Date:  24 November 2008

LANDMARK VICTORY FOR BULLER JEFFRIES

IN EMPLOYERS’ LIABILITY TEST CASE LITIGATION

1.          The Judgment – 21 November 2008

Following a trial lasting 9 weeks through the months of June and July 2008, judgment has been handed down by Mr Justice Burton in the Royal Courts of Justice in favour of Zurich together with victims of asbestos-related mesothelioma and their employers against four run-off insurers who were contending that, by reason of the terms of the insurance policies that they issued to employers, it should be the policies in existence at the time of development of the tumour that picks up the claim not the policy in existence at the time the employer negligently exposed the employee to asbestos dust/fibres.

Mr Justice Burton has ruled that it is the policy in existence at the time of exposure that picks up the claim not the policy in existence when the tumour becomes established in the body some 40 or more years later.

Derek Adamson and his team of 7 lawyers and paralegals that represented Zurich in this test case litigation known as the employers’ liability trigger litigation are delighted at the outcome but have already started preparing for the appeal which is likely to follow.

2.                 The background to the case

2.1               Introduction

This summer saw Zurich do battle with Municipal Mutual Insurance Limited (“MMI”) an insurance company in run-off over the interpretation of their respective EL Policies issued to various local authority insureds during the period 1965 – 1992 (MMI policies) and 1993 – 1997 (Zurich Municipal policies).

The litigation formed one of 6 lead test cases collectively known as the employers liability policy trigger litigation, described by The Lawyer magazine as one of the 10 most important cases to be heard by the Courts of England and Wales in 2008.

2.2               Mesothelioma

Mesothelioma is a cancerous (malignant) tumour arising in the mesothelial cells of the pleural membrane that encloses the lungs. The chief symptoms are breathlessness and chest pain, and at the advanced stage of the disease it causes general wasting and weight loss leading to death from a combination of general debility and breathlessness.

Treatment is almost completely ineffective and the usual survival time from onset of symptoms is approximately 14 months.

Since 1960 asbestos exposure has been established as by far the most important cause of mesothelioma, being implicated in almost every case.

The number of people developing and dying from mesothelioma has increased dramatically over the past 50 years, and this increase is set to continue with a peak expected by 2020, leading to some 3250 male deaths per annum.  Currently, there are 2,000 deaths per annum from mesothelioma.

The disease has a long latency period of 10 to 50 years (average 40 years) between first exposure and diagnosis, and with occupational exposure to crocidolite (blue asbestos) being the primary cause of most deaths.

2.3         Bolton Metropolitan Borough Council -v- Municipal Mutual Insurance and Commercial Union

               2006 1WR 1492 [“The Bolton Case”]

The Bolton case concerned interpretation of the insuring clauses of public liability (PL) policies issued by MMI and the second defendant in that case, Commercial Union. Historically, PL policies have developed differently to EL policies in that the former have always involved cover at the time injury or damage occurred.  In contrast, EL policies have covered the period when the injury was caused.

The medical evidence in Bolton was that the injury i.e., the development of the incipient tumour, occurred about 10 years prior to the development of symptoms in the patient (claimant) and because the precise moment could not be identified clearly, it would be appropriate to suggest that the injury occurred 10 years +/- 1 year prior to symptoms.

Accordingly, the Court of Appeal in the Bolton case held that it was the policy in existence at the time of that injury not the policy in existence at the time of exposure (or causation) that picked up the claim.

What happened in the present case was that since 2006 when judgment was given in the Court of Appeal in the Bolton case, MMI along with 3 other insurers in run-off, the Builder’s Accident, The Independent insurance company and the Excess applied the Bolton principle to their EL policies which although not written on an injury-occurring basis, were written on the basis of when the injury was sustained.  The suggestion was that the words sustained and occurred meant the same so that in effect, the Bolton case although a PL decision, applied also to their EL policies.

2.4         The 6 test cases

The 6 test cases were a mixture of claims involving victims’ families, employers of victims’ families and a declaration action brought by MMI against Zurich and 10 local authority policyholders who had originally been insured with MMI then were subsequently insured by Zurich. The 3 families had obtained judgment against the defendant employers who were insolvent and therefore they sought to enforce the judgment against the employers’ EL insurers who, depending on the case, were Builder’s Accident, the Independent or the Excess. They were all taking the Bolton point and therefore contended that they had no liability to indemnify the negligent defendant employers in respect of the mesothelioma claims.

There were also actions brought by 3 employers (2 in 1 action) who had paid compensation to families of mesothelioma victims and were themselves then seeking recovery of their outlay from their own EL insurers. The insurers in question in those cases were the Builder’s Accident and the Excess.

The final case was a declaration action by MMI who were seeking an order that their policies did not apply to mesothelioma claims that had been brought against the 10 sample local authorities but, rather, Zurich’s policies applied to those claims.

3.                 The Judge’s findings

The fundamental issue was whether the insurers liable to meet mesothelioma claims are those who insured the employers at the time the employees inhaled the asbestos fibres (“date of inhalation”) or those (if any) who insured the employer (if the employer was still in business) up to 40 or more years later, when the tumour develops (“date of tumour”).

The Judge tried 6 actions covering 9 different policy wordings all of which were essentially the same namely that, rather than having a traditional causation trigger (which we contended was triggered by exposure or inhalation), they had insuring clauses referring to “sustaining injury or contracting disease” during the policy period.

3.1            The key finding and reason for the decision:

On the fundamental question of construction of the wordings, the Judge accepted that the factual matrix should be taken into account, that he should take account of the commercial purpose having regard to that factual matrix, that the evidence showed that the intention was that it was employees employed at the time of the policies who were to be covered not ex-employees pursuing mesothelioma claims many years later. In reaching the decision, the Judge was influenced by the history of EL cover dating back to the Workmen’s Compensation Acts, the fact that the policies and associated documents such as proposal forms suggested that it was the employees at the time of the policy that were being covered not ex-employees who later suffered tumours and the weight of the insurance evidence from various insurance specialists that caused and sustained were used interchangeably in EL policies so that in effect, they meant the same namely “caused” or “be caused”.

3.2              Medical findings:

3.3            Actionability:

As a result of the medical findings, the question of actionability at or shortly after exposure did not arise because the Judge took the view that there was no injury at that time. However, had he been forced to determine that issue, he would have taken the view that the injury or disease would have had to be actionable at the date of inhalation before it would trigger any liability under these policies.

3.4           Finding on usage:

It was argued against the run-off insurers that as it was the universal custom and practice for EL insurers to deal with such claims on a causation or exposure basis, that practice had assumed or acquired the status of a trade usage which, in law, means that the practice is binding on the parties such as to effectively become a term of the contract between them. The Judge held that although the custom and practice had been universal, it did not amount to usage as a matter of  law.

4.                 The Appeal Process

Permission to appeal was granted to the run-off insurers in respect of the principal construction of the policy point with permission for the claimants to cross appeal on usage if so advised. It remains to be seen whether there are attempts to appeal on the date of injury and actionability points. If any party wishes to appeal the judgment, notice of appeal has to be served by 5 January 2009. It is too early to say but it is envisaged or hoped that the Court of Appeal hearing could take place before the end of July 2009.

Derek Adamson