Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd. & Anor

Introduction

Mrs Green began proceedings in February 1994 on behalf of his estate and on her own behalf against Bolton and against CME. These defendants settled those proceedings by each paying half of £160,000 which was the sum which Mrs Green was willing to accept. Bolton now seeks to recover the amount it has paid and consequential costs from its public liability insurers on risk at the time when, according to Bolton, it incurred its liability to Mr Green which, they say, was in 1980 when Mr Green’s mesothelioma occurred. Those insurers are Municipal Mutual Insurance Ltd (“MMI”). They deny liability and say that, if any insurer is liable, it is Bolton’s insurer at the time when Mr Green was exposed to the inhalation of dust. As a result of MMI’s contentions Bolton have joined, as Second Defendants to the proceedings, the successors in title to the public liability insurers who provided public liability cover when Mr Green was working on their premises between 1960 and 1963 viz Commercial Union Assurance Co Ltd (“CU”). MMI has thus raised an issue of considerable importance to public liability insurers, given the prevalence of claims for asbestos related diseases. CU and Bolton have had little choice but to respond appropriately.

At the outset of his address, Mr Michael Harvey QC for CU drew attention to the fact that the contest in the present case was not a contest between employers’ liability insurers (since Bolton never employed Mr Green) but between public liability insurers and, to this extent, was an unusual dispute. The significance of this observation was said to be that, while employers’ liability insurers usually offered cover in respect of

“injuries caused during the period of insurance”

and would thus, at any rate arguably, offer cover at the time when an employee was exposed to the inhalation of asbestos fibres, public liability insurers usually offered cover in respect of

“injuries occurring during the period of insurance”.

This, Mr Harvey submitted, was significantly different wording, which meant that, in the case of asbestos-related diseases which only eventuated a long time after initial exposure, it was the insurer at risk at the time the disease began who had to indemnify Bolton in respect of their liability, not the insurer at risk at the time of exposure. Needless to say the wordings of the two policies at issue in this appeal differ somewhat and it is now necessary to set them out.

The policies

The insuring clause of the public liability policy, for which CU is now responsible, provides, so far as relevant:-

“. . . . the Company will indemnify the Insured against

(A)

All sums which the Insured shall become legally liable to pay for compensation in respect of

(1)

bodily injury to or illness of any person

(2)

loss of or damage to property

occurring within Great Britain Ireland Northern Ireland the Channel Islands or the Isle of Man during the Period of Indemnity as a result of an accident and happening or caused as described in the Schedule under the heading of Description of Risk”.

Forty-three years later no trace of this Schedule can now be found.

“(B)

All costs and expenses of litigation

(1)

recovered by any claimant against the Insured

(2)

incurred with the written consent of the Company

in respect of a claim against the Insured for compensation to which the indemnity expressed in this Policy applies”.

The indemnity is subject to an Exception whose purpose, and effect, are to do what the MMI policy does by words within the insuring clause – viz, to exclude liability for employers’ liability risks. The policy contains two other important Conditions:-

“1.

The Insured shall give written notice to the Head Office or Branch Office of the Company of any accident or claim or proceedings immediately the same shall have come to the knowledge of the Insured or his representative

. . . . . . . . . . . . . .

10.

The due observance and fulfilment of the terms provisions conditions and endorsements of this Policy by the Insured in so far as they relate to anything to be done or complied with by him . . . . shall be conditions precedent to any liability of the Company to make any payment under this Policy.”

The judgment

Aetiology of mesothelioma

The human body is composed of cells of various types. Of the fibres which reach the lungs many are engulfed by macrophages (scavenger cells). The macrophages may then be expelled by the mucosiliary process or may die within the lungs. All cells can and do die for various reasons, but cells are in communication with each other and the death of one can cause another to divide so, with some exceptions such as men losing their hair with age, the number of cells remains approximately the same throughout a person’s life. When macrophages die in the lungs they release various chemicals, some of which attract neutrophils, another type of cell, which can engulf fibres. A different mechanism which destroys fibres in the lungs is that they are dissolved in tissue fluids. Another mechanism, by which the body protects itself, is that some fibres become coated by proteinaceous material containing iron which, it is believed, renders them less likely to produce fibrosis.

