Shared responsibility

The weight of the asbestos dust on insurers' shoulders just became a little heavier.

They had enjoyed what one legal insider described as "a little holiday" from mesothelioma cases following the Court of Appeal's Fairchild decision late last year.

The Court of Appeal ruled that, based on the "fatal fibre" theory, if more than one employer had exposed a claimant to asbestos it was impossible to decide which employer was liable.

This judgment effectively meant that such claimants would be unable to claim from anyone.

Claimants Fairchild, Fox and Matthews vowed to take their case to the House of Lords.

And the Lords brought the industry firmly back to earth last Thursday, finding for the claimants.

Although the written judgment is not due until July, legal experts say the Lords is expected to conclude that any employer that made a material contribution to the claimant's condition can be found 100% liable.

Thursday's oral judgment ended a month of claim and counter- claim by lawyers for the insurers and claimants.

There was heated crossfire when the insurers, chiefly Norwich Union (NU), Eagle Star and Iron Trades, offered last minute settlements and costs to the three claimants days before the Lords heard their case.

Claimants' lawyers accused the insurers of attempting to derail the justice process. If Fairchild, Fox and Matthews had accepted the settlements, thousands of other asbestos claimants would be unable to take their claims to court.

The Association of British Insurers (ABI) became implicated in the heated media comment when, at the same time, it announced a draft compensation scheme.

It protested that the scheme was a genuine attempt by insurers to speed up the payment of compensation and avoid costly litigation.

Given the Lords' finding, estimates of the future costs to the insurance industry are vastly disparate.

Construction workers' union Ucatt estimates it will eventually cost between £6bn and £8bn. The ABI says this is a "wildly irresponsible" figure, putting it closer to £200m a year.

Experts estimate 3,000 people are diagnosed with mesothelioma every year, with expectations that figure will stay steady until 2015 at the earliest.

Rising legal costs and awards exacerbate the hit to insurers, while the pool of insurers to claim against continues to shrink through consolidation.

The ABI says almost all the top 50 UK insurers will be affected, with the pain concentrated in the top ten, but it insists that all insurers have reserved sensibly and will cover the costs without problem.

Meanwhile, there are an estimated 500 cases in the pipeline that were held back awaiting the House of Lords' decision.

Some legal experts say, although they are now free to move forward, it will be difficult to expedite these cases without knowing the detail of the decision that will come in the written judgment.

The waiting game begins again.

The single fibre defence
Simon Cradick, partner at Morgan Cole, explains the Court of Appeal's original judgment on asbestos claims

For many years, the insurance industry treated claims for asbestos-related disease uniformly. All employers on risk contributed to awards on a time-exposed basis, the rationale being that all employers who had exposed the claimant to asbestos had materially contributed to the injury.

Medical evidence had viewed asbestosis as a dose-related disease, so the more a person was exposed to asbestos the greater the likelihood of disability. Thus, all exposure was deemed to have contributed and all those responsible for the exposure would be liable.

Where the claimant claimed against only one of several employers that were responsible, he could recover damages proportionate to the level of exposure with that employer.

The approach was given judicial approval in the case of Holtby v Brigham & Cowan. The defendant successfully argued that it should not have to pay 100% of the claim where it could prove that the claimant had been exposed to asbestos by other employers.

The burden of proof was on the defendant to establish causative exposure elsewhere.

In contrast, medical thinking now is that mesothelioma is not dose-related. It is not known whether it is caused by a single fibre of asbestos or more than one. If there is more than one fibre, it is not known whether they came from more than one source. In other words, a claimant could not prove on the balance of probabilities when and where they had been exposed to the asbestos that caused mesothelioma.

So if there is more than one source of exposure, a claimant could not demonstrate which source was responsible.

One of the arguments in Fairchild was that every employer who exposed the claimant to asbestos materially increased the risk that he would develop the disease and should be liable in damages proportionately.

The Court of Appeal found that liability would arise only if an employer had materially contributed to the injury. The claimant could not prove material contribution and the fact that an employer may have materially increased the risk of an employee being injured did not give rise to liability in law.

The result was that, where a defendant could demonstrate that a person suffering from mesothelioma was exposed to asbestos elsewhere than in his employment, there was a potential defence of causation.

What people are saying about the judgment
Insurance companies have to accept their responsibilities. They have been shamed by this decision.
George Brumwell, leader, Ucatt

It was inevitable that something had to be done because the situation was unacceptable. Cases can now go ahead, but it will be difficult to know on what basis to settle until we see the written decision at the end of July.
Dr Tony Prichard, partner, Weightman Vizards

Insurers expected the House of Lords' judgment to go against them and it will have little effect on their financial strength and ratings. The insurance industry is prepared for claims inflation and is known to have set aside significant reserves to fund as yet unreported liabilities.
Kevin Willis, director, Standard & Poor's

We pulled out of the London Market and global risks in 2000 and our exposure to such liabilities is not significant. Any costs arising out of the decision are not likely to have a material impact on the group.
Official statement, Norwich Union

It looks as if Holtby has been kicked to one side and we're back to the status quo before the Court of Appeal decision. Almost certainly more claims will arise from the publicity surrounding Fairchild.
Fiona Gill, partner, Davies Arnold Cooper

We don't yet understand the legal mechanism behind the decision, which means it will be difficult to get the cases in the pipeline out of the way. Until we see a written judgment, we don't know how to expedite them.
Andrew Parker, partner, Beachcroft Wansbroughs

We welcome the clarity that the ruling brings, which will enable us to settle claims that fall within the judgment. We have sufficient reserves to meet the expected claims.
Official statement, Eagle Star

The House of Lords has again highlighted potentially the most costly health scare in history.
Christopher Booker, writing in the Sunday Telegraph