The Supreme Court has handed down its decision in the Employers’ Liability Insurance Trigger Litigation (see judgment here). The ruling has provided clear rules governing how EL policies should respond to mesothelioma claims.

The Supreme Court has ruled that employers’ liability (EL) policies that are expressed to indemnify in respect of injury “sustained” or “contracted” during the period of the policy should respond to mesothelioma claims in the same way as policies expressed to indemnify in respect of injury “caused” during the policy period. The consequence is that all EL policies will respond on an “exposure basis”; in other words, it is the policies in force during the period of exposure that are triggered. EL policies are not triggered by the development of the disease decades after exposure. In reaching this conclusion, the Supreme Court has overturned the Court of Appeal’s ruling (please see our previous blog here) in relation to the meaning of “sustained”.

The Court took a broad look at the EL policies and found that reading the contracts in their entirety gave considerable insight into their scope, purpose and proper interpretation. The Court referred to the Supreme Court’s decision in Rainy Sky SA v Kookmin Bank ([2011] UKSC 50) and to the importance of the principle that where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation that is most consistent with business common sense.

Most EL policies contain the “caused” language, but a significant minority contain the “sustained” or “contracted” wording. For decades before the EL Trigger test cases began, all EL insurers had indemnified claims on an “exposure basis” whatever the precise wording in the policy. The ruling will reinstate that uniformity and provides certainty.

The Court also considered EL policies in the context of the Fairchild principle. In Fairchild v Glenhaven Funeral Services ([2002] UKHL 22) and Barker v Corus ([2006] UKHL 20)  the House of Lords developed a relaxation of the rule of causation in the case of mesothelioma. A special rule was created such that a victim could establish causation against any party who had tortiously exposed him to an extent where that exposure may have caused the mesothelioma. The Supreme Court ruled that where the liability of the insured employer to the victim is established according to the Fairchild rule, that is enough to establish for the purposes of EL insurance that the disease was “caused” during the insurance period.

The Court made clear that the EL Trigger decision does not affect the construction of public liability (PL) policies. Those policies continue to be governed by the Court of Appeal’s decision in Bolton v Municipal Mutual Insurance ([2006] EWCA Civ 50) regarding the meaning of “injury occurring” in the context of a mesothelioma claim. In Bolton the Court of Appeal ruled that for the purposes of PL policies, injury occurs at the earliest when the malignant tumour is first created (the onset of malignancy).

When the EL Trigger cases were being considered by the Court of Appeal, Lord Justice Rix had indicated that he would like to have ruled that the damage, in the case of mesothelioma, is the inhalation of asbestos fibres during exposure, although he had accepted that this course was not open to him because he was bound by the decision in Bolton. The Supreme Court was at pains to reject Rix LJ’s suggestion. The Court emphasised that the exposure and the risk of developing the disease are not by themselves damage in any sense known to the law. Only when the disease develops does the victim incur damage which is legally relevant. No cause of action at all exists unless and until mesothelioma develops. In doing so, the Court appears to have quashed the idea that the Fairchild rule recognises or has established a new cause of action, namely that of creating a risk of mesothelioma by exposing a person to asbestos.

The Supreme Court’s decision resolves how EL insurers should indemnify mesothelioma claims. However, as noted in our blog here, the EL trigger issue is only one among many issues which reinsurers must consider when UK asbestos losses are presented to reinsurance programmes. The Supreme Court’s decision has, if anything, highlighted that EL policies are to be interpreted in the light of their own commercial purpose. None of the factors found by the Supreme Court to be important to the construction of EL policies appears to be of any relevance to reinsurance contracts, and, in particular, to the construction of the various forms of reinsurance trigger wording.