The division of cells in human tissue is important for understanding how mesothelioma occurs. Each cell in the body contains all the genetic information necessary for the construction and functioning of the entire body. This information is contained in the form of DNA, a molecule consisting of two intertwining strands. The different structure and function of the various types of cell in the body occurs because in each cell only some of the genes contained in the DNA are active and in different cells different genes are active. The coded information in a DNA molecule is in the form of about 3,000,000,000 “base pairs”. Each pair consists of two collections of atoms called nucleotides. There is one half of each pair in each of the two intertwining strands. When cell division occurs the strands unravel and two “daughter” double helices are created. Normally the daughters are identical with each other but sometimes they are not. Dr Rudd uses the word “mutation” for an imperfect copy. This word “mutation” thus means a thing – a cell – and not a process, and is not a synonym of “change”; for change Dr Rudd uses the term “generic alteration”. I shall adopt this usage. The word “mutation” does not have any derogatory connotations. A mutation is different from, but not necessarily worse than, the cell from which it is derived or otherwise undesirable. The body contains what can be described as a “repair mechanism” which sometimes corrects the discrepancy between a daughter and its parent. This repair mechanism is vital to normal health, and people whose repair system lacks some components (a very rare condition) will die early, often of cancer. Sometimes, however, a perfectly normal repair and correction mechanism fails to correct a mutation. Such failure can lead to any of three possibilities. First, the mutation may be unable to survive and die. Secondly it may be better fitted for its purpose than the cell from which it is derived, and this is the cause of evolution. As Dr Moore-Gillon put it “Without the normal process of imperfect copying, mankind (and indeed all other species) would not have emerged”.

It is the third possibility with which this case is concerned. A mutation which does not die, which is not repaired and which does not perform its purpose better than the cell from which it was derived may itself divide, and the “daughter” cells or (to continue the parental analogy) the grand-daughter or more distant descendants may in turn die, be repaired or be mutations from the cell from which they are derived. Eventually there may be a mutation which is malignant, ie a cell which divides in an uncontrolled manner, as opposed to maintaining the normal balance between cells dying and cells dividing. It normally takes a “heredity” of six or seven genetic alterations before a malignant cell occurs. The body has Natural Killer cells which, as their name indicates, can target and destroy mutations, possibly even after they have become malignant. A tumour is a growth consisting of a number of cells dividing in that uncontrolled manner. Mesothelioma is a tumour in the pleura. (Etymologically it is a tumour of the mesothelium, the middle part of the soft and tender tissue between the visceral and the parietal parts of the pleura otherwise known as, respectively, the endothelium and the epithelium, all of which appear to derive, surprisingly, from what might be said to be the tenderest part of a woman’s anatomy — or nipple.)

Asbestos fibres in the pleura increase the likelihood of genetic mutation. It is now thought likely that, if there is a series of genetic alterations which ends with a malignant cell in the pleura, fibres will have acted in causing several of those genetic alterations, rather than just one genetic alteration. However the final genetic alteration which results in a malignant cell is not necessarily caused by fibres directly. Fibres may also inhibit the activity of Natural Killer cells. Pre-cancerous genetic alterations in cells do not give rise to any symptoms or signs. They cannot be detected by any routine clinical or radiological examination. It would be possible to detect them by examining in a laboratory tissue taken from a part of the body containing cells which have become genetically modified, but the exercise would be pointless because pre-cancerous genetic alterations do not necessarily or even usually lead to mesothelioma.

It is furthermore important to note that there may be a long time lapse not only between exposure and the first formation of a malignant cell but that there may be a similarly lengthy lapse of time between first malignancy and the onset of noticeable symptoms such as breathlessness. In the present case it is thought that malignancy did not occur until 1980 and a further 10 years elapsed before Mr Green became symptomatic. Since MMI were on cover after 1979, there is no distinction for the purposes of this appeal between the onset of malignancy and the onset of symptoms or, indeed, between the onset of symptoms and diagnosis of the disease.

