Squeezing the trigger

The Court of Appeal’s hugely complex ruling last week in a case involving historic asbestos exposure has left claimant and defendant lawyers scratching their heads. Henry Bermingham looks at the significant implications for local authorities.

The EL Trigger Litigation was a group of test cases brought by four insurers. It concerns the scope of their liability to make payments in respect of old employers’ liability (EL), policies. This affects local authorities, because one of the four was the old Municipal Mutual Insurance (MMI).

The Asbestos Disaster

The harmful effects of asbestos became widely known in the mid-1960s. Thereafter both insurers and their employer policyholders have had to deal with liability for the diseases which flow from asbestos exposure for some time. The most serious of these is mesothelioma, a malignant tumour affecting the pleura (lining of the lung), which invariably proves fatal.

As it can take anything from 10 to 60 years after asbestos exposure to develop, local authorities and MMI will continue to face rising numbers of these claims. These are not expected to peak for another five years. Mesothelioma claims are sizeable, most exceeding £100,000. Fortunately, over 90% of local authorities had insurance cover for their employer’s risks with MMI. So what is the problem?

Bolton v MMI (2006)

Until this case, MMI had always taken the view that its EL policy responded on the so-called “causation basis”. If a local authority employee was exposed to asbestos at work, during the life of the policy, they would deal with the claim.

However, in the Bolton case it was held that MMI’s public liability (PL) policy would only respond to mesothelioma claims at the moment the injury was sustained – i.e. when the tumour began to develop, ten years before manifestation of symptoms.

MMI ceased trading in 2003. Its liabilities have been run off, in accordance with a scheme of arrangement. It quickly became apparent that if the principle in Bolton were applied to EL policies, all future mesothelioma claims would be outside MMI’s period of cover. For example, a victim who became aware of the first symptoms (of mesothelioma) in 2010 would have sustained the injury, in a Bolton sense, in 2000, seven years after MMI ceased to write cover.

In light of this, MMI began to decline mesothelioma claims from 2006. This left authorities effectively uninsured – they had to meet the claims themselves.

The Trigger Litigation

The trial was heard by Mr Justice Burton in 2008. He dismissed MMI’s attempt to avoid liability on its policies. He held that its EL policy responded on the traditional causation basis. MMI was liable for mesothelioma claims where an employee was exposed to asbestos during its time on cover. MMI appealed.

On 8 October 2010 the Court of Appeal handed down its much-anticipated judgment on this subject. It is a mixed bag for local authorities. The Court of Appeal considered the MMI insurance products marketed from 1948 onwards. There were three different policy wordings, which MMI replaced over time. In practical terms it is the second and third wordings which would apply to any modern mesothelioma claim. The second wording policies operated between 1958 and 1974. The third wording policies operated between 1974 and 1993.

Looking at the terms of those policies, the court felt that the second wording only covered mesothelioma when it was sustained in accordance with Bolton. Effectively, therefore, there is no cover for a modern claim.

The third wording was substantially different. It provided cover where the disease was “contracted” within the policy year. The Court of Appeal concluded that in the case of mesothelioma, that wording referred to the time when the employee was exposed to asbestos. In other words, when the employee breathed in asbestos fibres, that is the point at which he contracted mesothelioma.

This was a split Court of Appeal. One of the judges considered that all three MMI wordings provided cover at the time of exposure. However, she was in the minority.

Outcome

Subject to appeal to the Supreme Court, all local authorities insured with MMI have cover for mesothelioma where the exposure took place on the MMI third wording policy – i.e. from 1974.

Exposure before 1974 will not be covered and authorities will have to fund those claims from their own resources. Given the size of mesothelioma claims, this is a potential bombshell for public sector budgets.

On the judgment, there remains unresolved questions – where an employee was exposed both before and after 1974, is MMI responsible for the whole claim? Alternatively are they responsible for the years after 1974 only, with the local authority responsible for pre-1974 exposure? At present there is no easy answer to that question.

Overall, if left to stand, this judgment will mean that authorities that have used asbestos, or whose employees were exposed to it, will have to make provision for mesothelioma claims going forward. Fortunately, as there is cover from 1974, the problem is not as bad as it could have been.

That said, a further appeal is considered very likely. Can your authority afford for local government to lose that case?

Henry Bermingham is a public sector partner at national law firm Berrymans Lace Mawer LLP. He can be contacted by email at This email address is being protected from spambots. You need JavaScript enabled to view it..