The insurance industry is battling to persuade the government to amend the draft clause aimed at reversing the controversial Barker asbestos ruling over fears that it could inadvertently widen insurers' liability to mesothelioma claims.
Insurers are concerned that the "loose" wording of the clause could allow claimant lawyers to argue that it extends the law beyond the pre-Barker position, potentially plunging the system into disarray.
The ABI is also concerned that the proposed wording fails to address other critical issues surrounding liability and could hamper insurers' recovery from other liable parties.
The ABI and insurers are now lobbying hard to obtain an amendment before the clause, contained in the Compensation Bill, becomes law.
Steve Thomas, Zurich technical claims manager, said: "The government is keen to push it forward as quickly as it can. It is trying hard to get it enacted before the summer recess." The third reading of the Bill is scheduled for 17 July.
In Barker, the Law Lords ruled that where there are multiple defendants, each one is liable only for its apportioned share of a mesothelioma claimant's compensation, therefore requiring a claimant to sue all liable parties. This reversed the previous case law that said one insurer could be liable for the whole of the claim.
Asbestos lobby groups claimed the Barker ruling would deprive claimants of their rightful compensation, prompting the government to draft a clause to reverse the decision.
The new clause, seen by Insurance Times, attempts to reverse the Barker ruling by stating that an insurer "shall be jointly and severally liable for the damage caused by the disease".
But Zurich says the clause does not limit its application to negligent workplace exposures only - a crucial aspect of the case law on asbestos liability.
Thomas said: "The wording is too loose. Its effect could go further than that which the government intended. A claimant lawyer could use it to expand the law beyond the limits pre-Barker."
The ABI argued that without further changes to the clause, it could send asbestos compensation into disarray.
It said there must be provisions relating to disclosure of a claimant's employment history to allow an insurer to track down other liable parties.
The ABI also said that claims involving an insolvent insurer must also be properly dealt with by any clause.
And it said insurers must be able to recover from other liable parties on a "time on risk" basis.
Justin Jacobs, head of liability at the ABI, said: "If these issues are not addressed in the legislation then negligent parties could get away without paying.
"It will create a mess," he added."