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EL Trigger Litigation Appeal Summary

EMPLOYERS LIABILITY TRIGGER LITIGATION Stage 2 - The Court of Appeal (8th Oct 2010)

Tim Smith acted as Junior Counsel for the Claimants in Lead Action 2


1. On 21st November 2008 Burton J delivered his judgment in the 6 lead actions grouped together and known as the “EL Trigger Litigation”. The appeal against that decision was heard in November 2009; on 8th October 2010 the Court of Appeal handed down its judgment. Each Judge has given different reasons variously for either upholding or overturning the first instance decision. Accordingly there can be no substitute for reading what is a complex judgment. This note seeks to summarise the issues and determinations made and highlight any questions that arise.

2. The issues will be familiar but bear repetition. Furthermore since the 6 actions involved different policy wordings it is necessary to set out – in broad terms – the essential differences between the policies being considered; this is because the Court of Appeal, unlike Burton J, has reached different conclusions that are dependent on the particular policy wording under consideration. To this extent it will be seen that the judgment does not provide a simple “one stop” answer to the question of how an Employers’ Liability (EL) policy should be construed. Accordingly one conclusion can immediately be drawn: – that whenever a policy issue arises in a mesothelioma claim (or indeed other disease claims) – the relevant EL policies, and any medical evidence relating to injury, will have to be scrutinised with great care. The Court of Appeal has not provided practitioners with any easy answer or quick fix to this difficult area.


3. 4 insurance companies – (variously insolvent or in run-off) sought to rely on Bolton Borough Council v MMI & CU 2006 1 WLR 1492 in construing EL policies in place at differing times (both before and after the introduction of the Employers’ Liability (Compulsory Insurance) Act 1969 (ELCIA ’69) and contended that policy wordings which provided an employer with an indemnity in respect of his liabilities to an employee for “injury” or “disease” ,“sustained”, or “contracted” during the policy period were “triggered” on the date of development of the mesothelioma (the onset of the tumour) and not on the date of inhalation of asbestos (date of inhalation).

4. The composition of the 6 Lead Actions-

  • In Lead Actions (1) – (3) - individual Claimants, who had each recovered judgment against an insolvent employer, brought claims against BAI, Independent and Excess, under the Third Party Rights Against Insurers Act 1930;
  • In Lead Actions (4) and (5) - 3 solvent employers/insureds (Thomas Bates, AKZO and AMEC) brought claims against BAI and Excess for declaratory relief in respect of past and potential liabilities to their respective employees;
  • Lead Action (6) involved a dispute between (a) Zurich and MMI surrounding the transfer of liabilities from MMI and Zurich in relation to local authority policies and (b) MMI and 10 local authorities as to the interpretation of their respective EL policies.

The First Instance Decision

5. The Judge found as follows:-

5.1. That contrary to the arguments advanced by the Claimants an employee who develops mesothelioma did not suffer an injury at the date of inhalation. He rejected the Claimants’ contention that a person who in fact goes on to develop the fatal condition of mesothelioma can be said to have suffered an injury or disease on or shortly after inhalation;

5.2. That there was no continuing process from inhalation to onset of tumour which could justify a finding that the disease was sustained or suffered on inhalation of asbestos fibres;

5.3. That if injury or disease was present or occurred on or shortly after inhalation then nevertheless he was bound by Bolton to the extent that to fall within the policy “injury” had to be an actionable injury that occurred during the policy period – and no such actionable injury occurred on inhalation;

5.4. In the actions involving Zurich and MMI there was insufficient evidence of universal custom and usage to hold that EL policies were, on that basis alone, to respond on inhalation and not onset of tumour;

5.5. That on the central issue of construction (Section XVI – XVIII)– and having regard to:-

5.5.1. The historical background of policies emerging from the Workman’s Compensation Act era;

5.5.2. The commercial purpose of the policy;

5.5.3. The ambiguity that was presented by the polices as to how the wordings would cover liabilities to former employees

5.5.4. The terms of the ELCIA – which although not requiring a policy to be phrased on a causation wording - strongly indicated that this should be the result;

the Judge upheld the Claimants’ contention that an EL Policy should be construed in a different way to a PL policy – and on a causation basis. An EL policy with either a “sustained” or “contracted” wording responds to the tortious exposure and inhalation of asbestos during the policy period. Accordingly the judge found that there was no material difference in policy response between a “sustained” and a“contracted” wording – and that “sustain” and “contract” should be given the same construction.