MMI’s liability: (1) Timing

MMI’s liability: (2) “Accidental Injury”

This argument is, in my judgment, inconsistent both with principle and authority. It is inconsistent with principle because the contract between the parties is an agreement to indemnify against liability. It cannot be right that, at the stage of initial exposure or initial bodily reaction to such exposure, there could be a liability on the part of Bolton in respect of which they could require to be indemnified under any public liability insurance policy. Mr Green could not have sued for personal injury at that stage because he had suffered no injury at that stage. The indemnity which Bolton are seeking is an indemnity against their liability for their share in the sum of £160,000 which was ultimately paid to Mrs Green. Mr Green could not conceivably have recovered £160,000 (or £80,000 as Bolton’s portion was ultimately agreed to be) in the early 1960s when he was first exposed to asbestos and his body was, at that time, successfully dealing with the fibres which he was inhaling. He was at that stage a well man, not suffering from any injury at all.

As far as authority is concerned it is well accepted in the general law that words such as “injury” or “damage” in indemnity agreements do not include injury or damage which will happen in the future, see Promet Engineering v Sturge (The Nukila) [1997] 2 Lloyds Rep 146, 157 per Hobhouse LJ. Following the decision of the House of Lords in Arnold v CEGB [1988] 1 AC 228, which decided that the beneficial limitation provisions enacted after Cartledge v Jopling [1963] AC 758 did not apply to causes of action which had already accrued by 4th June 1954, there were a number of cases which had to consider whether a claimant had suffered damage from asbestos-related diseases before that date. In Keenen v Miller Insulation & Engineering Ltd (unreported) 8th December 1987 Mr Piers Ashworth QC, sitting as a deputy judge of the High Court, held that a claimant’s cause of action for lung fibrosis did not arise at the time he was exposed to asbestos between August 1952 and May 1953 because at that stage he had not suffered physical injury by May 1953. Basing himself on the evidence of Dr Rudd he held (pages 5 – 7) that for a long time after exposure the defence mechanisms of the body held their own and only became exhausted after a period of equilibrium which lasted well after 4th June 1954, the relevant date for limitation. Likewise McCullough J in Guidera v NEI Projects (India) Ltd (unreported) 17th November 1988 held that a claimant who was exposed to asbestos in 1952 and 1953 and was later diagnosed with asbestosis had suffered no injury by 4th June 1954 because physical injury would not occur for at least 5 (and more likely 10 – 20) years after exposure. He said (page 9) that destruction of cells by macrophages or neurophils was not damage or injury for the purpose of creating a cause of action since destruction of cells in this way was a natural incident of daily life. He held that this was so even on the basis that the claimant would, inevitably, suffer from asbestosis once exposure had begun. Similarly McNeill J held in McCaul v Elias Wild (unreported) 14th September 1989 that a claimant who suffered pleural thickening from inhalation of asbestos fibres in 1943 – 1950 suffered no actionable injury until about 1985, when he first experienced breathlessness. He expressly followed Keenen’s case acknowledging the wide and well-recognised experience of the deputy judge in that case in the field of industrial disease.

A similar question arose in Jameson v CEGB (unreported) 10th March 1995 which was actually a mesothelioma case. CEGB had provided a contractual indemnity in respect of damage or injury occurring before building works were taken over by a client in 1960. The question was whether a workman who died from mesothelioma well after 1960 but was exposed during the building work before 1960 had suffered damage or injury before 1960. Tudor Evans J held that the evidence did not establish even that minimal microscopic changes had occurred before 1960 and that the damage or injury occurred many years after the deceased had finished working.

Although it can be said that all these cases depended on the medical evidence given to the court, the evidence (often given by Dr Rudd) was to much the same effect as that summarised in this judgment. These cases have established a pattern at first instance to the effect that actionable injury does not occur on exposure or on initial bodily changes happening at that time but only at a much later date; whether that is when a malignant tumour is first created or when identifiable symptoms first occur does not matter for the purposes of this case. I would hold that these earlier cases were correctly decided and that injury cannot be equated to the “insult” received by the body when exposure first occurs.

Lastly under this head, Mr Palmer relied on the word “accidental”; he accepted that asbestos related disease could be said to be accidental but submitted that the phrase “accidental bodily injury” meant that the bodily injury had to occur at the same time as the “accident” which was the exposure; the bodily injury must thus be what happened at the time of exposure. But the proximity of the word “accidental” to “bodily injury” does not mean that both the accident and the injury have to be within the currency of the policy. It is enough if the injury (properly understood) occurs within the currency of the policy and that it be caused accidentally, as from the point of view of both Mr Green and Bolton, it undoubtedly was.

