Zurich Insurance v IEG [2015] UKSC 33

Case Background

IEG is a solvent Guernsey company, a supplier of gas to the Channel Islands and a subsidiary of a global utilities, transport, energy and timber company quoted on the New York Stock Exchange. IEG is the successor in title of Guernsey Gas Light Co Ltd (“GGLCL”), which for a period of over 27 years from 13 November 1961 to 31 December 1988 employed Mr Carré and during such employment exposed him to asbestos dust.

In 2008 Mr Carré brought proceedings against IEG claiming that he had sustained mesothelioma consequent on his exposure to asbestos dust throughout his 27-year period of employment with GGLCL. IEG settled his claim on 19 December 2008 by a compensation payment consisting of £250,000 in damages and interest plus £15,300 towards Mr Carré’s costs. IEG also incurred defence costs of £13,151.60.

Thereafter IEG looked to GGLCL’s liability insurers under policies in force during the period of exposure. Two have been identified, first the Excess Insurance Co Ltd, which provided employers’ liability insurance for two years from 31 December 1978 to 30 December 1980, and, second the Midland Assurance Ltd, to whose insurance liabilities Zurich has succeeded, which provided such insurance for six years from 31 December 1982 to 31 December 1988. The present appeal thus proceeds on the basis that GGLCL had insurance for eight of the 27 years throughout which it exposed Mr Carré to asbestos dust. Guernsey did not have legislation making employers’ liability insurance compulsory until 1993, when the Employers’ Liability (Compulsory Insurance) (Guernsey) Law 1993 came into effect.

IEG notified a claim for its total loss to Zurich, which offered to meet 72/326ths of the damages and interest paid to Mr Carré and of the defence costs incurred. The proportion reflected the relationship between the six years of the Midland insurance and the 27-year period of Mr Carré’s exposure by GGLCL. It was arrived at on the basis that IEG’s liability to Mr Carré was incurred and increased from day to day throughout the 27 years, while only six years of such liability fell within the period of the Midland insurance.

At first instance Cooke J accepted Zurich’s case regarding the compensation, but not the defence costs, paid in respect of Mr Carré. He held it liable to pay £71,729.84 in full discharge of its policy liabilities, being its relevant proportion of such compensation plus 100% of the defence costs. The Court of Appeal allowed IEG’s appeal, rejected Zurich’s cross-appeal relating to defence costs, and ordered Zurich to pay £278,451.60, representing 100% of both the compensation paid and defence costs incurred by IEG.

On appeal to the Supreme Court two questions required answering: first, is Barker still good law in Guernsey; second, is an insurer who provided only part of the cover liable for the entire liability and, if so, are they entitled to recover a proportionate amount from other insurers. In addressing the first question the Supreme Court held that Barker is still good law in Guernsey. On the second the court held that Zurich was liable for the full amount but that it could claim contribution for the period not covered by their policy.

 Contributor Comments

The result of the case is easy enough to understand even if the reasoning of the court is not: Barker remains good common law (Guernsey not having an equivalent to the Compensation Act 2006) meaning liability is proportionate; had the matter been governed by English law then IEG would have been liable for the full amount but with the right to claim contribution from other insurers.

This result leads to two interesting questions and/or points: first, would the modification of the double insurance principle, as first suggested in the case of Phillips v Syndicate 992 Gunner [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][2003] EWHC 1084 (Comm), be a simpler solution; and second, on the basis that Barker remains good common law are the defendant’s arguments in Heneghan v Manchester Dry Docks [2014] EWHC 4190 (QB) sound?

The first of these questions has been considered in detail by Charles Feeny in the note, ‘IEG v Zurich: Insurance Law for the Digital Age?’. By way of a brief overview, it was argued in Phillips that if indemnity was working in a way not anticipated at the time that the policies were underwritten, it would be reasonable if the concept of double insurance was modified so as to reflect this situation. Although rejected by the English courts, this approach does appear to have found favour in Australian cases, see for example AMP Workers Compensation Services (NSW) Ltd v QBE Insurance Ltd [2001] NSWCA 267, (2001) 53 NSWLR 35, Zurich Australian Insurance Ltd v GIO General Ltd [2011] NSWCA 47.