The Policy Wordings

6. It is not proposed to set out in this note the full wordings of the policies under consideration. However it is important for any understanding of the judgment to have regard to the different wordings that were in issue; for this purpose Annex 1 to the judgment sets out the relevant extracts from the individual policies.

7. In very broad terms the policies under consideration fell into 3 categories:-

7.1. Policies that provided an indemnity in respect of liability to an employee for:-

7.1.1. “injury sustained or disease contracted” during the policy period;

7.1.2. “injury or disease” which is “sustained or contracted” during the policy period ( Referred to in this note as - “sustained or contracted” policies);

7.2. Policies that applied prior to the implementation of the ELCIA (Jan 1972) and which provided for an indemnity in respect of liability to an employee who

a. “shall sustain personal injury by accident or disease” during the policy period;

b. “shall sustain any bodily injury or disease” during the policy period; (Referred to in this note as -“pre ELCIA sustained policies”)

7.3. Policies that were in force after the implementation of the ELCIA (Jan 1972) and which:-

a. provided for an indemnity in respect of liability to an employee who shall sustain bodily injury or disease arising out of and in the course of his employment; and

b. contained a standard industry wide term deeming the indemnity be in accordance with any law relating to compulsory EL insurance (Referred to in this note as – “post ELCIA sustained policies”)


8. The following propositions emerge from the Court of Appeal judgment:-

8.1. The Court of Appeal were agreed in their view that as a matter of ordinary meaning an injury issustained when it is “suffered” or when it first “occurs”. Rix LJ noted that the concept of sustaining injury prima facie looks to the injury rather than its cause (pp.233) However they differed as to the meaning to be applied to the word in the context of the policies under consideration.

8.2. The majority of the Court of Appeal (Rix L.J and Stanley Burnton L.J) found that the Court was bound by the earlier decision in Bolton to hold that a person did not sustain an injury – and in particular did not sustain mesothelioma at the time of exposure; rather - the injury / mesothelioma was sustained at the time of onset of tumour.

8.3. Rix LJ however made it quite clear that he was unhappy about following Bolton - at least in the context of an EL policy responding to a liability for mesothelioma.

8.3.1. He confessed to serious doubts about its correctness [pp 277]; expressed his preference to depart from the solution found in Bolton [pp.284] and stated that if permitted to depart from precedent, I could avoid the worse argument defeating the better [pp 289];

8.3.2. He considered that the word “injury” was very much a term of art [pp.278]

8.3.3. He reasoned that, in the case of a person who has in fact gone on to develop mesothelioma, it was the risk of developing the disease that constituted the damage for which the employer is liable and for which liability the insurer would, in turn be liable to indemnify [pp.280 and 283];

8.3.4. He was attracted to the view that for a mesothelioma victim the disease had indeed been coming for a long time, even if not in a straight line and even if not inevitably [pp.282];

8.3.5. He states forcefully that:-

Such a conclusion would do proper justice to the idea inherent in the sustained wording, which is that employers should be covered for liability arising out of injuries sustained by their employees in employment in any given policy year where such injuries arise out of the employee’s exposure to the insured employers’ activities in that year. It would also escape the essentially unknowable and serendipitous mystery of when mesothelioma actually onsets which in certain circumstances would make it impossible to say whether the EL liability fell on one insurer rather than another, or fell within one wording or another, or was not covered at all. A legal understanding of the concept of “injury” which would compel such a profitless and unfathomable investigation is essentially anomalous …..[pp 285]
Burnton L.J however was content with the reasoning in Bolton and was happy to follow its approach in relation to EL policies [pp.339].

8.4. Neither Rix LJ nor Burnton LJ found that the intricacies of the Workmen’s Compensation Acts (WCA) had any real bearing on, or utility in, the construction of the policies; Smith LJ upheld Burton J’s reasoning – and implicitly his reliance on the WCA era as an aid to construction.

8.5. In relation to the commercial purpose of an EL Policy:

8.5.1. Rix LJ had little doubt that the commercial purpose was to provide employers with insurance to meet the liability which their activities as employers in each period of insurance engendered. [pp.219]. As we shall see he found himself able to use this underlying commercial purpose as an aid to the construction of (a) the sustained or contracted policies and (b) the post ELCIA sustained policies. However in the case of pre ELCIA sustained policies he felt constrained by the strength behind thelanguage of sustaining injury, (and his conclusion that it could not be said that something had gone wrong with the language) to hold that he could not give effect to the underlying commercial purpose;

8.5.2. Burnton LJ – considered that the commercial purpose was simply to provide cover in accordance with the terms of the policy and having restricted the commercial purpose in this way unsurprisingly found little assistance was to be gained by reference to it as an aid to construction [pp.333];

