them, then the liability for mesothelioma imposed by the rule in my opinion fulfils precisely the conditions under which these policies should and do respond"6.
In light of this, the Supreme Court of England decided that EL policies should cover claims for mesothelioma. This was the decision of the court, regardless of the premise that, as a question of fact, the mesothelioma cannot be proven to have been caused by the actions of the employer during a particular policy year.
As discussed previously, the Supreme Court of England took judicial notice of Fairchild and Barker and held that the special rule in Fairchild and Barker resulted in doctrine that is a matter of law, which is in essence "those creating the risk are deemed to have caused the injury".
Interestingly, Lord Phillips (President of the Supreme Court of England) dissented on this special consideration point and suggested that this was an incorrect interpretation of the "special rule". His view was, essentially, that EL cover should not cover mesothelioma claims where the year of contraction cannot be proven. He was of the opinion that it is the prerogative of parliament, and not the courts, to impose liability on insurers when their insured cannot prove injury was caused during a specific period of cover.
The Judgment of the Supreme Court of England has restored a large degree of certainty and in many ways retained the status quo before the test cases were heard. Lord Mance held that, "the natural inference to draw from the references to being engaged in the employer's service and in work forming part of the employer's business is that it was envisaged that the accident or disease would and should arise out of such service and work, rather than merely occurring during it"7. Meaning that it will be difficult for insurers to repudiate cover on the basis that the insured cannot provide specifics with regard to the period of cover, under which the insured is claiming.
This is essentially bad news for insurers, although the benefits of achieving the level of clarity provided by the Supreme Court of England cannot be underestimated.
1 (2012) UKSC 14, on appeal from: (2010) EWCA Civ 1096
2  1 AC 32
3 (2006) EWCA Civ 50
4 Paragraph 21 (2012) UKSC 14, on appeal from: (2010) EWCA Civ 1096
5 Paragraph 50 (2012) UKSC 14, on appeal from: (2010) EWCA Civ 1096
6 Paragraph 18(2012) UKSC 14, on appeal from: (2010) EWCA Civ 1096
7 Paragraph 27(2012) UKSC 14, on appeal from: (2010) EWCA Civ 1096
8 Minister of Finance & others v Gore NO 2007 (1) SA (SCA) par 17 referring with approval to Van Staden v Fourie 1989 (3) SA 200 (A) and Nedcor Bank Bpk v Regering van die Republiek van Suid-Afrika 2001 (1) SA 987 (SCA)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.