The desire for a simpler approach is compounded by he divide between the majority and minority in IEG. The root of the difference appears to be a disagreement over the so-called Fairchild enclave. Speaking on behalf of the majority, Lord Mance reasoned (at paragraph 51):

The court is faced with an unprecedented situation, arising from its own decisions affecting both tort and insurance law. A principled solution must be found, even if it involves striking new ground. The courts cannot simply step back from an issue which is of their own making, by which I do not mean to suggest that it was in any way wrong for the courts, from Fairchild onwards, to have been solicitous of the needs of both victims and insureds. But by introducing into tort and liability insurance law an entirely novel form of causation in Trigger, the courts have made it incumbent on themselves to reach a solution representing a fair balance of the interests of victims, insureds and insurers.’

In contrast Lord Sumption makes an impassioned defence of traditional principles (at paragraph 113):

No insurer can be liable in respect of other periods when he was not on risk or there was no insurance in place at all. That appears to me to be the correct answer to the problem which has arisen on this appeal. The suggestion that an insurer who was on risk for only part of the period of exposure, however brief, can be liable as if he had been on risk for the entire period, is contrary to the express terms of the contract and to the nature of annual insurance. The suggestion that some doctrine of law can be devised which imposes on an insurer in one year the risk that insurers of other years may become insolvent or that in other years the employer may fail to insure at all, is both unprincipled and unjust. The suggestion that equity can partially adjust the result of this injustice by requiring the insured to repay to the insurer part of the insurance moneys which the latter was contractually obliged to pay him, is contrary to basic principles of law.’

Whilst intellectually fascinating, the ultimate discussion can scarcely be described as readily accessible.

In relation to Heneghan, the Defendant’s arguments on apportionment appear secure, with the confirmation of the binding nature of Barker.  However, the more difficult issue on the appeal is likely to be whether the Defendant’s acceptance of the application of the Fairchild exception to cases of carcinoma of the lung was correct.  At first sight, it appears surprising, and high risk, that a Defendant would concede a Fairchild approach to carcinoma of the lung in the hope of achieving a Barker apportionment. Insurers and Defendants have been fearing for many years the extension of the Fairchild exception to cases of carcinoma of the lung and it was not to be anticipated that the point would go by way of concession.

There is real difficulty in applying the Fairchild exception, certainly without modification of any kind to the causation of carcinoma of the lung. Whilst these two conditions have the similarity of being carcinomas caused by asbestos, there are important distinctions in relation to their causation. The Fairchild exception is justified in relation to mesothelioma because of the stochastic nature of the risk created by multiple exposures to asbestos. At the centre of the rule is the perception that in these circumstances there is scientific uncertainty as to which exposure was causative and therefore the requirement of proof is diluted to one of risk rather than but for causation. However, carcinoma of the lung is a threshold condition and it can be said in an appropriate case that a Defendant’s exposure was sufficient to have actually caused the condition, that is that it would not have been on the balance of probabilities suffered in the absence of this exposure. There may be many cases where the nature of the exposure is marginal and indeed it is questionable whether there is sufficient evidence of medical causation by asbestos at all.  However, this type of difficulty of proof is not to be equated with the conundrum created by the confounding effects of successive exposures in a mesothelioma claim. If apportionment is to be applied in a lung cancer case, would it follow that where a victim had clearly excessive exposure and the Defendants had contributed, say, 80% of that exposure, they should nonetheless be subject to a 20% discount? The evidence in that case would indicate on clear probability that the Defendant’s exposure had caused the carcinoma on a conventional basis.

There will be many cases where the Claimant simply cannot prove that there was sufficient contribution to the risk of carcinoma from a relevant exposure as to make it likely causative. However, a principle of but for causation assessed on a balance of probabilities as acknowledged in Gregg v Scott [2005] UKHL 2 and indeed countless other cases, creates the prospect that a Claimant may prove a substantial contribution to risk but not sufficient to prove causation. On the other hand, a Defendant is not usually entitled to a deduction to reflect the possibility, albeit less than probability, that the condition could have arisen without reference to the Defendant. If Heneghan is followed, then it would appear that it would result in the common law doing what it has previously always refused to do, that is penalising those who can prove causation on a conventional basis to compensate those who cannot.

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