8.5.3. Smith LJ – in upholding the judgment of Burton J did not expressly address or identify what she considered to be the underlying commercial purpose of an EL policy and was content simply to observe that the meaning was to be ascertained objectively from consideration of the meaning of the words themselves in the context of the contract and set in the factual matrix which must have been taken to have been available to the parties. [pp.316]

8.6. All three members of the Court of Appeal held – expressly or by implication – that the majority of the policies under consideration required an injury or disease to be sustained or contracted during the relevant policy year by a current employee – and so cover would not be available to an ex-employee – even if the onset of the tumour occurred to such an ex-employee during the policy year. However:-

8.6.1. Neither Rix LJ nor Burnton L.J felt that this (albeit unpalatable) result justified the fundamental manipulation of the policy wording undertaken by Burton J in interpreting the word sustain in a causal fashion so as to refer back to the time of exposure and so to the policy year in which the then“current employee” was exposed to the causative asbestos fibres;

8.6.2. Rix L.J recognised that the effect of this construction – which was not a construction advanced with any degree of enthusiasm by any of the insurers (with the possible exception of Excess) was one which would create a potential insurance black hole and that given the importance of industrial diseases for what is now the best part of a century this would indeed, as it seems to me, be an unfortunate conclusion at which to arrive [pp.276]. He accordingly suggested an alternative – and, for him, a preferable - route to a solution which required reconsidering the meaning of injury for the purposes of insurance policies that had to come to terms with the special jurisprudence applicable to mesothelioma claims; as noted above, Rix LJ found that this route was barred by the unavoidable obstruction which was Bolton.

8.6.3. Smith L.J - gave tacit approval to the approach taken by Burton J – in holding that the policies must be taken to have provided cover for the employer’s liability to a person who was an employee and was tortiously exposed during the policy period [pp.326].

8.7. The Court expressed 3 different and contrasting views as to the impact and effect of the ELCIA ’69 on the construction of post ELCIA policies:-

8.7.1. Rix LJ accepted the written submissions made on behalf of the Claimants in Lead Action 2(Fleming & Eddleston v Independent) that the ELCIA ’69 requires an EL policy to be written on a causation basis [see pp.184 and pp.186] In summary his reasons for so doing were that:- Only causation wording ensures that, prospectively, an employer will remain protected in respect of his liabilities for activities in any one policy year; The statutory purpose is to protect current employees who are injured by their employer’s negligence or breach of statutory duty [pp.173]; The exception towards the end of Section 1(1) of the ELCIA exempting employers from being required to insure liabilities in respect of employees who suffer injury or contract disease outside Great Britain suggests the need for causation wording [pp.174] The structure of both the Act and the General Regulations (requiring the display of each year’s insurance certificate relating to current employees) point to a causation wording covering the employment activities in any one year and the risks to which an employee may be exposed in any one (policy) year [pp.174] The Act requires insurance to be provided to cover the employer’s acts of negligence that occur following the inception of the policy – but nevertheless clearly within the policy period; accordingly it is covering future – prospective activities.

Rix LJ went on to hold therefore that where a policy contains a sustained wording then the effect of the standard deeming provisions, (ie clauses that deem the EL indemnity to be in compliance with the law relating to compulsory insurance (the ELCIA)), is to transform what might otherwise have been construed as an injury in fact or injury occurring policy into a causation policy [pp.186]. It is open to debate how far this transformation is dependent on the presence of a deeming clause and whether in the absence of such a provision a post-ELCIA policy with a sustained wording would be required to be construed on a causation basis.

8.7.2. Rix LJ also confirmed the reasoning of Burton J in holding that at the very least when construing post-ELCIA policies the type of insurance policy which best meets the public policy underlying the ELCIA is a causation wording [pp.186]. Accordingly it can be said (with some degree of certainty) that if there is any ambiguity in the policy wording then the statutory requirement would point strongly in favour of a construction that produces a policy response founded on causation.

