EL Trigger Court of Appeal impact

Appeal to Supreme Court

Zurich is very concerned that the Court of Appeal has not followed completely the 2008 decision of the High Court, which was consistent with the way Zurich has always handled industrial disease claims.

Zurich will continue to fight for policies to be interpreted on a traditional or conventional basis, as a number of employers won’t have insurance and victims and their families won’t get compensation. That is clearly not acceptable for Zurich, its customers or the insurance market and we are pleased to have been granted permission to appeal to The Supreme Court.
The provisional date to file the grounds of appeal is 14 January. Based on that timescale it is hoped a decision will be reached by the Supreme Court in the 2011-12 financial year.

Court of Appeal outcome

The Court of Appeal judges took divergent approaches. However, the following principles emerge:

• Where the wording used is ‘sustained’, the policy that responds is the one in force when the tumour starts to develop
• Where the wording used is ‘contracted’ (that is synonymous with the word ‘caused’) the policy in force at the time of exposure responds.

The effect of this is:

• MMI has succeeded in its argument on policies with a sustained wording only up to 1974, as those policies are not triggered by exposure
• Zurich wins on the MMI policy with a sustained and contracted wording issued 1974-92 as it is deemed to be on a causation or exposure basis
• The post-MMI Zurich policy issued 1992 with a sustained wording only (changed to causation in 1998) is not triggered by exposure.

Court of Appeal impact

The Court of Appeal has also ruled that in respect of a number of the policies under examination the wording is such that disease has to be sustained not only during the policy period but also during the period of employment. In other words, the individual has to be a current employee (of the Policyholder) when the mesothelioma is sustained for the policy to operate.

As it is well recognised that there is a long latency period of up to 40 years between exposure and manifestation it is most unlikely that an individual will still be in the policyholder’s employment when the disease is sustained. This is a result in direct conflict with the finding on the commercial purpose of the insurance contract.

Public authorities will worry they may now have to make provision for exposure prior to 1974 (due to the MMI wording); however, Zurich will continue to apply ‘causation’ interpretation to sustained worded policies, ZM ‘Select’ (1992-98) policies.

However, as it is highly anticipated that there will be wide spread applications for appeal, the current situation on claims handling is likely to remain until final determination by The Supreme Court; effectively, business as usual. This has been confirmed by MMI in respect of their claims. They will continue to offer to handle mesothelioma claims (accepting claims even if the exposure is all or in part pre-1974 policy 'contracted' wording) and make payments, subject to written agreement from customers. This includes: that in the event MMI finally win, the monies expended will be repaid and they will not seek repayment on any cases already paid, involving pre-1974 exposure at this stage, leaving the position unchanged until finalisation.

Background

In 2006 MMI won its argument in a case known as Bolton MBC v MMI. While it was a public liability case, it was held that a mesothelioma victim sustains injury for the first time when the tumour starts to develop, 10 years before the manifestation of symptoms. Following that judgement MMI and other run-off EL insurers started to use the same interpretation, as their policy wording was very similar. Their interpretation is that the policies only respond if the injury was sustained or contracted during the term of the policy.

Prior to 2006 insurers had always taken the view that EL policies responded on a causation basis and not a sustained basis. Therefore policies would respond if the injuries resulted from exposure during the currency of a policy. To put another way: whether the insurers liable to meet mesothelioma claims are those who insured the employers at the time of the employee’s asbestos exposure, (the date of inhalation), or those (if any) who insured the employer (if the employer was still in business) up to 40 or more years later, when the tumour develops. In 2008 the High Court ruled that this historical interpretation was correct, following six test cases, including MMI –v- Zurich.   These actions covered nine different policy wordings, all essentially the same, and referring to sustaining injury or contracting disease, rather than having the traditional causation trigger.

The Judgment ruled in favour of Zurich and other “claimants”. Accepting the commercial purpose of the contracts, the Judge found that on the key issue of construction, and for the purpose of these policies, sustained = caused, and contracted = caused. As to when the injury occurs (in a PL context) separate from his finding above on sustained, the Judge took the view on the medical evidence, that this is five years prior, to what he calls, diagnosability. However, the run-off insurers challenged that decision resulting in the judgement passed down on 8 October 2010.