Claims of responsibility

Many in the UK insurance world know that a dispute has been running for some time between public liability insurers as to which insurer is liable in respect of third-party claims - such as non-employee and mesothelioma - arising from the insured's business activities.

Mesothelioma is always fatal. It is triggered by asbestos fibres in the lung's pleura - but just because asbestos fibres are breathed in, does not mean that mesothelioma will ever develop.

It was this point that led to the upholding of the Association of British Insurers' stance on the date when "injury or illness" occurs, in the first-ever decision in the UK on the triggering of liability under a PL policy.

The decision in this test case on 26 May at the Manchester Mercantile Court by HH Judge Kershaw QC came after a five-day hearing last October.

In the case of Bolton Metropolitan Borough Council v Municipal Mutual Insurance and Commercial Union Assurance, MMI had denied BMBC's claim for an indemnity. This was despite MMI's policy being in force, both when the injured person first developed pre-cancerous cell-changes in his body in 1980 and when he developed symptoms of mesothelioma 10 years later.

In 1980, Mr Green, who had been employed on one of BMBC's building sites between 1962 and 1964, unbeknown to him first suffered malignant cell change triggered by asbestos inhalation. This became symptomatic in 1990, and Mr Green died of mesothelioma in late 1991.

His estate made a claim against BMBC and another, which BMBC settled on a 50:50 basis with that other party. However, MMI denied liability, despite being the PL insurer at the time of first malignant cell change, and at the time the condition became symptomatic, and also at the time of death.

At trial, MMI accepted that BMBC was liable to Mr Green's estate, that the settlement reached was reasonable, as was the 50:50 split of liability, and that the claimant estate's costs and Bolton's defence costs were reasonable. MMI, however, maintained its denial of policy liability.

So BMBC, faced with that denial of liability and the fact it had settled its liability to the injured person, sued MMI to recover that settlement and its own legal costs incurred in defending that claim.

MMI argued that the mesothelioma arose from exposure to asbestos for which BMBC was responsible back in 1960 to 1965. It stressed that the injury occurred when the asbestos fibres were first breathed in and, alternatively, its policy did not cover mesothelioma claims at all because the policy required the injury to occur in the same period of insurance as the breathing in of the asbestos.

CUA was BMBC's PL insurer between 1960 and 1965. This led to BMBC having to also sue CUA, and even to MMI claiming there was double insurance - that both policies covered this mesothelioma claim.

BMBC and CUA both argued that mere inhalation of asbestos fibres did not cause any actual injury or illness and, therefore, could not lead to any claim against the council by that person until some real injury developed. A PL policy was a liability policy, so could only cover real liabilities of BMBC, and general law would not make the council liable to someone who just breathed in asbestos fibres.

So BMBC found itself facing a mesothelioma claim but, despite having conscientiously maintained continuous PL cover for decades, was faced with no PL insurer accepting that the claim was covered by an insurance policy.

Those difficulties facing an insured in such circumstances are, of course, significant and raise a number of questions.

Should the insured settle the claim and then sue one or more of their PL insurers? Can they afford to settle the claim? What if the insurers later challenge the justification of the settlement? Can the insured afford to then sue their insurers? Should the insured not settle the claim and instead bring one or more of their insurers into the main action upon the claim? Again can they afford such steps? Is it too late to notify the other insurer of the claim?

The leading medical experts who gave evidence to the court all agreed that doctors would consider injury occurred when pre-cancerous cells developed in about 1980. The judge agreed with BMBC and CUA and said that PL policy wordings were clear in their meaning. An "injury" had to mean real, not notional, harm to the body.

Further, there was no cutting out of claims just because the injury resulted from an event long before the injury developed. PL insurers covered the risk that injury occurred during their period of insurance.

If the insured is liable to someone for an injury that occurs, then the PL insurer covering that time period is liable. MMI's claim for a contribution from CUA, therefore, also failed because there was no double insurance - the two policies covered the same type of risk, but for completely different periods of time.

Subject to any successful appeal by MMI, there is now certainty upon which PL insurer is liable to cover a mesothelioma claim against the insured.

PL insurers will doubtless now consider the impact of this important test case upon the question of when "bodily injury or illness" first occurs in relation to the other long-tail asbestos-related diseases - asbestosis, lung cancer, pleural thickening, and pleural plaques.

- Dr Digby Jess, of Exchange Chambers, Manchester and Liverpool, was counsel for Bolton Metropolitan Borough Council.