International Energy Group Ltd v Zurich Insurance Plc UK Branch

Mr Alan Carré worked for 27 years until 31 December 1988 for Guernsey Gas Light Co Ltd, a predecessor of the claimant (“IEG”). For the last 6 years of that period IEG was insured under a standard form of employer’s liability policy by a company whose liabilities have been absorbed by the defendant (“Zurich”). I will refer to IEG and Zurich as including their predecessors.

Mr Carré worked for another employer from 1 January 1989 to 15 April 2008, when he retired. He did not enjoy a long retirement, because in July 2008 he was diagnosed as suffering from mesothelioma and he died a year or so later. Before his death he issued proceedings against IEG in the Royal Court of Guernsey, claiming that his illness was caused by its negligence and breach of statutory duty in exposing him to asbestos dust and fibres. The claim was settled for £250,000 plus costs. IEG’s total outlay including its own costs amounted to £274,431.60, for which it claimed indemnity from Zurich.

The policy wording remained the same for each year that the policy was renewed. The insuring clause provided:

“If any person under a contract of service or apprenticeship with the Insured shall sustain any bodily injury or disease caused during any period of insurance and arising out of and in the course of his employment by the Insured in the business above mentioned, the Company will indemnify the Insured against all sums for which the Insured shall be liable in respect of any claim for damages for such injury or disease settled or defended with the consent of the Company. The Company will in addition pay the claimants’ costs and expenses and be responsible for all costs and expenses incurred with the consent of the Company in defending any such claim for damages.”

The claim was tried by Cooke J on an agreed statement of facts and issues. These included:

“6.

During the whole period of his employment with the Guernsey Gas Light Company Limited, including during the Policy Period, Mr Carré was exposed to asbestos dust and fibres without adequate protection being provided by his employer, and thus under circumstances that both materially increased the risk of his contracting mesothelioma and constituted breaches of the duty of care owed to him by Guernsey Gas Light Company Limited.

7.

In consequence of Guernsey Gas Light Company Limited’s breaches of duty Mr Carré did in fact contract, and subsequently die from, mesothelioma.

…

11.

In addition to the Defendant…one other insurer has been traced which provided employer’s liability insurance to Guernsey Gas Light Company Limited during the period for which it employed Mr Carré. This insurer is Excess Insurance Company Limited and it provided such insurance for the period 31 December 1978 to 30 December 1980.

…

13.

The defendant does not dispute the Claimant’s liability to Mr Carré in damages consequent on his contracting mesothelioma, or the appropriateness or the quantum of the Claimant’s settlement of Mr Carré’s claim or the reasonableness of the Claimant’s legal costs incurred.

14.

The parties agree that for the purposes of these proceedings only it should be assumed that:

14.1

Mr Carré was exposed to asbestos during the whole period 13 November 1961 to 31 December 1988; and,

14.2

Mr Carré was exposed to asbestos with the same degree of frequency and intensity throughout the period of his employment during the whole of that period.

15.

The sole issue in dispute, and for the Court’s determination, is whether:

15.1

the claimant is entitled to indemnity from the defendant amounting to the entirety of its outlay in respect of Mr Carré’s claim (which the defendant would characterise as a “contribution amounting to an indemnity”); or whether,

15.2

the claimant is entitled to a contribution from the defendant of a proportion of its outlay corresponding to the proportion which the Policy Period bears to the whole period of Mr Carré’s exposure by Guernsey Gas Light Company Limited”

Cooke J gave a reserved judgment on 24 January 2012, [2012] EWHC 69 (Comm). He found that IEG was entitled to a full indemnity in respect of its costs of defending Mr Carré’s claim, but that otherwise its right of indemnity was limited to an aliquot share of its outlay based on the proportion of the period of Mr Carré’s employment by IEG for which it was insured by Zurich.

The judge rejected an alternative argument by Zurich that, if it was wrong in its primary submission, it should be entitled as a matter of equity to a contribution from IEG in respect of the period for which IEG exposed Mr Carré to asbestos and was not insured by Zurich.

IEG appeals against the rejection of its claim for a full indemnity. By a respondent’s notice and cross appeal, Zurich challenges the judge’s award of a full indemnity in respect of IEG’s defence costs (which it says ought to have been reduced in the same way as the rest of IEG’s claim) and the judge’s rejection of its alternative argument.

