Trigger unhappiness

Determining what causes an employers' liability policy to be triggered in the event of a mesothelioma claim has caused much heated industry debate over the last couple of years. And, this summer, Zurich and Municipal Mutual Insurance will go to the Royal Courts of Justice to determine this very issue.

Described as one of the 10 most important cases to be heard by the RCJ in 2008, both parties are seeking to obtain clarity regarding the interpretation of their respective EL insurance policies, issued to various local authorities between 1965 and 1998. The policy wordings deal with two scenarios - when an individual inhaled asbestos fibres (due to the negligent exposure to asbestos dust); or the date, many years later, that an individual sustains bodily injury or illness in the shape of a malignant tumour.

The litigation forms one of six lead test cases, the trial of which is set for a nine-week hearing commencing 3 June. The 'Employer Liability Policy Trigger Litigation', as the six test cases are collectively known, concerns mesothelioma claims only.

Background to mesothelioma

Mesothelioma is a cancerous (malignant) tumour arising in the mesothelioma cells of the pleura 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 life expectancy from the 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 approximately 3250 male deaths per annum.

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

Bolton MBC v MMI and CU

This summer's litigation comes as a result of MMI and other insurers - the majority of whom are potentially or actually insolvent, or in run-off - seeking to apply the decision reached in the Court of Appeal case of Bolton Metropolitan Borough Council v Municipal Mutual Insurance and Commercial Union (2006). That case concerned the application of public liability policy wordings (as defined in the Bolton case) in terms of how and when they were triggered.

To put the case in context, Mr Gordon Green was employed by a firm of electrical contractors who did contract work for Bolton MBC. In the course of that work he was exposed to asbestos. He was also exposed to asbestos while employed by another party later. Bolton was not his employer but, as occupier of the premises where he had been exposed between 1960 and 1963, the council agreed to share his widow's claim for damages with the employers who had exposed him later. They each paid half.

Mr Green took ill in September 1990 with breathing difficulties and chest pain. This was many years after he had last been exposed to asbestos. In January 1991, he was diagnosed as suffering from mesothelioma. He sadly passed away in November 1991, 15 months after he first noticed symptoms.

The medical evidence was that the first malignant mutation probably occurred 10 years (give or take a year) prior to the onset of symptoms, meaning in Mr Green's case it was held that malignancy did not occur until 1980.

Commercial Union was the public liability insurer of Bolton MBC between 1960 and 1965 - that is to say, when Mr Green was exposed to asbestos. Municipal Mutual was the PL insurer of Bolton between 1979 and 1991 - the period during which the first malignant mutation occurred. Commercial Union's policy was triggered by "bodily injury or illness ... occurring during ... the period of insurance" and Municipal Mutual's policy was based on similar terms.

The medical evidence in the Bolton case highlighted that many individuals are exposed to asbestos but do not develop mesothelioma. However, once the malignant mutation occurs and the tumour development process begins, the patient has started on the road to a terminal illness - even though, at that time, 10 years before symptoms, they were not aware of it. MMI submitted that accidental injury for the purposes of the policy occurred on or soon after the inhalation of asbestos fibres rather than when the mesothelioma occurred.

However, the Court of Appeal held it was clear that injury - for the purposes of the policy wording - was not the first exposure of the body to asbestos, or the initial bodily changes that were actionable. The injury had to occur within the currency of the policy and be caused accidentally. Therefore, according to the policy, MMI was liable to indemnify the local authority. By contrast, it was ruled that CU's policy did not cover the local authority claim because it applied during the period when Mr Green was exposed to asbestos fibres - and not when the malignancy probably occurred, or when symptoms of mesothelioma physically manifested themselves.

Given the history of PL policies having been written on an 'injury occurring' basis - to provide a policyholder with cover against an accident that might happen on their premises - it was unsurprising that the insurer on risk at the time of injury would pick up the claim.

EL trigger test cases

As far as the current EL policy trigger test cases are concerned, MMI, Builders Accident, Independent Insurance and Excess Insurance - colloquially known as the 'Boltonites' - are now seeking to apply the principal established in Bolton to an EL policy wording.