8.7.3. Smith L.J approved Burton J’s reasoning – namely that although the ELCIA did not mandate a causation wording nevertheless a causation wording best achieved the underlying statutory purpose to the Act – and accordingly could be used as an aid to construing policies which might otherwise be unclear or ambiguous in their intent [pp.324];

8.7.4. Burnton LJ - did not agree with Rix LJ that the ELCIA requires a causation wording – largely because: (a) the wording of the ELCIA requires an employer to have cover in respect of “bodily injury or disease sustained”; and (b) for Burnton LJ the word sustained could never be interpreted in a causal fashion. However in something of a “twist” Burnton LJ chose to interpret the ELCIA deeming endorsement as “widening” the cover available to an “ex-employee” – so that provided an insurer has consistently (over time) maintained a “sustained” policy wording then such a policy would cover the case of an ex-employee whose onset of tumour occurred during the policy year in question. It is questionable how far, in practice, this amounts to any great extension of the cover available – particularly since most EL insurers have since moved to a causation wording. Moreover the conclusion itself is in direct contrast to his own analysis of the policy wordings in question (which do not cover ex-employees) and is the subject of a pertinent critique by Rix LJ – at pp 307 of the judgment.

The conclusions in relation to the different policy wordings The “sustained or contracted” policies (Lead Actions 1 and 4 – the BAI policies)

9. The Court of Appeal unanimously upheld the first instance decision and found that a policy with a disease contracted wording referred to the causative origin of the disease in question.

9.1. Rix LJ found that:-

i. the phrase was more chameleon-like than a pure sustained wording (pp.236);

ii. there was nevertheless a pull in both directions between the tension created by (a) the link with the phrase injury sustained - pulling therefore towards the onset of disease / injury and not its cause; and (b) the commercial purpose of an EL insurance contract – pulling towards the causal origins of the disease.

iii. Since there was some potential ambiguity the pull of the commercial purpose prevailed and not without something of a struggle [pp. 244] he concluded that the time hook for a disease contracted wording is the time of the disease’s causal origins [pp.245]

9.2. Smith LJ did not expressly deal with these policy wordings – but upheld Burton in his construing asustained policy wording by reference to causation and so implicitly found in favour of a causation interpretation in the case of a contracted wording;

9.3. Burnton LJ agreed with Rix LJ – but did so not without hesitation in finding that the word contractcarried with it a link between exposure and disease and held that the disease of mesothelioma may be contracted when exposure occurs.

The “pre ELCIA sustained policies” (Lead Actions 3, 5 (the Excess policies) and 6 (the MMI / Zurich policies)

10. By a majority of 2 to 1 (Rix and Burnton LLJ to Smith LJ) the Court of Appeal allowed the appeals of Excess and MMI and held that the time hook for such policies was the onset of tumour (5 years before diagnosability) – and not the causative exposure. Sustained meant suffered – and could not have any causal link to the period of exposure. Accordingly in the absence of any alternative approach to the meaning of injury and given the binding nature of Bolton the insurer’s construction was to be upheld.

11. Smith LJ – upheld the Judge’s decision on his construction of sustain injury or disease – but did so largely on the basis that the factual matrix against which the policies were to be construed included the limited knowledge of the aetiology and pathogenesis of mesothelioma that was available at the inception of the various policies in issue. She concluded that there was, for whatever reason, a common understanding that an EL policy, regardless of its precise wording (whether caused or sustained), responded to the activities undertaken during the policy period [pp.320-321] and this common understanding (reflected in the settlement practices of all insurers) was part of the factual matrix in which to construe the relevant contracts. She also agreed with his analysis relating to the problem of ex-employees – which required the policies to be construed so as to provide cover for the employer’s liabilities to ex-employees exposed to asbestos during the policy period

The “post ELCIA sustained policies” (Lead Action 2 – the Independent Policy)

12. The Independent policy in Lead Action 2 was the only combined policy under consideration;

13. Rix LJ upheld the Claimant’s submissions that the critical trigger under this policy was for the injury or disease to arise out of and in the course of employment during the policy period ie – for the disease to have been caused by the employer’s activities during the policy period.

14. Rix LJ agreed that this policy had to be construed in the light of:

14.1. The absence of any specific provision in the substantive insuring clause identifying what was required to happen during the policy period for the insurance to operate;

14.2. The commercial purpose underlying EL policies;

14.3. The fact that this was a post ELCIA policy – and the underlying purpose behind the ELCIA;

14.4. The contrasting wordings of the insuring clauses relating to PL and Contract Works liabilities.

15. In addition he found that the deeming clause operated to require the EL indemnity to be given on a causation basis. Accordingly Rix LJ was able to uphold the first instance decision on a policy specific point of construction and having regard to the requirements of the ELCIA.