In my view the key to the question whether the judge was right on the primary issue is to be found in the decision of the Supreme Court in Durham v BAI (Run off) Ltd (“the Trigger litigation”) [2012] UKSC 14, [2012] 1 WLR 867. That decision was given on 28 March 2012, which was 2 months after the judgment of Cooke J. Tempting as it is to go directly to the Trigger decision, I should first refer to the basis of Cooke J’s judgment and to the background to the Trigger litigation.

Cooke J’s judgment was founded on his understanding of the nature of IEG’s liability to Mr Carré under the law as stated by the House of Lords in Fairchild v Glenhaven Funeral Services Limited [2002] UKHL 22, [2003] 1 AC 32, and Barker v Corus UK Limited [2006] UKHL 20, [2006] 2 AC 572. He considered that the effect of those decisions, more particularly Barker, was that the House of Lords had created a new basis of liability in tort in mesothelioma cases, the essence of which was not the causing of mesothelioma but the wrongful creation of a risk of suffering mesothelioma. The liability of IEG in each policy year was for the amount of the risk which it created in that year. The total risk which it created during the 6 year policy period, and therefore the amount of its liability to Mr Carré in respect of its conduct during those years, was to be calculated by comparison with the total period for which it employed Mr Carré, since mathematically the risks associated with his exposure in any one year were no greater or less than in any other year. The subsequent intervention of Parliament in passing the Compensation Act 2006 was in the judge’s view immaterial, because it did not apply to Guernsey and there was no equivalent Guernsey legislation.

The insidious nature of mesothelioma and the difficulty of attributing it to any particular period of exposure to asbestos have made it a vexed subject for tort lawyers. It was first addressed by the House of Lords in Fairchild. In that case the Court of Appeal held that where employees had been exposed to asbestos dust during periods of employment with more than one employer, their claims failed because they were unable to show on a balance of probabilities which period of exposure was responsible for the onset of the disease. The decision was a logical application of conventional principles of causation, but the injustice to the sufferers was obvious. The House of Lords reversed the Court of Appeal’s decision. The judgments ran to 79 pages. The law reporter’s headnote summarised the decision as follows:

“that, where an employee had been exposed by different defendants, during different periods of employment, to inhalation of asbestos dust in breach of each defendant’s duty to protect him from the risk of contracting mesothelioma and where that risk had eventuated but, in current medical knowledge, the onset of the disease could not be attributed to any particular or cumulative wrongful exposure, a modified approach to proof of causation was justified; that in such a case proof that each defendant’s wrongdoing had materially increased the risk of contracting the disease was sufficient to satisfy the causal requirements for his liability; and that, accordingly, applying that approach and in the circumstances of each case, the claimants could prove, on a balance of probabilities, the necessary causal connection to establish the defendants’ liability.”

Subject to the qualification that the words “on a balance of probabilities” in the final phrase would perhaps be better omitted, that is a fair summary of the decision. The nature of the rule has been the subject of much detailed analysis by scholars and others and it has been re-examined by the House of Lords or Supreme Court on three occasions – Barker, Sienkiewicz v Greif (UK) Limited [2011] UKSC 10, [2011] 2 AC 229 and the Trigger litigation.

Barker was a problematic decision and it has not fared well. It was held by a majority that where an employee was exposed to asbestos dust by successive employers and developed mesothelioma, the liability of each employer was proportionate to that employer’s contribution to the overall risk. The members of the Appellate Committee all delivered separate judgments. A possible interpretation of the majority was that they analysed the Fairchild principle in the way that Cooke J did, but they did not all express themselves in the same way or altogether consistently about the nature of the tort. In his dissenting judgment, Lord Rodger maintained that to analyse Fairchild as recognising a tort in which the damage caused by the defendant was not mesothelioma, but a risk of developing mesothelioma, was not to reinterpret but to rewrite that decision (and also the decision in McGhee v National Coal Board [1973] I WLR 1). He held that the proper analysis of Fairchild was that the House of Lords had recognised that in this particular type of case, because of the limitations of medical science, the usual “but for” test of causation should give way to a more generous test of causation, by which it was sufficient for the claimant to prove that the defendant had materially increased the risk of the victim contracting mesothelioma and the victim had done so. On that basis it was right that the liability of the defendant should be joint, rather than limited to separate liability for the individual damage which each had caused in the form of exposure to risk of mesothelioma during different periods of time.

In the light of subsequent developments it is now unnecessary to give further attention to the differences in the speeches of the majority, because the decision has become past history.