MMI’s liability: (3) Exclusions for injury to employees or outside Great Britain

The geographical point is similar and, in any event, only arises in respect of injury or illness occurring on or after 1st October 1991. An endorsement of that date provides that, in respect of such injury or illness, MMI will only be liable where the illness or injury “occurs within Great Britain Northern Ireland the Isle of Man and the Channel Islands”. It is said that this shows that the insurance contract has regard to an exposure and not to any subsequent injury or symptoms since it is British exposure to asbestos fibres that is intended to be covered not foreign exposure which results in injury symptoms occurring in Britain. If this is the right construction of the geographical limitation of the endorsement to the policy, it does not, in my view, mean that the policy is only intended to apply when the party, in respect of whose claim indemnity is being sought, has been exposed during the currency of the policy. That would be to let the tail of the endorsement wag the main insuring clause of the policy. But the endorsement is, in any event, couched in significantly different terms from the terms of the insuring clause. It applies

“In respect of injury, illness, loss or damage the cause of which occurs”

on or after 1st October 1991. The cause of the injury does look to the exposure of the claimant to asbestos; it is thus easy to construe the endorsement as relating to exposure within Great Britain; but the insuring clause refers only to accidental bodily injury occurring during the currency of the policy not the cause of such injury so occurring.

It follows therefore that, unless MMI can rely on condition 6 of their policy and say that CU is liable, MMI are liable to indemnify Bolton. I therefore turn to CU’s potential liability.

CU’s liability: (1) Bodily injury

What Mr Palmer did argue, however, was that English law should follow decisions in other jurisdictions. It is well-known that there are decisions in the United States, stemming from Keene Corporation v Insurance Co of North America 667 F 2d 1034 (1981), which have decided that all insurers at risk from the time of first exposure to the diagnosis of disease should be liable to the insured. I am far from saying that what has been called this multiple trigger or, sometimes, triple trigger theory (exposure, development of disease, and diagnosis) might not be held, on some future occasion, to be appropriate for employers’ liability policies in general, depending on the precise words used. But, as far as public liability policies are concerned with the specific wording used in the present cases, I see no need for the English courts to adopt the multiple trigger theory. It has been adopted in the United States avowedly for policy reasons in relation to the vastly greater numbers of asbestos-disease sufferers in that country. I see no reason to adopt it in this particular case where the same policy considerations are not present.

Reference was also made to Orica Ltd v CGU Insurance Ltd [2003] NSWCA 331 but that was a case where the terms of the policy were governed by a particular statute (the Workers Compensation Act 1926) and the insured’s liability had to arise during the relevant period. It is not, therefore, directly analogous to the present case and, in any event, Spigelman CJ (with whom Mason P agreed) merely said (para 28) that “for present purposes” he accepted that there “may” be injury at the time of inhalation. The case is too different to be of assistance.

It, therefore, follows that when Bolton’s liability to Mr Green arose there was no other insurance applicable to Bolton’s claim and condition 6 of MMI’s policy, providing for MMI to be liable only for the excess beyond the amount payable under such other insurance, has no effect on Bolton’s claim against MMI. It also follows, of course, that Bolton have no claim against CU and the judge was thus correct to dismiss the proceedings against them. It further follows that MMI’s appeal against the judgment fails and Bolton’s contingent appeal against CU must also fail. Both these appeals will, therefore, be dismissed. The only live further appeal is thus Bolton’s appeal against the judge’s order for costs. Other matters were, however, argued with which I should shortly deal.

CU’s condition precedent in relation to notification; election

The judge set out his conclusions on this matter in paragraph 41 of his judgment:

(1)

Bolton were “guilty” (as the judge put it) of late notification;

(2)

CU were, therefore, entitled to refuse indemnity;

(3)

CU knew that they had the right to refuse indemnity;

(4)

CU’s words and conduct were such as to convey to a reasonable insured that it was electing not to refuse indemnity on the grounds of late notification but instead to refuse indemnity on the ground that the policy did not cover the liability which had been incurred;

(5)

CU did not, however, exercise a choice between inconsistent courses; since that was a requirement of election, CU had made no election by which they were bound. CU as the judge put it

“merely left late notification ‘in the air’ and gave policy cover as a reason for doing something – refusing indemnity – which it might have done on the ground of notification or on both grounds.”

