Cape Distribution Ltd v Cape Intermediate Holdings Plc

A contractual indemnity is construed from its wording and context. Where it covers payment, satisfaction and discharge of liabilities, the cause of action generally arises when the liability is established or realised, not when the underlying claim is first made. The co-insurance principle prevents a liability insurer from pursuing a subrogated claim against a co-insured where the insured interests are inseparably connected and pervasive. In mesothelioma straddler cases, the Compensation Act 2006 requires full liability for the disease, so recovery against the co-insured is barred. For divisible disease and lung cancer claims, recovery is apportioned by the relevant exposure period. Defence costs covered by the policy are not apportioned merely because they also benefit uninsured periods. A party’s written consent to amendments may preclude a later limitation objection.

The judgment determined further issues arising from an earlier preliminary-issues judgment, [2016] EWHC 1119 (QB). The parties disputed the effect of section 7(3)(a) of the Civil Liability (Contribution) Act 1978, the treatment of employees exposed to asbestos before and after 25 November 1964, limitation under contractual indemnities in a sale agreement, and the operation of CPR 17.2.

The claims were brought by Cape Distribution Ltd, with Aviva PLC pursuing subrogated claims in its name, against Cape Intermediate Holdings Plc. The central questions concerned the scope of the co-insurance bar, the apportionment of liability and defence costs, the accrual of the indemnity claims, and the effect of consent to amended statements of case.

1. 1978 Act issue. In light of the earlier judgment and section 7(3)(a) of the Civil Liability (Contribution) Act 1978, CIH was precluded from claiming contribution from CDL in respect of liabilities for the same damage where CDL was entitled to contractual indemnities. Cross-claims or set-offs would affect the indemnity and were therefore barred.
2. Mesothelioma straddlers. The co-insurance bar was absolute. CIH’s interests were inseparably connected and pervasive with CDL’s because, under Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22, Durham v BAI (Run-off) Ltd [2012] UKSC 14, International Energy Group Ltd v Zurich Insurance plc [2015] UKSC 33 and section 3 of the Compensation Act 2006, exposure during the insured period could make CIH liable for the employee’s whole damage. Aviva therefore could not pursue a full subrogated claim against CIH in CDL’s name where there was any material post-25 November 1964 exposure.
3. Divisible disease and lung cancer. Liability was proportionate to the relevant exposure period. Aviva could recover only the pre-Endorsement proportion through CDL and could not recover the post-Endorsement proportion for which CIH was co-insured.
4. Defence costs. Defence costs were covered in full where reasonably related to insured claims. The principles in New Zealand Forest Products Ltd v New Zealand Insurance Co Ltd [1997] 1 WLR 1237, Thornton Springer v NEM Insurance Co Ltd [2000] Lloyd’s Rep IR 590 and International Energy Group Ltd v Zurich Insurance plc [2015] UKSC 33 applied. The costs were not apportioned merely because they related partly to periods before the Endorsement.
5. Limitation. The wording of both contractual indemnities meant that entitlement arose on establishment or realisation of liability by judgment, arbitral award or agreement, rather than on notification of the underlying claim. CIH had consented to the amendments which introduced the relevant claims and was therefore precluded from relying on its limitation defence.
6. CPR 17.2. CPR 17.2 applied where amendments had been made with written consent under CPR 17.1(2)(a), although any application would ordinarily need to be made promptly.

This was a further first-instance judgment following the preliminary-issues judgment of the High Court, [2016] EWHC 1119 (QB) . The judgment determined consequential and remaining issues; no appeal decision is stated.