In The Supreme Court of the United States, 3^rd ed, 1936, page 68, Chief Justice Charles Evans Hughes wrote:

“A dissent in a court of last resort is an appeal to the brooding spirit of the law, to the intelligence of a future day, when a later decision may possibly correct the error into which the dissenting judge believes the court to have been betrayed.”

In this instance it was not long before the approach of Lord Rodger was vindicated by Parliament in the Compensation Act 2006 and by a majority of the Supreme Court in the Trigger litigation.

Section 3 materially provides:

“(1)

This section applies where –

(a)

a person (“the responsible person”) has negligently or in breach of statutory duty caused or permitted another person (“the victim”) to be exposed to asbestos,

(b)

the victim has contracted mesothelioma as a result of exposure to asbestos,

(c)

because of the nature of mesothelioma and the state of medical science, it is not possible to determine with certainty whether it was the exposure mentioned in paragraph (a) or another exposure which caused the victim to become ill, and

(d)

the responsible person is liable in tort, by virtue of the exposure mentioned in paragraph (a), in connection with damage caused to the victim by the disease (whether by reason of having materially increased a risk or for any other reason).

(2)

The responsible person shall be liable –

(a)

in respect of the whole of the damage caused to the victim by the disease (irrespective of whether the victim was also exposed to asbestos –

(i)

other than by the responsible person, whether or not in circumstances in which another person has liability in tort, or

(ii)

by the responsible person in circumstances in which he has no liability in tort), and

(b)

jointly and severally with any other responsible person.

(3)

Subsection (2) does not prevent –

(a)

one responsible person from claiming a contribution from another, or

(b)

a finding of contributory negligence.

(4)

In determining the extent of contributions of different responsible persons in accordance with subsection (3) (a), a court shall have regard to the relative lengths of the periods of exposure for which each was responsible; but this subsection shall not apply -

(a)

if or to the extent that responsible persons agree to apportion responsibility amongst themselves on some other basis, or

(b)

if or to the extent that the court thinks that another basis for determining contributions is more appropriate in the circumstances of a particular case.”

The nature of the liability under Fairchild, as modified by Barker, and the impact of the 2006 Act were considered by the Supreme Court in Sienkiewicz. The seven members of the Appellate Committee all gave separate judgments. The majority considered that by the language used in section 3(1), “where a person…is liable in tort...in connection with damage caused to the victim by the disease (whether by reason of having materially increased a risk or for any other reason)”, Parliament was not dictating in what circumstances liability in tort attached to such a person. That question remained a question of common law. Parliament was merely changing the remedy available to a victim who could establish such liability. (See Lord Phillips at [70], Lord Rodger at [130] – [131], Lord Browne at [183] and Lord Dyson at [223].)

As to the nature of the tort and the test of causation applicable in mesothelioma cases, different expressions are to be found in the different judgments. However, it is unnecessary to embark on detailed examination of them, because the Supreme Court itself re-examined the subject in the Trigger litigation to which I turn.

The decision of the Supreme Court in the Trigger litigation is central to the issues in this case for two reasons. First, the court re-examined the Fairchild principle, taking into account all that had been said about it in Barker and Sienkiewicz and the provisions of the 2006 Act. Secondly, the claims under consideration, as in this case, were claims by victims’ employers for indemnity under employer’s liability policies. This was the first occasion on which the Supreme Court had cause to consider the impact of the developments in this branch of the law of tort on the liabilities of insurers under standard employer’s liability policies. Zurich was one of the parties to the Trigger litigation, and the wording of the Zurich policy set out in the appendix to the judgment of Lord Mance was materially identical to the policy wording in the present case. (By coincidence, another of the parties was the Excess Insurance Company Limited, which was the other insurer identified in paragraph 11 of the agreed statement of facts as having provided insurance to IEG.)

The case raised two issues, referred to in the judgments as the construction issue and the causation issue. On the construction issue, the question was what event had to occur within the policy period in order to render the insurer liable to indemnify the employer in respect of his liability to the victim, or in other words what was meant by the disease being “sustained” or “contracted”. On this question the court was unanimous. It held that whether the policy wording referred to the injury or disease being “sustained” or “contracted” during the policy period, either form of wording embraced the initiation of the pathological process during the policy period, regardless of when the disease developed to the stage of manifestation. In reaching that conclusion the court was strongly influenced by the commercial purpose of such a policy, which was to provide cover to the employer against liability arising from its conduct during the policy period. Any other construction would leave not only employers but employees or ex-employees at risk of being seriously under protected.