Mr Bartley Jones QC for Bolton submitted that headings (4) and (5) were inconsistent. How could notification have been ‘left in the air’ if a reasonable insured would have understood that CU were electing not to rely on late notification? This submission has considerable force and the holdings do not, with respect to the judge, sit well with each other as findings of fact. But the judge was, I think, really saying that, as a legal doctrine, the doctrine of election only arises when a defendant is facing two inconsistent rights or remedies. In those circumstances he has to elect to do one and elect not to do the other. The judge’s final decision was that the courses open to CU were not inconsistent with each other and, therefore, the doctrine of election did not apply. Was the judge right in law so to hold?

Mr Bartley Jones submitted that the judge was wrong to hold that waiver by election only applied when there was a choice between inconsistent courses,. Alternatively he submitted that the choices facing CU were in truth inconsistent. In my judgment these submissions are incorrect.

The law

The possible courses of action

Mr Bartley Jones, lastly, relied on Spencer Bower, Estoppel By Representat-ion 4th ed para X.3.31 in the following terms

“Waiver by election Where the insured fails to comply with a procedural condition but with knowledge of this fact and of the right to reject the claim the insurer chooses not to reject the claim and communicates that decision to the insured either by word or conduct, the insurer will be bound by that decision . . . . . Further, if the insurer rejects the claim on specific grounds but chooses not to take the point that the insured has committed a breach of a procedural condition, this may also amount to a waiver by election.”

The first sentence of this citation is unexceptional and is consistent with paragraph 32 above but the last sentence is unsupported by authority and is, in my judgment, inconsistent with the cases cited in paragraph 31 above. The editors cautiously use the word “may” and, of course, if the claimant has in some way relied on the defendant’s conduct, there could be a waiver by estoppel. But that is not the same as waiver by election the doctrine with which the sub-paragraph is concerned. I would myself prefer Professor Malcolm Clarke’s formulation in paragraph 26-4(c) of his Law of Insurance Contracts

“Inferences from Rejection If the insurer rejects the claim altogether on another ground such as lack of cover, the insurer does not thereby waive the possibility of pleading a breach of condition at a later stage, if that breach occurred prior to the rejection of the claim.”

Professor Clarke cites Welch v Royal Exchange Assurance [1939] 1 KB 294. Spencer Bower rightly says that that case is by no means clear authority for the proposition but, in my judgment, the proposition as set out by Professor Clarke is consistent with principle and is correct in the absence of any reliance or detriment on the part of the claimant. The 10th ed of MacGillivray, Insurance Law (2003) para. 19-45 is to the same effect.

Thus, although Bolton’s failure to comply with the requirement of immediate notification is, in the circumstances of this case, entirely understandable, CU nevertheless can rely on the failure as an additional defence to Bolton’s alternative claim against them.

Condition 6 of the MMI policy

Contribution?

I would only say that, for my part, I prefer the reasoning of the Privy Council for the reasons given by Lord Woolf in tendering the Board’s Advice. An insurer is entitled to say that he has only agreed to issue on certain terms and he ought to be able to rely on that position not only against his insured but also as against a co-insurer. Indeed it is hardly a case of double insurance at all if one insurer agrees to be liable without imposing any condition precedent to liability in relation to a notice requirement and another insurer says he will only be liable if due notice of accident or claim has been given.

I note that Mr Richard Siberry QC sitting as a Deputy Judge of the Commercial Court in O’Kane v Jones [2004] 1 Lloyds Rep 389 would have preferred Legal and General to Eagle Star (if he had not thought that, in any event, he was bound by Legal and General) but that was a case of consensual post-loss cancellation (or commutation). As the Deputy Judge observed (page 430, paras. 201-202) a case where the co-insurer was himself a party to an arrangement which, after loss, relieved him from liability to his insured is very different from a case in which the co-insured relies on a term of the contract which existed at the time of the loss.

