EL Trigger Litigation – an elegant solution

Published on Wednesday, 28 March 2012 10:32

Posted by Scott Buckler

After a five year journey through the higher courts, the EL Trigger Litigation concluded today with the Supreme Court’s judgment. Berrymans Lace Mawer LLP partners Henry Bermingham and Brian Goodwin acted for policyholders Derby City Council, Middlesbrough Council and AMEC plc respectively

The Supreme Court held that the EL policies in issue respond to mesothelioma claims if the victim was exposed to asbestos during the currency of the policy.  This is an endorsement of the historical ‘causation’ approach to policy interpretation. It marks a victory for employers, victims and the current insurance market.

Background

•    Bolton v MMI set the scene in 2006.  This was a PL case in which it was held that in a mesothelioma case injury ‘occurs’ when the tumour starts to develop, ten years before manifestation of symptoms.

•    Four insurers (Builders Accident, Excess, Independent and Municipal Mutual) had EL policies which were worded in a similar way to the Bolton PL policy. These responded where the injury was ‘sustained’ or ‘contracted’ during the term of the policy. Those insurers decided to decline EL claims on the basis of the ruling in Bolton.

•    Prior to 2006, the entire insurance industry had operated EL policies on a causation basis – they would indemnify if exposure occurred during the policy, irrespective of the verb used in the trigger clause. Adoption of the new ‘Boltonite’ principle had the effect of shifting insurer responsibility from the time of exposure to the time when the tumour started to develop. This led to vast black holes in cover.

•    The ‘Anti-Boltonites’ (a group of individual claimants, policyholders and Zurich) sought to reverse the ‘Boltonite’ stance by issuing proceedings which became known as the EL Trigger Litigation.

•    In the High Court they succeeded.  Burton J decided that EL policies with ‘sustained’ and ‘contracted’ wordings respond on a causation basis. The ‘Boltonite’ insurers appealed.

•    The Court of Appeal failed to reach a consensus.  Smith LJ upheld the traditional causation basis.  Burnton LJ and Rix LJ agreed, but only where the policy referred to ‘disease contracted’. They accepted the ‘Boltonite’ principle if the verb used was ‘sustained’. 

The Supreme Court Judgment

Clarity has been restored. Lord Mance gave the leading judgment. He was eager to emphasise that the courts should ‘avoid over-concentration on the meaning of single words and phrases viewed in isolation and look at the insurance contracts more broadly.’  Adopting the dictum of Lord Mustill in Charter Re v Fagan that words must be ‘placed in the context of the factual and commercial background of the transaction’, he was satisfied that the policies should respond on a causation basis because:-

•    they required employment and injury to occur at the same time;

•    there was thus an anomaly if an employee was exposed to asbestos in year one, but by the time the effects became manifest he was no longer employed by the policyholder;

•    there was a close link between the number of employees during each insurance period and the level premium payable;

•    if the insurer decided not to renew (outwith the policyholder’s control), cover for historical liabilities would evaporate; and

•    policies containing territorial exclusions would exclude employees who happened to be working abroad when the condition arose.

He concluded: ‘The natural inference to draw from the references to being engaged in the employer’s service and in work forming part of the employer’s business is that it was envisaged that the accident or disease would and should arise out of such service and work, rather than merely occurring during it’.

This conclusion, derived from a critical analysis of the policies themselves, provides a concise and elegant solution

The Dissenter

There was a note of disagreement from Lord Phillips, who took the view that even if the mesothelioma was caused during the currency of a policy, the policy need not respond because current mesothelioma jurisprudence entitles a claimant to damages for the creation of the risk of mesothelioma.  This ‘special rule’ should not be extended into the relationship between the policyholder and the insurer.  This view was fortunately rejected by the other four judges who chose to characterise the ‘special rule’ as one of causation only governing mesothelioma claims (as between employer and employee) and immaterial to the question of whether or not a policy should respond.

Unfinished business

In Bolton, it was held that mesothelioma does not ‘occur’ until the emergence of the first cancerous cell in the body -  ten years before symptoms are noticed.  In the Trigger Litigation, Burton J decided that ‘occurrence’ was at the point of no return for mesothelioma - five years before symptoms. The Supreme Court Judgment does not resolve this point, leaving uncertainty in PL cases.

Limitation

The first insurer to reject claims on the ‘Boltonite’ principle did so in May 2005, before the judgment in Bolton.  An insurer’s liability on the policies arises when a claim is settled or judgment given.  Practitioners handling cases which settled six years ago need to make claims on the policy as soon as possible.  Unpaid claims pre-dating March 2006 are already time-barred.