However, the right of indemnity afforded to the employer was in respect of liability for disease caused by it. This gave rise to the question of causation, which in turn involved reconsideration of the basis of liability under the Fairchild principle. If, on the test of causation applicable under the law of tort in cases of mesothelioma claims by employees, the employer was liable for causing the disease, the causation requirement for indemnity under the policy would be satisfied. If, on the other hand, the foundation of liability under Fairchild was not that the employer had caused the disease, but that the employer had incurred a different species of liability for exposing the victim to the risk of such disease, the employer would have to prove the additional fact that exposure during the policy period had in fact caused the disease in order to establish a right to indemnity under the policy. Some of the insurers argued that this would involve the “but for” test, which the employers could not satisfy. In short, the insurers’ argument was that Fairchild had created a special right of recovery for employees who suffered mesothelioma, which did not require proof of a causative link between the employer’s conduct and the onset of the disease, but that this special rule did not enable the employer to prove the causation necessary for indemnity under the policy.

On the causation question the Supreme Court was divided. Lord Phillips adopted essentially the same approach as that of Cooke J in the present case, but he was in a minority of one.

Lord Mance gave the leading judgment in which Lord Kerr joined. Lord Clarke gave a short judgment adding some words of his own about why he agreed with Lord Mance on the causation issue. Lord Dyson agreed with the reasoning of Lord Mance and Lord Kerr. Lord Mance’s analysis therefore had the express support of a majority of the court. Lord Mance’s interpretation of the principle was entirely consistent with Lord Rodger’s dissenting judgment in Barker and indeed their approach was fundamentally identical. Lord Mance began with the proposition that rules regarding causation are created by the courts for the purpose of determining when liability arises in particular contexts. The general policy of the courts is to apply a “but for” test of causation, but this is not invariable. In some circumstances, where there are sufficiently powerful reasons for doing so, the courts may as a matter of legal policy accept “a weaker cause or relationship” for the imposition of responsibility.

In the context of insidious occupational diseases, because of the protective approach which the courts have taken towards the health of employees and the difficulty of knowing the particular moment of exposure which has caused the onset of the disease, the courts have in the past sometimes adopted a broader test of causation which is satisfied by establishing that the employer’s misconduct materially increased the risk of the employee suffering the illness which he sustained: Bonnington Castings Limited v Wardlaw [1956] AC 613 and McGhee.

Other authorities, not cited by Lord Mance, support the same general proposition that the form of causation theory used by the courts is a matter of policy in which the context is important. Judge Posner put it pithily in United States v Oberhellmann 946 F 2d 50, 53 (7^th Cir. 1991):

“Causation is a complex, contextually variable concept, in law as in life.”

Lord Bingham made the same point in R v Kennedy [2007] UKHL 38 at [15]:

“Questions of causation frequently arise in many areas of the law, but causation is not a single, unvarying concept to be mechanically applied without regard to the context in which the question arises.”

Lord Hoffmann in his chapter on causation in Perspectives on Causation (edited by Richard Goldberg, 2011), page 9, wrote:

“It might be easier if, instead of speaking of proof of ‘causation’, which makes it look as if we are dealing with one monolithic concept which can be defined as ‘part of the history’ or by NESS [‘necessary element of a sufficient set’], we spoke of the ‘causal requirements’ of a legal rule. That would make it clear that causal requirements are creatures of the law and nothing more. The causal requirements of one rule may be different from those of another…To say, as in Fairchild, that the exposure to asbestos by the defendant must have increased the risk of mesothelioma is to state a causal requirement.”

Lord Mance observed that if the correct analysis of Fairchild was that the House of Lords had recognised a form of liability in tort not for causing mesothelioma, but simply for increasing the risk of mesothelioma created by exposing someone to asbestos, it ought to follow that the wrongful exposure to asbestos would give rise to a cause of action whether or not it resulted in the disease itself. However in Rothwell v Chemical and Insulating Co Limited [2007] UKHL 39, [2008] 1 AC 281 the House of Lords decided that not even the emergence of pleural plaques “marking” the past exposure to asbestos constituted injury for the purpose of giving rise to a cause of action. Under Fairchild the damage in respect of which a victim might sue was his contraction of mesothelioma; his wrongful exposure to asbestos in the course of his employment met the causal requirement for him to be entitled to hold the employer responsible in law for his illness.