Bolton’s appeal on costs

The judge, adopting the first approach, said that the most important factor in the case was that CU succeeded on a condition precedent point which arose as between itself and Bolton only; MMI were not involved in the rights and wrongs of that at all and it was fatal to the claim against CU. He then stated his conclusion as follows:-

“I have reached the conclusion that the Second Defendant should have its costs from the Claimant because that follows the event as between Claimant and Second Defendant, but that the First Defendant should put its hand in its pocket, whether legalistically in relation to a separate order for the contribution proceedings, or practically by just a percentage as suggested by Mr. Palmer, makes no difference. I really suggest that counsel attempt to agree between themselves, which is the most economical and cost efficient way of dealing with that. I will fix the percentage. I think 25% is as good as any, nobody has suggested it is wrong and I accept Mr Palmer’s fair percentage. Whether it is achieved by the round about way or the direct way I hope you will agree. If you cannot agree I will decide. Meanwhile there are other points to be raised.”

It is not entirely clear what the judge meant by the phrase “legalistically” in relation to a separate order for the contribution proceedings, but the approval of Mr Palmer’s figure of 25% of CU’s costs overall would, no doubt, include the costs of the contribution proceedings brought by MMI against CU. It does not much matter since the question for this court is whether the judge exercised the wide discretion, which he undoubtedly had, on a correct basis.

I regret to say that I do not think he did, because it was not correct to say that CU’s success on the condition precedent was the most important factor in the case. The most important factor, on any view, was the question of principle raised by MMI namely whether the right public liability policy to respond in cases of asbestos-related disease (such as mesothelioma) is the policy in force at the time of exposure on the one hand or at the time when the disease first occurs or manifests itself on the other hand. On this question of principle, MMI comprehensively lost before the judge. It did not only lose the action brought by Bolton but it also lost its contribution proceedings against CU. If MMI had not taken the point which they did, none of the ensuing litigation would have occurred or, if it did, it would have occurred without the necessity for Bolton to bring any proceedings at all. For Bolton in those circumstances to be required to pay 75% of CU’s overall costs, in what insurers were regarding as something of a test case, does not reflect the justice of the situation at all.

That being the position it does seem to me that the judge has exercised his discretion on a false basis and that his decision on costs should be set aside. It then falls to this court to exercise its own discretion. It is not easy to do because the ultimate order must reflect the fact that, however much MMI may have effectively invited Bolton to sue CU, Bolton had to make up its mind whether to do so and did ultimately fail. Even on the point on which Bolton failed, it was nevertheless effectively encouraged by MMI because, for the purpose of MMI’s contribution proceedings, there was an obvious risk that, even if the court decided that the CU policy should in general respond as well as the MMI policy, it would not respond in this case because CU had a good defence of absence of notification. That would require the court to follow Eagle Star v Provincial rather than Legal and General v Drake but that is not a risk that could be discounted (indeed I have already said it would be my preferred view if it was essential to decide the matter). MMI had therefore a real interest in combining with Bolton on the waiver argument. It was only in this court that Mr Palmer made it unequivocally clear (and even then only in answer to a direct question from the Bench) that MMI’s considered position was that Bolton’s arguments on waiver were wrong. Up to the point of that disavowal, MMI were entirely content to run with the hare and hunt with the hounds. As against this point it is fair to recall Mr Palmer’s submission that it was not until the first day of the trial that Bolton acknowledged that they had not complied with the condition precedent in fact, although there could not have been any real controversy about it.

In these circumstances, while it is right that Bolton should recover from MMI their costs of proceeding against MMI, they should not be able to recover their own costs of proceeding against CU from either MMI or CU. MMI should not be entitled to recover any of their costs against anybody. Since CU were only brought into the proceedings as a result of MMI’s contentions, MMI should in the first instance, pay CU’s costs but, in order to reflect the fact that Bolton did lose on the condition precedent, it would be just to order that MMI can recover a small proportion of CU’s costs from Bolton. I would propose that that proportion should be 20%, to be set off against MMI’s liability for Bolton’s own costs of the proceedings against MMI.

I would, therefore, allow Bolton’s appeal on costs and make an order in accordance with the previous paragraph. Otherwise, all appeals are dismissed.

I agree.

I also agree that all the appeals should be dismissed save that of Bolton as to costs, and that there should be an order as proposed by Longmore LJ in respect of the latter.