Companies and local authorities will be able to seek cover from their insurers after the Supreme Court has ruled that insurance cover taken out will respond for mesothelioma. Savings of £5 billion have been mooted.

In a judgment handed down in November 2011, the Supreme Court held that policies of employers' liability insurance which respond when disease is "sustained" or "contracted" respond in mesothelioma claims upon inhalation of asbestos fibres rather than the date of manifestation of the disease.

The lead judgment of the court was given by Lord Mance. Firstly, he concluded that policies of employers' liability insurance are linked intrinsically to the period of cover. Payment is made with regard to that period and cover relates to the policy period. Thus he says that great care is taken to tie the premium to the actual employment. He says this makes the link between the policy and a later trigger unlikely.

Secondly, Mance indicated that changes in policy wording would suggest that present insurances should not be read as providing cover. Further, people will retire, companies will cease trading and insurance may not be renewed. All suggests the relevant date as being during the period of employment.

Thirdly, the excess policy is framed in respect of employees in service. As soon as a delay between employment and occurrence of symptoms is considered the policy wording would be curious, in Mance's view.

Fourthly, the Employers' Liability Compulsory Insurance Act required insurance, in Mance's view, which was only compatible with a causation worded policy. He described this as a powerful tool in the interpretation of such policies.

Turning then to the words "contracted" and "sustained" Lord Mance indicated that he had no difficulty in treating the word "contracted" as looking to the causation or initiation of a disease, rather than to its development or manifestation. In respect of the word "sustained", Mance indicated that whilst initially the word may appear to refer to the development or manifestation of a disease, the only consistent approach in line with the underlying purpose is one which looks to the initiation or causation of the disease. He concluded 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 developed or manifested itself subsequently.

Finally, Mance turned to whether the risk of mesothelioma is the correct analysis of the Fairchild principle and whether the risk alone, with subsequent injury, can satisfy the concept of causation for the purpose of the policies of insurance.

Whilst Lord Phillips dissented on this point, Mance and the remainder of the court concluded that in light of the decisions in Fairchild, Barker, Sienkiewicz and the Compensation Act 2006, policies which cover diseases "caused" during the relevant period, should respond where liability for mesothelioma following exposure to asbestos created during an insurance period involved a weak or broad causal link for the disease. Mance stated that the risk of mesothelioma is no more than an element or condition necessary to establish liability for the mesothelioma and that the concept of a disease being "caused" during the policy period must be interpreted sufficiently flexibly to embrace the rules laid down in Fairchild and Barker.

In short, Mance concluded that "if (as I have concluded) 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."

Mark Hemsted, partner, acted for Babergh BC, successful appellant in the Supreme Court action.

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