UK: Barker v Corus: reducing asbestos-related insurance reserves

Following the recent House of Lords decision in Barker v Corus Plc, some insurers may be able to reduce reserves held in respect of mesothelioma claims. As this article shows, however, any such steps must be taken with great care and with detailed reference to the principles laid down by the House of Lords.

Following the recent House of Lords decision in Barker v Corus Plc, some insurers may be able to reduce reserves held in respect of mesothelioma claims. As this article shows, however, any such steps must be taken with great care and with detailed reference to the principles laid down by the House of Lords.

The House of Lords' judgment in Fairchild v Glenhaven Financial Services Ltd [2002] UKHL 2002 marked a significant development in the law of negligence, recognising a less demanding test for causation in exceptional cases involving the inhalation of asbestos resulting in mesothelioma. Then on 3rd May 2006, the House of Lords delivered its much-awaited judgment in Barker v Corus plc [2006] UKHL 20 (formerly Barker v Saint Gobain Pipelines plc), revisiting Fairchild and addressing its limits.

In Fairchild, the victims had each contracted mesothelioma following multiple exposures to asbestos caused by different negligent employers. The peculiarities of mesothelioma meant that, modern medicine could not prove which employer's breach caused the disease. The judgment allowed the claimants to establish liability despite this difficulty.

The Barker facts were similar, except that the first victim had also negligently exposed himself to asbestos during a period of self-employment, and in the other two claims one or more negligent employers and their insurers were insolvent.

The Barker court comprised five Law Lords: Hoffman, Scott, Rodger, Walker and Hale. Lords Hoffman and Rodger had also delivered judgments in Fairchld.

Lord Scott identified four key questions:

1. Does the Fairchild exception apply even if part of the claimant's exposure to asbestos occurred in a period of self-employment?
2. Does the exception apply even if part of the exposure occurred during employment by a non-negligent employer?
3. If the answers to (1) and (2) are "yes", what is the effect on liability and quantum?
4. Does the Fairchild exception apply if the claimant was exposed to two or more materially different causative agents

The court unanimously decided that the answers to (1) and (2) are "yes". Periods of exposure by victims themselves, for example during self-employment, or non-negligent exposure by an employer do not affect the application of the Fairchild exception.

Question (4) was not raised on the facts and only Lords Hoffman and Scott addressed it directly. Both decided the answer was "no" - the Fairchild exception only applies if any potential causative agents operated in the same way. For example, Lord Hoffman did not think the exception applies if a claimant has suffered lung cancer which may have been caused by an exposure to asbestos but may also have been caused by smoking.

The most controversial part of the judgment concerned question (3) and, more particularly, whether negligent employers are liable jointly, so that any one can be sued for the whole of a loss with a right to seek contribution from each other, or whether their liability is divisible, so that employers can only be sued for their proportionate share.

This is an important issue because an increasing number of potential defendants and their insurers in the field of mesothelioma claims are insolvent or untraceable, as in two of the Barker claims.

None of the Lords confined themselves to precedent on this question, they all placed considerable emphasis on public policy considerations. A majority of 4 to 1 decided that the fair and proper result is that liability under the Fairchild exception is divisible. This overturned the Court of Appeal’s decision, and so changed the law on this point. As Baroness Hale put it:

Lord Rodger delivered the dissenting judgment. In contrast to the majority, he felt that joint liability between employers was a fair result.

The court did not decide how each employer's liability should be apportioned but it did offer some guidance in this area. The majority thought liability should be commensurate with contribution to the risk and indicated that relevant considerations should include the time, intensity and type of each exposure, and that non-negligent and self-employed exposures should proportionately reduce liability.

The move to limit employers' maximum liability to their proportionate shares has caused a public outcry and some groups have already proposed amending legislation. The judgment does leave claimants facing an increased prospect of unrecoverable losses. However, it does not necessarily follow that the burden of those losses should fall on employers and their insurers. In terms of possible future legislation the House of Lords' key finding was perhaps that it would be unfair to adopt that approach.

Overall, the insurance industry should welcome this judgment. Given the increasing difficulties with insolvency, the decision to adopt several liability in preference to the previous position will enable some insurers to reduce their reserves substantially, although the precise impact remains to be seen.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 16/05/2006.