Relief for local authorities after Supreme Court rules on employers liability insurance contracts

Local authorities will be breathing a sigh of relief today after a landmark Supreme Court ruling on the obligations of insurance companies under various employers’ liability (EL) insurance contracts.

The Court’s ruling in the Employers’ Liability Insurance Litigation – BAI (Run Off) Limited (In Scheme of Arrangement) and others v Durham and others [2012] UKSC 14 – means all of the ten local authorities involved in the dispute are entitled to policy indemnity from Municipal Mutual Insurance.

MMI provided up to 86% of EL and Public Liability cover to the local authority market at its peak.

The case concerned the scope of the insurers’ obligations to indemnify employers against their liabilities towards employees who have contracted mesothelioma following exposure to asbestos.

The Supreme Court has overturned a majority ruling in the Court of Appeal on the meaning of a ‘sustained’ policy wording in EL cases.

According to law firm Kennedys, which acted for two of the local authorities involved in the case, today’s judgment reinstates the longstanding market practice that policy cover for mesothelioma claims is triggered by the date of exposure to asbestos and not by the deemed injury date of injury many years later.

Partner Mark Burton said: “The practical effect of this ruling is that local authorities no longer face the prospect of self-funding future mesothelioma and other long-tail liabilities, which could have led to budget pressures and diverting resources from local services.”

Nick Starling, Director of General Insurance and Health at the Association of British Insurers, said the ABI had always opposed the attempt to change the basis on which mesothelioma claims should be paid, as argued by those who brought the litigation.

He said: “Today’s ruling by the Supreme Court has confirmed what most in the industry have always understood – that the insurer on cover when the claimant was exposed to asbestos should pay the claim, rather than the insurer on cover when the mesothelioma develops. This case has been pursued by a small group of ‘run-off’ insurers acting independently and at odds with the views of the majority of the UK insurance industry.”

Arguing that the judgment would provide certainty for both mesothelioma claimants and insurers, Starling said it would now be possible to ensure reforms are introduced to expedite the claims process for mesothelioma claimants.

“The ABI is in favour of introducing a pre-action protocol so that claimant solicitors and insurers are held to strict timelines to ensure cases are dealt with as quickly as possible and this could be underpinned by an online mesothelioma portal to improve the efficiency of the claims process,” he said.

Irwin Mitchell lawyer Helen Ashton, who acted for the lead claimant, claimed the ruling would provide “clarity, consistency and comfort” for the families of thousands of mesothelioma victims.

She said: “As well as the people currently directly affected by asbestos related disease, this judgment means that the thousands of people who are yet to be given the devastating news that they have the deadly illness will at least know that their families can get access to justice and receive the financial security they need.

“But the sad fact is that many victims of mesothelioma who have been awaiting the outcome of this appeal may not have lived long enough to know if their families will now receive the compensation they deserve.”

Philip Hoult

See also: Trigger happy – Mark Burton and Kieron West’s analysis of the Supreme Court’s ruling.