TRIGGER - BAI (Run Off) Limited (In Scheme of Arrangement) v Durham

Employers’ liability policies covering disease “sustained” or “contracted” during the insurance period respond when the process leading to a long-tail industrial disease is initiated by wrongful exposure during that period. The policy wording must be read as a whole, in its commercial and statutory context. It is not confined to disease developing or becoming manifest during the policy period.

Where negligent exposure to asbestos materially increases the risk of mesothelioma and the employee later develops that disease, the special rule of causation supplies a sufficient causal connection for the employer’s liability to fall within such cover. Exposure or increased risk alone is not actionable damage. The disease must develop.

These conjoined appeals concerned historic employers’ liability policies issued by BAI, Excess, Independent and Municipal Mutual Insurance. Employers and the representatives of employees sought indemnity for liabilities arising from mesothelioma following exposure to asbestos during the relevant policy periods.

Burton J held that all the policies responded by reference to exposure: [2008] EWHC 2692 (QB). The Court of Appeal, by a majority, held that policies covering disease “contracted” operated on that basis, but that policies using only “sustained” responded when disease occurred or became manifest: [2010] EWCA Civ 1096. Smith LJ would have upheld Burton J in full.

The Supreme Court considered whether either form of wording covered disease initiated by wrongful exposure during the policy period and whether the special causation rule governing mesothelioma supplied the causal connection required by the policies.

1. Disposition. The insurers’ appeals concerning policies with “contracted” wording were dismissed. The appeals against insurers concerning “sustained” wording were allowed, and Independent’s appeal was dismissed. Lord Mance gave the leading judgment, with which Lord Kerr agreed. Lord Clarke and Lord Dyson agreed with Lord Mance. Lord Phillips agreed on construction but dissented on the causation issue.

2. The words “sustained” and “contracted” had to be interpreted within each policy as a whole and in its commercial setting. The policies tied premiums, insured employees and covered activities to employment during the insurance period. An interpretation limited to disease developing or manifesting during that period would create serious gaps in cover for long-tail disease. Both forms of wording therefore looked to the initiation or causation of disease by wrongful exposure during the policy period: per Lord Mance at [18]–[28], [49]–[50]; Lord Clarke at [76]; Lord Phillips at [99].

3. The Employers’ Liability (Compulsory Insurance) Act 1969 required insurance on a causation basis. Its protective purpose was to ensure that liabilities arising from employment activities during the insured period remained covered if injury or disease developed later. Post-commencement policies should, where possible, be construed consistently with that obligation: per Lord Mance at [42]–[47], [50].

4. The public-liability decision in Bolton MBC v Municipal Mutual Insurance Ltd did not govern these employers’ liability policies. Their terms, statutory background and commercial purpose were materially different. The court expressed no view on whether Bolton was correct for public-liability insurance: per Lord Mance at [48].

5. Exposure to asbestos, or the resulting risk, is not itself actionable injury. A cause of action arises only when mesothelioma develops. Nevertheless, the Fairchild-Barker rule imposes responsibility for the disease where a defendant’s breach materially increased its risk. That rule supplies the “weak” or “broad” causal link required by the policies between exposure during the insurance period and the subsequently developing mesothelioma: per Lord Mance at [52], [64]–[74]; Lord Clarke at [77]–[88]; Lord Dyson at [90].

6. Lord Phillips dissented on the last point. In his view, the majority reasoning in Barker made defendants liable for creating risk without deeming them to have caused the disease. The special rule therefore did not identify the policy year in which mesothelioma was initiated, and any further alteration should be made by Parliament: [115]–[137].

1. United Kingdom Supreme Court: The insurers’ appeals concerning “contracted” wording were dismissed. Appeals against insurers concerning “sustained” wording were allowed, and Independent’s appeal was dismissed: [2012] UKSC 14.
2. Court of Appeal: By a majority, the court upheld exposure-based cover for policies using “contracted”, but held that policies using “sustained” responded on an occurrence or manifestation basis. Smith LJ would have upheld the first-instance judgment in full: [2010] EWCA Civ 1096.
3. High Court: Burton J held that all the relevant policies responded on an exposure basis: [2008] EWHC 2692 (QB).