The history of EL policy wordings dates back to the time when insurers sold such policies to cover their legal responsibilities to employees under common law, the Workmen's Compensation Acts, and in accordance with the Employers' Liability Conference of 1948.

This conference devised the 'causation' or 'exposure' wording found in most, but not all, EL policies.

A typical EL policy wording reads as follows: "if any person under a contract of service with the insured shall sustain any bodily injury or disease caused during any period of insurance and arising out of and in the course of his employment by the insured the insurer will indemnify the insured against all sums for which the insured shall be liable in respect of any claim for damages for such injury or disease."

This was a clear and early indication that EL insurers recognised there would be diseases that developed sometime after exposure, but the policy issued at the time of exposure would apply to claims, which might arise at an unknown date in the future.

But there are some EL policies that were written without using the word 'caused' and have what we now call 'sustained wordings'. MMI has a typical wording as follows: "the insurer will indemnify the insured against all sums of money which the insured may become liable to pay to any employee engaged in the direct service of the insured ... in respect of any claim for injuries sustained or disease contracted by such employee between the (commencement and expiry date of the period of insurance)". It is important to note that the injury has to be 'sustained' or the disease 'contracted' during the period of insurance.

Consequently, the following issues are raised in the test litigation. What does sustained or contracted mean - does it mean the time of injury (the first malignant mutation), or does it mean the time of exposure?

The law of logic

Equally, it will be assessed whether the agreed medical evidence in the Bolton case - which said that actionable injury or harm, in a case of mesothelioma, arises 10 years (give or take one year) prior to the onset of symptoms - is logical and correct.

Another key area of contention will be to ascertain what the contracting parties to the EL insurance agreed to. For example, what was their intention when they entered into these contracts? What did the policyholder believe they were purchasing, and what did the insurers believe they were selling? Were they agreeing that the insurer would cover all claims arising from the negligent act of the customer during the period of insurance, irrespective of when injury arose?

Another issue that will be raised revolves around the extent to which the Employers' Liability (Compulsory Insurance) Act 1969, and the issue of certificates under the Act, is relevant. For example, are exempt bodies in a different position? And can a policy issued with a 'sustained' wording comply with the Act?

Furthermore, can the words in the 'sustained' wording clause be given a different meaning where they applied both prior to, and after, the commencement of the Employer's Liability (Compulsory Insurance) Act 1969? The date of this commencement was 1 January 1972.

Finally, what is the effect on insurers - the Boltonites included - that have always dealt with EL claims on a time-on-risk exposure/sharing basis, in accordance with Association of British Insurers' and other insurance market agreements?

Test case importance

So why is the outcome of the test litigation so important? The problem with having different EL policy wordings is that it creates the possibility of gaps in cover emerging - or 'black holes' - and thus the absence of seamless EL cover.

Provided that an employer remained solvent, there should be no gaps in cover assuming the employer continued to purchase insurance on an annual basis, even if the policies were all written on an 'injury occurring' or 'injury sustained' basis. In this example, there would always be current cover.

However, no employer can be sure of never becoming insolvent; equally there is a very real risk of gaps in cover if an employer should mix policy wordings (see box above).

Based on the facts outlined in this boxed example, the early 'injury occurring' policy would not apply because the injury did not occur between 1975 and 1980. Equally it was not 'caused' - via exposure - during the period of insurance in 1992 when the injury occurred. In this example, the claimant would not be covered by either of the EL policies bought and paid for.

Obviously, the problem of gaps in cover is equally important to claimant litigants seeking to obtain compensation, as much as it is to company and local authority customers who face the possibility of lack of funding for claims.

In the EL policy trigger litigation, Zurich is working with claimants, company and local authority customers to challenge this issue on behalf of injured employees, and to provide its customers with the financial protection and continuity of cover for which the EL policy was purchased.

- Iwan Borszcz is casualty claims director at Zurich Insurance.