Barker v Corus still governs Fairchild cases not covered by the Compensation Act 2006. Creation of a new right of contribution for insurers for Fairchild cases where Barker does not apply.
The Supreme Court handed down its decision in Zurich Insurance PLC UK Branch (Appellant) v International Energy Group Limited (Respondent) [2015] UKSC 33, reversing the decision of the Court of Appeal. Colin Edelman QC represented the successful appellant in the Supreme Court.
Issues
- Whether, under Guernsey law (i.e. English common law in circumstances where Guernsey does not have legislation equivalent to the Compensation Act 2006), an insured is entitled to an indemnity from an insurer under an employers’ liability insurance policy for the entirety of its outlay in respect of a claim for mesothelioma brought against it by an employee, or only a proportion of its outlay based on the period for which the insurer provided cover.
- If Guernsey law is equivalent to the position under English law as affected by the 2006 Act, whether the insurer has a right of contribution in respect of its outlay against another insurer and/or the insured in respect of exposures of the claimant to asbestos outside the period of the insurer’s cover.
Issue (1) involved consideration of whether Barker still represents English common law. If it does, it will continue to govern cases falling within Fairchild v Glenhaven Funeral Services which are not covered by the 2006 Act (which only deals with mesothelioma). It also involved consideration of whether the terms of the policy would in any event override the effect of Barker.
Issue (2) involved consideration of whether and if so how the Court should divide up the liability of the employer for a mesothelioma claim:
- as between the insurers of the employer where there were successive insurers on risk during the period of exposure; and
- as between the employer and the insurers where the employer had insurance covering some of the total period of exposure but had no or no traceable insurance for the remainder of the period of exposure.
Facts
Zurich, as successor to Midland Assurance Limited, insured IEG for 6 of the 27 years it employed Alan Carré. The employers’ liability insurance policy contained a standard indemnity for all sums incurred by IEG in respect of damages claims by employees who sustained an injury or disease caused during any period of insurance in the course of their employment with IEG. IEG also had insurance for 2 of the 27 years with Excess.
In 2008 Mr Carré was diagnosed with mesothelioma and sought damages in the Guernsey courts for breach of statutory duty and negligence against IEG for exposure to asbestos during the whole of his employment period. IEG settled the claim and sought to recoup all of its outlay under its indemnity with Zurich. Zurich refused to provide a full indemnity arguing IEG was only entitled to a proportion based on Zurich’s period of cover and offered 6/27ths of IEG’s outlay. In the alternative, Zurich submitted that equitable principles required a contribution from IEG for the period it exposed Mr Carré to asbestos but was not insured by Zurich.
The High Court found that IEG was entitled to a full indemnity for the legal costs it incurred in defending Mr Carré’s claim but otherwise the indemnity was limited to a share of its outlay based on the period it was insured by Zurich during Mr Carré’s employment. Relying on Barker v Corus [2006] UKHL 20, Cooke J held that IEG’s liability in each policy year was for the amount of risk it created in that year, which was agreed to be the same for each year, so was 6 out of 27 years’ worth of IEG’s outlay. S.3 of the Compensation Act 2006, which applies only in relation to mesothelioma cases and renders any tortfeasor jointly and severally liable to pay the victim full compensation for any period of material exposure (thereby reversing the effect of Barker), does not apply in Guernsey.
The Court of Appeal reversed the High Court (save in relation to defence costs) relying on the Supreme Court’s decision in Durham v BAI (Run off) Ltd [2012] UKSC 14 ("the Trigger litigation") made two months after Cooke J’s decision, namely that there was a sufficient "weak" or "broad" casual link between Mr Carré’s exposure to asbestos during the years when IEG was insured by Zurich and his contraction of mesothelioma for IEG to be legally liable for causing his disease within the insurance period. For that reason and by virtue of the "all sums" wording appearing in Zurich’s insurance contracts, Zurich was therefore liable to indemnify IEG’s outlay in full. That Mr Carré’s exposure during the rest of his employment was also a cause of his disease did not mean equity could undo a clear contractual right to an indemnity supported by the wording of the policy and ordinary principles of insurance law.
(This factual summary is based on the summary on the Supreme Court website)
The decision
Issue 1
The Court’s decisions on this issue were unanimous.
Barker still governs the English common law for Fairchild cases, applies in Guernsey to a mesothelioma case and applies in England and Wales to any case governed by Fairchild unless modified by statute, as it has been in relation to mesothelioma.
Zurich’s liability was therefore only for its pro rata share of IEG’s liability as that reflected the liability of IEG referable to the period of insurance under Barker. This was not overridden by the "all sums" wording of the insuring clause in the policy.
Zurich’s liability for the employer’s costs of defending the claim did not however fall to be pro-rated, these costs being insured by a separate part of the insuring clause.
Issue 2
Although all members of the Court agreed that the fact that an insurer was on risk for only part of the period of exposure made it inappropriate for the insurer to be left with the entirety of the financial burden associated, under Fairchild, with the totality of the period of exposure, the Court split 4:3 as to the appropriate means by which to address this.
The majority (Lord Mance, Lord Clarke, Lord Carnwath and Lord Hodge, with Lord Mance giving the leading judgment) accepted the submissions of Zurich, supported by the ABI, that a new right of contribution should be created, which was not exercisable as a set-off against the indemnity, so as to confer on the insurer called upon to indemnify the insured by reference to its period of insurance a right of contribution against another insurer of the insured, notwithstanding that there was no double insurance, and against the insured by reference to the contribution to the risk of the victim sustaining the disease that arose by virtue of exposures to asbestos outside period of insurance of the insurer providing the indemnity.
This approach gives legal effect to the way in which the ABI Guidelines operated prior to the decision of the Court of Appeal.
The minority (Lord Sumption, Lord Neuberger and Lord Reed with Lord Sumption giving the leading judgment) considered that the answer was provided by construing the insurance policies so as to provide only a pro-rata indemnity by reference to the contribution to risk during the period of insurance.
The majority considered that the minority’s approach to construction was impermissible as the effect of the 2006 Act was that full liability attached to each exposure and was therefore covered by the insuring clause.
The minority considered that the majority’s approach was inappropriate as it created a novel equitable right which, on the majority’s approach to the insuring clause, was inconsistent with the contractual right to indemnity. However, the majority considered that the equitable right was consistent with general equitable principles and did not offend against the contractual right of indemnity as it was referable to liability generated outside the period of insurance.
Colin Edelman QC (Devereux) and Leigh-Ann Mulcahy QC and Jamie Smith QC (both 4 New Square Chambers) represented the successful appellant in the Supreme Court.
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