UK: UK Mesothelioma Claims and Reinsurers

Last Updated: 23 August 2006
Article by Ed Stanley and Janet Lambert

Mesothelioma is a latent injury caused by exposure to asbestos dust and it is difficult on the present state of medical knowledge to pinpoint when precisely it is contracted.

This was highlighted in the decision earlier this year in Bolton Metropolitan Borough Council v MMI and Commercial Union (2006), which concerned a Public Liability cover which (typically) covered for "injuries occurring during the period of insurance". It was held that the disease (mesothelioma) occurred when the suffering started - not at exposure. Employers’ liability policies, however, more typically protect against "injuries caused during the period of insurance". Causation wording always needs careful consideration, especially when a claimant has worked for numerous employers, each of whom may equally have been the party responsible for exposing the claimant. The courts generally apply a "but for" test of causation (i.e. the injury would not have occurred but for the breach of duty), meaning that a claimant has to show a clear causal link between exposure and actual injury.

In Fairchild (2002), however, the Lords determined that the interests of justice required that the ordinary rules on causation be departed from. The evidence was that Mr Fairchild, who had developed symptoms of mesothelioma in 1995, and died in 1996, had been equally exposed to asbestos inhalation in the employment of all his employers. The Lords decided that it was that exposure which equated to the injury caused and Mr Fairchild’s widow could therefore treat each of the employers as jointly and severally liable for all of the injuries her husband suffered. Hence the policy-driven "Fairchild Exception" to the ordinary rules on causation was born. As a result the liability insurers of Employer A were suddenly visited with the entirety of a claim for mesothelioma injuries notwithstanding that the claimant had only worked for Employer A for a short period out of a much longer working life, or the administrative burden of seeking recovery from other insurers.

The courts then held in Phillips v Syndicate 992 (2003) that the "Fairchild Exception" should also be applied to insurance contracts, so that mesothelioma claims in their entirety could be funnelled through to employers liability insurers who may have only been on risk for one year. ABI Guidelines were duly drawn up in 2003 for the rateable apportionment between insurers of claims by reference to time on risk, assuming insurers could be traced and were still in existence.

Certain insurers have looked to their excess of loss carriers as their Fairchild settlements have seemingly exceeded deductible points on individual years of coverage. If the entirety of a mesothelioma claim could be funnelled into one year of cover granted by them, why couldn’t they do the same to reinsurers? A lively debate began to develop.

It should be mentioned that interlocking clauses serve to dilute continuous claims of this nature, but these did not come into common currency until the early 1980s.

The Lords then decided in Barker (2006) that saddling employers with joint and several liability for mesothelioma injuries was too harsh as a matter of justice and that they should only be liable for their contribution to the risk, which was to be assessed rateably to the period the claimant was employed with them relative to his whole working life (including periods of self-employment) in jobs where there was exposure. The decision was welcomed by the insurance industry; the Fairchild Exception remained intact but its draconian impact upon claims was softened.

The Government, however, quickly acted to restore the law as stated in Fairchild by introducing an urgent amendment to the Compensation Bill, (passed, 25 July 2006).

This followed extensive lobbying by trade unions and claimant lawyers, who foresaw claimants (or their dependants) not being able to recover 100 per cent or experiencing delays in receiving settlements. Section 3 of the Compensation Act 2006 now provides that a "responsible person" (which is defined as including an insurer of a responsible person) which has caused exposure to asbestos to an employee who contracts mesothelioma, shall be liable for 100% of the damage caused jointly and severally with any other persons responsible.

Section 3 also provides for contribution claims to be made and for the courts to take account of the relative lengths of the periods of exposure of different persons responsible in determining any contribution. There is also provision for the Treasury to make regulations to compensate the responsible person if an insurer or other employer is unable to contribute.

Any insurers or reinsurers facing exposure to mesothelioma claims going forward will need to consider the full implications of these recent and rapid changes to the law and be properly advised on where they stand.

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.

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