Durham v BAI (Run Off) Ltd

Employers’ liability policies containing wording such as “injury sustained” or “disease contracted” are construed, in their employment-insurance context, as responding to injury or disease caused by exposure during the policy period. In mesothelioma cases, the relevant trigger is therefore the period when the employee inhaled asbestos fibres, rather than the later development of the tumour.

The court held that inhalation, bodily defence mechanisms, microscopic cellular changes and increased risk did not themselves constitute bodily injury or disease. Even if injury had existed at inhalation, it would have needed to be actionable then to trigger cover under an injury-in-fact construction. Industry practice did not amount to a binding usage. A Court of Appeal decision concerning public liability insurance did not determine the construction of the materially different employers’ liability policies.

The judgment determined six consolidated specimen actions concerning the trigger for employers’ liability insurance in asbestos-related mesothelioma claims. Employees, solvent employers and insurers disputed whether cover attached under policies in force when asbestos was inhaled or only under cover existing when the tumour developed.

The dispute followed the Court of Appeal’s decision in Bolton MBC v Municipal Mutual Insurance Ltd, [2006] 1 WLR 1492, concerning a public liability policy. The court also considered whether industry practice created a binding usage, whether the policies should be construed against their factual and commercial background, and whether estoppel or warranty principles assisted certain local authorities and Zurich.

1. Outcome. Actions 1 to 5 succeeded against the relevant insurers. Action 6 failed as brought by MMI; MMI, rather than Zurich, was liable under the relevant MMI wordings, subject to Zurich’s accepted liability under its First Select policy. Declarations were also granted in the specific Newham and Middlesbrough cases.
2. On the medical evidence, inhalation of asbestos fibres, the body’s ordinary defensive reactions, fibre penetration, cellular mutations and increased risk did not constitute bodily or personal injury. The victims did not have mesothelioma, or any disease, at the date of inhalation. Risk was not injury. The court therefore rejected the claim that the later tumour could be treated retrospectively as injury existing at exposure.
3. Even if non-actionable injury had existed at inhalation, the court would have held that an injury-in-fact construction required actionability during the policy period. The employer’s liability and the insurer’s indemnity depended on an actionable injury, although a causation-based policy required only that the later actionable injury had been caused during the policy period.
4. The policies were ambiguous when read against the position of ex-employees and the historical operation of employers’ liability insurance. Applying ordinary meaning, commercial purpose, the factual matrix and the policy of continuity of cover reflected in the Employers’ Liability (Compulsory Insurance) Act 1969, “sustained” and “contracted” were construed as meaning “caused”, where the context required. The policies therefore responded to mesothelioma caused by asbestos exposure during the insured employment, regardless of when the tumour became manifest.
5. The industry’s practice of paying disease claims by reference to exposure did not constitute a binding custom or usage, because it lacked the necessary certainty and legal obligatoriness. The Court of Appeal decision in Bolton MBC v Municipal Mutual Insurance Ltd was confined to public liability insurance and did not require a different construction of the employers’ liability wordings.
6. As an alternative, if a policy had been construed as an injury-in-fact policy, the court considered that the starting point for injury or disease in mesothelioma cases would be five years before diagnosability, subject to case-specific evidence. That conclusion was obiter.
7. MMI’s general estoppel arguments failed. However, specific communications to Middlesbrough and Newham warranted that their employers’ liability policies would operate for asbestos-exposure claims. The relevant councils were entitled to recover under those policies if liability to employees was established.

First-instance determination of six consolidated specimen actions. The judgment considered, but did not overturn, the Court of Appeal decision in Bolton MBC v Municipal Mutual Insurance Ltd, [2006] 1 WLR 1492.