16. Smith LJ – did not base her decision on the specific policy wording. Rather she upheld the Judge’s findings with regard to the construction and meaning of the word sustain as having, at least at that time, a causation meaning;

17. Burnton LJ disagreed with Rix LJ as to the construction of the specific wording and as to the interpretation of the ELCIA and accordingly held that the policy “trigger” or “time hook” was – as with all pre-ELCIA cases – that of onset of injury or disease;

18. Accordingly in this case the Claimant succeeded on the issue of construction – by a majority of 2 v 1 – but for differing reasons.


19. A few tentative conclusions can be drawn:-

19.1. Where a policy contains a contracted wording then it is the causative tortious exposure that must occur within the policy so as to provide the temporal hook on which to secure a policy response. This was the only conclusion with which all 4 Judges (at first instance and in the Court of Appeal) have agreed. Such a policy wording – can now be read with some degree of clarity.

19.2. It must be remembered however that where a policy is worded on the alternative basis of injury sustained or disease contracted – there now remains open the possibility of there being two separate temporal triggers each of which may give rise to a need to indemnify (ie one “trigger” or “hook” at the date of the occurrence of injury (sustained) and the other - the date of the causal event (contracted)).

19.3. Where a pre ELCIA policy contains a pure sustained wording then (subject to the precise terms of any individual policy wording) two events must coincide within a policy period to secure a policy response:-

19.3.1. There must be the occurrence or suffering of injury– (which in a mesothelioma claim amounts to the onset of tumour (5 years before diagnosability));

19.3.2. That injury must occur to, or be suffered by, an employee – who is still a current employee at the time of injury;

So – if, for example, an employer maintains a sustained policy from the date of initial exposure through to onset of tumour nevertheless if in fact the victim resigned from his employment 25 years before onset – then the employer would not (on the policy wording alone) be covered since the injury has not occurred to an employee during the policy year in question but to a former employee. Although in such an example – since the policy in force at the date of onset will (almost inevitably) be post ELCIA – on Burnton LJ’s reading of the ELCIA (but no other) any deeming provision would require the policy to respond to an ex-employee notwithstanding that the precise policy wording would suggest otherwise;

19.4. There is no easy or universal approach that can be applied to the construction of EL policies; each claim must be considered discretely and the policy cover analysed with care. This will have an inevitable impact on the speed with which such cases can be handled – and also lead to increased cost of doing so.

19.5. There are perhaps only two approaches which would serve to unite and provide a common means of construing all EL policies.

19.5.1. The first is to give primacy to the commercial purpose underlying an EL policy – identified in common ways by both Burton J and Rix LJ - and so require the natural meaning of sustain / sustainedto give way to, and be construed in accordance with that commercial purpose;

19.5.2. The second is to follow the approach preferred by Rix LJ in relation to the interpretation of injury within the specific context of mesothelioma claims – and for Bolton to be overruled or limited in its impact to PL policies;
It remains to be seen whether the Supreme Court accepts the invitation laid down by Rix LJ and chooses to adopt either or both of these solutions.

19.6. In relation to post-ELCIA policies there remain a number of issues:-

19.6.1. To what extent does the ELCIA require an EL policy to be written on a causation basis? – at present only one Judge – Rix LJ has found this to be so. And if there is such a requirement - to what extent is this approach dependent on their being a “deeming” clause to transform a substantive insuring clause so as to make it compliant with causation requirements of the Act;

19.6.2. Do current EL policies – that adopt the sustained wording used in the ELCIA respond on a causation basis or an injury in fact basis – when:- 4 Judges have together found that the natural meaning of sustain is to suffer and (in itself) has no causal connotation; Smith LJ based her decision on the common understanding of the parties at the time policies were taken out in the 20th century and observed that if the question were to be considered through 21st century eyes then she would tend to find that parties using a sustained wording intended that cover should be provided in respect of the policy year in which the injury actually developed which might be many years after exposure … Only one Judge has found that the Act requires a causation wording; The majority of the Judges have found that although a causation wording best complies with the policy of the Act there is nothing that dictates a particular format of wording.

20. A “bullet point” summary of the position reached in the Court of Appeal is as follows:-

20.1. For contracted wording the time hook is the causative exposure during the policy year;

20.2. For pre-1972 sustained wording the time hook is the occurrence of tumour during the policy year;

20.3. For post-1972 sustained wordings (with a deeming clause) the time hook is the causative exposure during the policy year;

21. It has taken the Court of Appeal almost 12 months to determine this appeal. There are perhaps only three things that can be said with any certainty:-

21.1. The first is that appeals to the Supreme Court are inevitable[1];

21.2. The settlement of such cases has not been made easier;

21.3. Nothing at the moment is certain;

[1] The Court of Appeal has granted permission to all losing parties to appeal to the Supreme Court

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