International Energy Group Ltd v. Zurich Insurance Plc UK Branch [2013] EWCA Civ 39
Background Facts
IEG employed Mr. Carré for 27 years. During his employment, Mr. Carré was exposed to asbestos without adequate protection being provided. As a result, Mr. Carré contracted mesothelioma and died in 2008.
Zurich covered IEG for only six years out of the 27 years Mr. Carré was employed. The cover was in respect of any employee who “sustain any bodily injury […] caused during any period of insurance and arising out and in the course of employment” for “all sums for which [IEG] shall be liable.”
Zurich did not dispute the liability of IEG to Mr. Carré or the quantum of the claim. However, Zurich thought IEG were only due an indemnity limited to an aliquot share of IEG’s outlay based on the proportion of the period of Mr Carré’s exposure to asbestos by IEG for which Zurich were on risk.
In the first instance, the court found for Zurich. The issue of employer’s liability was governed by Guernsey law, to which the Compensation Act 2006 was inapplicable. Therefore, the court reverted to the common law principles enunciated in Fairchild v Glenhaven [2003] and Barker v Corus UK Ltd [2006]. The effect of Barker was to create a liability in tort, which was the increase of risk of contracting mesothelioma. Consequently, IEG’s liability in each policy year was for the amount they exposed Mr. Carré to the risk of contracting mesothelioma. IEG appealed the decision.
The Appeal
The High Court decision was reached without the benefit of the more recent Supreme Court decision in Durham v BAI (Run Off) Ltd [2012] (the “trigger litigation”). The trigger litigation looked at causation further and established a principle of causal requirement whereby “for the purpose of the insurances, liability for mesothelioma following upon exposure to asbestos created during an insurance period involves a sufficient “weak” or “broad” causal link for the disease to be regarded as “caused” within the insurance period.”
The Court of Appeal held that the insurer and its insured entered into a contractual relationship whereby, if the insurance was triggered, IEG would then be entitled to be indemnified for “all sums for which [IEG] shall be liable.” In other words, IEG had a right to a full indemnity from Zurich if the policy responded, regardless of there being other long periods of exposure during which Zurich were not on risk. This right emanated from the wording of the policy and from ordinary principles of insurance law.
The effects of Fairchild and the trigger litigation created a sufficient causal link to establish trigger of the Zurich policy. Therefore, IEG would be entitled to be indemnified for the whole of the damages paid out by them in respect of Mr. Carré’s claim and “not just a proportion worked out by reference to the period during which [the insured] was covered by policies for which [the insurer] is responsible.” Further, the Court of Appeal stated that
to withhold part of that indemnity from the employer on account of its conduct in other years would be to deprive the employer of insurance coverage for which it paid.
Impact: This is a key decision because it sets out that a solvent insured can expect to be indemnified fully by its insurer, even though that insurer provided cover for a very short period of time compared to the whole exposure history. This may, in turn, have an impact on how, say, insurers could present asbestos claims to their reinsurers, particularly bearing in mind the words of Aikens LJ that the insurer is liable to pay the whole of the damages and “not just a proportion worked out by reference to the period during which [the insured] was covered by policies for which [the insurer] is responsible.” Advocates of “spiking” of asbestos reinsurance presentations will take heart from these words.