In this context Lord Mance referred to the language of the 2006 Act. Section 3(3) (“Subsection (2) does not prevent (a) one responsible person from claiming a contribution from another, or (b) a finding of contributory negligence”) necessarily referred to the legal bases for claiming contribution or asserting contributory negligence, which were to be found in the Civil Liability (Contribution) Act 1978 and the Law Reform (Contributory Negligence) Act 1945. The 1978 Act addressed the situation where two or more persons were “liable in respect of the same damage”. Similarly, the 1945 Act applied where a person “suffers damage as the result partly of his own fault and partly of the fault of any other person or persons”. The “same damage” for the purposes of the 1978 Act could only be the mesothelioma. Similarly the damage which the victim may have suffered “as the result” partly of his own fault and partly of the fault of another person could only be the mesothelioma, and the Act could only apply if the mesothelioma was indeed the result partly of the fault of both parties. Lord Mance observed at [68]:

“In other words, the rule in Fairchild and Barker must have been viewed by the drafters - in my opinion entirely understandably – as establishing a causal link, between the exposure and the mesothelioma, sufficient for it to be said that the mesothelioma was ‘the result’ of each (and every) exposure.”

Lord Mance concluded at [73] that:

“…for the purposes of the insurances, liability for mesothelioma following upon exposure to asbestos created during an insurance period involves a sufficient ‘weak’ or ‘broad’ causal link for the disease to be regarded as ‘caused’ within the insurance period.”

That conclusion applies directly in the present case. It follows that the judge was wrong in his conclusion on the primary issue (without, it should be stressed, the benefit of the Trigger decision).

I was at first inclined to the view that this result followed simply from the agreed statement of facts, in that it was agreed that Mr Carré contracted mesothelioma in consequence of IEG’s breaches of duty during the whole period of his employment; and that this of itself was sufficient to entitle IEG to an indemnity on the proper construction of the policy clause. However, it was forcibly argued on behalf of Zurich that the statement of facts had to be understood in the light of the way in which IEG’s case was pleaded, which was to rely on the exposure of Mr Carré to asbestos dust throughout the period of his employment and on the decision in Fairchild. That was how the case was argued before Cooke J and it was therefore right to consider the legal issues on that basis.

The explanation of Fairchild in the Trigger litigation makes it unnecessary to consider what view of the law a Guernsey court would otherwise have taken. There was no expert evidence as to Guernsey law, but it was argued on behalf of IEG that a Guernsey court might as a matter of policy have adopted the same approach to the causation issue as underlay the 2006 Act. A possible approach would have been for this court to certify the point for determination by a Guernsey court under the British Law Ascertainment Act 1859, if we considered this to be “necessary or expedient for the proper disposal of” the action (and the court could have done so of its own motion), but there is no longer a need to consider that option.

Ms Leigh-Ann Mulcahy QC submitted that it was unfair that Zurich should be required to provide IEG with a full indemnity in circumstances where it had received premium for only 6 years of the 27 years of exposure. She recognised that the purpose of employer’s liability insurance being made compulsory (under the Employers’ Liability (Compulsory Insurance) Act 1969) is the protection of employees, and that this could be jeopardised if the employer’s right of indemnity under a standard policy was limited to a proportionate part of the employer’s liability and if the employer or former employer were unable to pay the balance. However, this concern would not arise in the case of solvent employers.

Ms Mulcahy submitted that in the case of solvent employers the courts ought to redress the unfairness of holding the insurers liable to indemnify the employer in respect of conduct part of which was outside the policy period, and that there were three ways in principle of doing so. The first would be to recognise an equitable right of contribution from the employer, analogous to an insurer’s right to claim contribution from another insurer in a case of double insurance, and in this respect it was fair to regard IEG as a “self insurer” for the years during which Zurich was not on risk. The second route would be to apply the law of unjust enrichment so as to prevent the unfair enrichment of IEG at Zurich’s expense which would result if IEG were entitled to recover the same indemnity as if it had been insured by Zurich throughout the entire period of exposure. The third route would be for the court to hold that natural justice provided the court with an inherent equitable power to order IEG to make a contribution to Zurich equal to a rateable proportion of the total liability.

Cooke J was not impressed by these arguments and dealt with them shortly. He concluded that if Zurich could not succeed in limiting its liability on the bases of the principles enunciated in Barker, there was no room for the operation of any equitable principles that could counteract or mitigate the effects of the application of ordinary insurance contract law principles.

