Publications
Court Holds EL Policies Trigger on Date of Inhalation
London & Bermuda Newsletter
Employer’s liability (EL) policies respond to mesothelioma losses on date of inhalation, not date of tumour. This is the outcome of the decision, handed down in November 2008, in multi-party litigation (the “EL Trigger Case”) before the English High Court. The decision may be only the first step in a longer process of obtaining certainty on this matter. It has significant repercussions for the direct market and reinsurers alike.
The Problem of Bolton
The decision restores the basis on which EL insurers have been settling asbestos-related claims for several decades.
The possibility that the market may have been wrong about EL trigger first arose following the case of Bolton v MMI. That case concerned public liability (PL) policies. The Court distinguished PL policies with injuries “caused” language from those with injuries “occurring” or “sustained” language. It held the former respond in the year the victim was exposed to asbestos (date of inhalation), whereas the latter respond in the year in which mesothelial cells made the final genetic mutation into cancerous tumour (date of tumour).
The long latency between inhalation and tumour (often 30-40 years) meant this had major impact on implicated policy periods.
Relevance of Bolton to EL
EL policies historically used injuries “sustained” or “occurring” wording. But about 30 years ago, some carriers changed to injuries “caused”.
Following Bolton, it became a vexed question whether the Boltonite distinction concerning PL policies applied analogously to EL policies.
The suggestion there were two types of trigger at large presented the possibility that some employers had significant “black holes” in their legacy programmes. For example, they may have no coverage for their liability to employees exposed during an injuries “sustained/occurring” period of cover but whose date of tumour fell during an injuries “caused” period of cover.
Avoiding Black Holes
The Court heard evidence as to the rationale behind the change in wording. It appeared to the Court the change was intended to clarify prevailing bases of coverage rather than change them.
The Court took a purposive view in construing the trigger wordings. It concluded that all EL policies before it, regardless of wording, responded at date of inhalation, not date of tumour. EL policies are therefore unlike PL policies.
The enormous public interest in making continuous, unbroken legacy programmes available to victims of asbestos exposure was clearly of importance to the Court.
Another key outcome was the Court’s finding that the period from tumour to manifestation is more likely in the region of five years, rather than 10 years, which the market has applied until recently. This will have repercussions for public liability policies, where – for the present at least – the case for a date of tumour trigger seems stronger.
Effect on Reinsurance?
The implications for direct EL carriers are clear. Given the long latency, liability for mesothelioma will be related back to older policies in an employer’s legacy programme; more recent policies will not respond to loss arising from historic exposure.
Reinsurers exposed to EL risks are likely to find aggregate retentions exhausted sooner than they would have been had the trigger been tumour. This is because limits under historic policies are likely to be blown sooner by settlements based on current measures of loss.
The End, or Just the Beginning?
Permission to appeal the decision has been granted; a hearing before the Court of Appeal may occur as early as Spring 2009. Further appeal to the House of Lords may push a definitive resolution of the issue into 2010.
Employer’s Liability Trigger Cases [2008] EWHC 2692 (QB)
|