Phillips v Syndicate 992 Gunner & Ors

An employer’s liability policy covering liability for disease caused by negligent exposure must be construed by reference to the legal liability established, including liability arising from a continuing breach of duty. A standard rateable-proportion clause applies to double insurance covering the same risk at the same time. It does not, without clear wording, permit an insurer to reduce its indemnity because other insurers covered different periods of exposure. A term allocating liability between successive policies will not be implied merely because it would be commercially convenient. Nor can later, intra-insurer practices establish a contractual custom binding insurers and insureds at the time of contracting.

The claimant, widow and executrix of Arthur Phillips, proceeded under the Third Parties (Rights against Insurers) Act 1930 against insurers of Kinkia Limited. Kinkia had admitted negligence and judgment had been entered by consent for £205,000 in respect of Mr Phillips’s mesothelioma. The defendants insured Kinkia during only part of his employment and exposure to asbestos.

The defendants contended that their liability should be reduced proportionately by reference to their nine-year period of cover. The issues were whether condition 6 of the employers’ liability policy applied to successive policies, whether a corresponding term should be implied, and whether custom or practice justified a reduction.

1. Disposition. The claimant was entitled to judgment. The defendants were contractually bound to indemnify Kinkia for the material contribution made by its continuing negligence during the period of their cover. They could not reduce their liability under the 1930 Act by reference to other periods of exposure.
2. Nature of the insured risk. The relevant risk was liability incurred through the employer’s breach of duty towards an employee. In this case the breach consisted of a continuing failure to protect the employee from asbestos fibres. Later developments in the law, including the approach in Fairchild v Glenhaven Funeral Services Limited [2002] 3 WLR 89, did not alter the contractual question. The question was whether the liability established fell within the scope of the insured risk. It did.
3. Condition 6. The standard rateable-proportion clause was directed to double insurance: two or more policies covering the same risk at the same time. Its language did not extend to successive policies covering different periods and different slices of a continuing breach. The fact that the policies might relate to the same overall liability did not make them cover the same liability for the purposes of the clause.
4. Implied term and custom. The contract did not require an implied rateable-proportion term to have business efficacy. Neither the traditional officious-bystander approach associated with The Moorcock nor the modern approach in Investors’ Compensation Scheme v West Bromwich Building Society [1998] 1 All ER 98 supported implication without necessity. The evidence of later arrangements between insurers did not establish a custom or practice binding insurers and insureds when the policies were made. It was also inadmissible insofar as it sought to vary or contradict the written indemnity.
5. Consequences. An insurer covering a period during which the employer made a material contribution to an indivisible disease was liable to indemnify the employer for the relevant liability in full. The law did not permit double recovery, but possible contribution between insurers did not reduce the contractual liability owed to the insured.

First-instance decision. No prior appellate decision is stated in the judgment.