Despite Ms Mulcahy’s attractively presented argument, I am of the same opinion. The relationship between an insurer and an insured is contractual. The premium will reflect the risk which the insurer is prepared to take and the price that he requires for it. Everyone knows that long tail insurers have suffered heavily in recent years because their liabilities, through asbestos exposure and other perils, have turned out to be far greater than was expected at the time when the policies were negotiated, but the court has no authority to adjust the consequences because they are thought to be unfair.

The combined effect of the decisions in Fairchild and in the Trigger litigation is that there was a sufficient causal link between Mr Carré’s exposure to asbestos during the years when IEG was insured by Zurich and his contraction of mesothelioma for IEG to be legally liable for causing his disease; and IEG has a contractual right of indemnity under the policy against that liability. The fact that, by the same reasoning, Mr Carré’s exposure to asbestos during the rest of his employment was also an effective cause of the disease is irrelevant to IEG’s right to indemnity on the wording of the policy and on ordinary principles of insurance law. The policy would require a special clause to limit the scope of the indemnity in such circumstances, and such a limitation would on its face be incompatible with the Employers’ Liability (Compulsory Insurance) Act 1969.

Ms Mulcahy cited a number of US authorities. In particular she commended the dissenting judgment of Wald, CJ in the US Court of Appeals, District of Columbia Circuit, in Keene Corporation v Insurance Company of North America (1981) 667 F2d 1034. A manufacturer of products containing asbestos sought declaratory judgment against a number of insurers which had issued manufacturer’s comprehensive general liability policies. A typical form of policy wording provided that the insurer would “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury…to which this insurance applies, caused by an occurrence”. An occurrence was defined as “an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury…” Much of the argument was directed to the question of what constituted an injury and an occurrence in the context of mesothelioma claims. The court held that either exposure or manifestation could trigger indemnity under the policies, and it followed that the insured would potentially be entitled to recover a full indemnity against any of a number of insurers. A question which divided the court was whether there should be a deduction to take account of years of exposure for which the manufacturer was not insured.

Wald, CJ said at 1058:

“…the majority opinion exempts asbestos manufacturers from all financial responsibility arising from a suit if the manufacturer had purchased insurance which covered any part of the injury period. I am not able to agree with this aspect of the majority opinion, as it applies to the period prior to the time when such coverage could no longer be obtained. I just do not understand why an asbestos manufacturer, which has consciously decided not to insure itself during particular years of the exposure-manifestation period, should have a reasonable expectation that it would be exempt from any liability for injuries that were occurring during the uninsured period. It seems to me logical and fair…to distribute the ultimate financial responsibility on a pro rata basis among the various insurance companies online during the risk period, and to include Keene as a self-insurer for the years when it failed to take out any insurance. This position…is not, as the panel opinion says, …based upon a conceptualisation of asbestos-related diseases as a multitude of discrete injuries to the victim. Rather, it is based upon the very notion of ‘injury’ adopted by the panel. If asbestos-related diseases are understood as progressive or cumulative, then all those who voluntarily assumed risk during the period when the diseases progressed must share the responsibility for the judgment and this includes self-insurers.”

The majority (Bazelon, SCJ, and Wilkey, CJ) stated their view at 1048-1049:

“Once triggered, each policy covers Keene’s liability. There is nothing in the policies that provides for a reduction of the insurer’s liability if an injury occurs only in part during a policy period. As we interpret the policies, they cover Keene’s entire liability once they are triggered. That interpretation is based on the terms of the policies themselves. We have no authority upon which to pretend that Keene also has a ‘self-insurance’ policy that is triggered for periods in which no other policy was purchased. Even if we had the authority, what could we pretend that the policy provides? What would its limits be? There are no self-insurance policies, and we respectfully submit that the contracts before us do not support judicial creation of such additional policies.

Hartford argues that this allocation of liability allows Keene to ‘enjoy the benefits of insurance coverage which it has never paid for.’…The contrary point, however, is more accurate: for an insurer to be only partially liable for an injury that occurred, in part, during its policy period would deprive Keene of insurance coverage for which it paid. With each policy, Keene paid for insurance against all liability for bodily injury. The policies do not distinguish between injury that is caused by occurrences that continue to transpire over a long period of time and more common types of injury. Nor do the policies provide that ‘injury’ must occur entirely during the policy period for full indemnity to be provided.”

I would note that both the majority and the minority treated the matter as one of policy construction. There was no suggestion that the court had some equitable power to override the effect of the policies on their true construction. I respectfully agree with the majority’s view that, once it is accepted that exposure during any policy period met the causal requirement for the employer’s liability to the victim, for which the employer was potentially entitled to indemnity from the insurer under the terms of the relevant policies, to withhold part of that indemnity from the employer on account of its conduct in other years would be to deprive the employer of insurance coverage for which it paid. As a practical comment, I would add that to regard an employer as “self-insuring” in respect of any period for which it was unable to find details of any coverage which might have been issued could itself produce injustice. It might not be surprising if a company could not trace details of all policies which it, or any predecessor company, may have held several decades earlier.

I would therefore reject Zurich’s alternative argument and allow IEG’s appeal.

I agree with the conclusion of Toulson LJ and his reasons. I give my own reasons shortly because we are differing from the judge, who, unfortunately, did not have the benefit of the decision of the Supreme Court in the Triggerlitigation decision to assist him.

The principal issue on this appeal concerns a question of construction of the insuring clause of the employers’ liability policy terms which were the same for each of the last 6 years of the period when Mr Carré was employed by IEG. The issue is whether IEG can prove that Mr Carré “sustained” a disease “caused during any period of insurance” and “arising out of and in the course of his employment” by IEG. If it can, then, under the terms of the insuring clause, IEG is entitled to recover from Zurich “all sums for which [IEG] shall be liable in respect of any claim for damages for such…disease settled…by [IEG]”. Like Toulson LJ, I think the answer is to be found in Lord Mance’s analysis in the Trigger litigationdecision: [2012] 1 WLR 867.

By the statement of facts and issues, the parties agreed that, during the period of his employment, Mr Carré was exposed to asbestos dust and fibres such that this materially increased the risk of his contracting mesothelioma and this exposure constituted breaches of the duty of care owed to him by his employer. It was also agreed that, in consequence of those breaches, Mr Carré did in fact contract and subsequently die from mesothelioma. Moreover, it was agreed that Mr Carré was exposed to asbestos with the same degree of frequency and intensity during the whole period of his employment and during the period of each of the successive employers’ liability policies. Zurich did not dispute either IEG’s liability to Mr Carré in damages consequent on his contracting mesothelioma or the quantum of that liability.

Cooke J’s decision was based on his analysis of the trilogy of House of Lords and Supreme Court cases of Fairchild, Barker and Sienkiewicz. (He also referred to a subsequent decision in this court, Williams v University of Birmingham [2011] EWCA Civ 1242, [2012] PIQR P53,where I gave the main judgment, but that case was concerned principally with the issue of breach of the duty of care rather than the nature of the cause of action or issues of causation.) Cooke J’s analysis of Fairchildand Barker led him to the conclusion he set out at [26] of his judgment. He said that the cases established that the essence of the liability of an employer for an employee’s mesothelioma is not the negligent causing of harm, “but the negligent exposure of an employee to the risk of harm from asbestos fibres or dust which amount to a material increase in the risk”. Having analysed Sienkiewiczand referred to Williams, he concluded, at [35], that liability in mesothelioma cases was based on “exposure to risk” and the extent of the liability depended upon “the extent of relative exposure to that risk, as compared with competing exposures to it”. Therefore, on the correct construction of the insuring clause of the policy terms, Zurich was only liable for the proportion of the total damages attributable to the 6 years when it (or its predecessor) insured IEG.

This analysis is now not sustainable as a result of the reasoning of the majority in the Trigger litigationcase. It is now clear, from those majority judgments, that when an employee has contracted mesothelioma as a result of being exposed to asbestos fibres or dust at work, his cause of action rests on the fact that he has contracted the disease. The mesothelioma itself is the damage and it is that damage which is the “gist”of the cause of action of the employee against the employer. Or put the other way, the essence of the cause of action is not that the employee has been tortiously exposed to the risk of mesothelioma: see in particular Lord Mance’s judgement at [52] and [72] and Lord Clarke of Stone-cum-Ebony’s judgment at [77].

The aim of employers’ liability insurance, as Lord Mance pointed out, must be to respond to the liability of an employer in respect of injury or disease sustained during the course of the employee’s employment and arising out of that employment. All the members of the Supreme Court in the Trigger litigationcase agreed that, for the purpose of the insuring clauses of employers’ liability policies, mesothelioma is “sustained” or “contracted” when the process that leads to the disease is initiated as a result of the tortious exposure of the employee to the asbestos fibres: see eg. Lord Mance’s judgment at [50]. In this case Mr Carré was employed for the whole of the relevant period by IEG’s predecessor. Therefore, for the purposes of the insuring clause, the mesothelioma which Mr Carré contracted must have been “sustained” in the course of his employment by IEG. It is accepted that it arose out of that employment.

That leaves the more difficult issue of construction of the insuring clause, which lies in the conjunction of two phrases in the clause: the first is: “…if [an employee]…shall sustain any…disease caused during any period of insurance” and the second is: “…the [insurer] will indemnify the Insured against all sums for which the Insured shall be liable in respect of any claim for damages for such…disease”. Even if IEG can demonstrate that the process which led to Mr Carré’s mesothelioma was initiated during the time of his employment with IEG (or its predecessor), can it demonstrate that the mesothelioma - the disease - was “caused” during the relevant period of insurance, which, as Zurich emphasises, is only the period of the last 6 years of Mr Carré’s employment? If it can, what is the consequence in terms of Zurich’s liability?

The answers depend on what, for the purposes of this clause (and that of most employers’ liability insurance policies) is meant by the disease being “caused during any period of insurance” that is covered by the policy concerned. Lord Mance pointed out at [72] of his judgment in the Trigger litigationcase that there will be no cover for an employer in respect of liability for an employee’s mesothelioma under such a policy unless the policy responds to liability for mesothelioma flowing from negligent exposure to asbestos during the insurance period. An employer, just like the employee, is, in the present uncertain state of medical knowledge, not able to demonstrate that “but for” the negligent exposure to asbestos during the particular period of insurance, the employee would not have contracted the disease.

As Lord Mance demonstrates in his judgment in the Trigger litigationcase and as is demonstrated by further examples given by Toulson LJ in his judgment above, English law does not have a monolithic doctrine of causation: different circumstances giving rise to different legal rules may require different causal requirements. Another example of the flexibility of the common law to rules of causation is given, in the context of unlawful interference with goods, by Lord Nicholls of Birkenhead at [69] – [75] in Kuwait Airways Corp v Iraqi Airways Corp (Nos 4 and 5) [2002] 2 AC 883.The question here is what, as a matter of construction of this policy wording, is the “causal requirement” between the tortious exposure of the employee to asbestos during the period of the insurance and the fact that the employee has ultimately contracted mesothelioma and thereby suffered damage?

The answer, following detailed analysis, is given by Lord Mance at [73] of his judgment in the Trigger litigationcase, with which all the other Justices except Lord Phillips PSC agreed. If an employer is liable to his employee for his employee’s mesothelioma following upon a tortious exposure to asbestos created during an insurance period, then, for the purposes of the insuring clause in the employers’ liability policy, the disease is “caused” within the insurance period. This is because it is sufficient that there is what Lord Mance calls (following Hart & Honore’s use of the phrase) a “weak” or “broad” causal link, in this case between the exposure to the asbestos during the insurance period and the employee’s eventual contraction of the mesothelioma.

Once that causal requirement is fulfilled, then the employer will have proved that the mesothelioma (the disease) was “caused during any period of insurance”. It follows from the policy wording that the insurer is then liable to indemnify IEG for “all sums for which the Insured shall be liable in respect of any claim for damages for … such disease” (my emphasis). In other words, Zurich will be liable to indemnify IEG for the whole of the damages paid out by IEG in respect of Mr Carré’s claim for damages for contracting mesothelioma, not just a proportion worked out by reference to the period during which IEG was covered by policies for which Zurich is responsible.

So, on this analysis, the fact that there has been no Guernsey legislation such as section 3 of the 2006 Act to undo the decision of the House of Lords in Barkeris irrelevant. The liability of Zurich to indemnify IEG in respect of all of the damages that IEG has paid out for Mr Carré’s mesothelioma depends solely on the construction of the words “sustained” and “caused” in the policy wording. The first depends on the analysis of all of the Justices and the second depends on the analysis of the majority of the Supreme Court in the Trigger litigationcase, which, unfortunately, Cooke J did not have to guide him.

There is nothing I wish to add to Toulson LJ’s analysis of Zurich’s alternative arguments.I too would therefore allow the appeal.

Lord Justice Maurice Kay Vice President of the Court of Appeal, Civil Division:

I also agree with both judgments.