Contribution claims between insurers in mesothelioma cases — limitation and basis of assessment of quantum

RSA Insurance PLC v Assicurazoni Generali SpA HQ 17A00144

Executive summary

A claim for a contribution made by an insurer on risk for one period of culpable exposure against another insurer is a claim for “damages” rather than “debt” and therefore falls within the ambit of Section 1(1) of the Civil Liability (Contribution) Act 1978 (“the 1978 Act”). It follows that such claims will be subject to the strict two year limitation period from the date of settlement or judgment (which has no provision for discretion to disapply the time limit) rather than the six-year time limit which applies to debt claims.

The measure of damages (extent of contribution) should be assessed on a time exposed basis commensurate with the insurers’ period on risk.

Background

Mr Merritt was employed by Alick Whittle Limited (“the Company”) between tax years 1975/1976 and 1985/1986 during which period he was exposed to asbestos dust/fibres. The Company was dissolved in 1996. The claimant (RSA) insured the Company for employers’ liability (EL) risks for the last six months of Mr Merritt’s employment. Mr Merritt subsequently developed malignant mesothelioma.

At the time of Mr Merritt’s claim, RSA was the only insurer traced and therefore was obliged to indemnify the Company in respect of the whole of the claim by virtue of the Compensation Act 2006. The claim was settled on 17 January 2011. It was only in July 2015 that RSA discovered that the Company had been provided with EL Insurance by Aviva and the defendant “Generali”. RSA sought an equitable contribution from both Aviva and Generali. Aviva agreed to pay but Generali did not. Proceedings were issued by RSA on 13 January 2017.

The court had to consider:

1. Whether the claim for contribution fell within the ambit of Section 1 (1) of the 1978 Act. It was common ground between the parties that if the nature of RSA’s claim was for “debt” it would not be covered by the 1978 Act, whereas it would be if the claim was for “damages”. As the claim had not been commenced within two years of the settlement of Mr Merritt’s claim RSA accepted that, if the 1978 Act applied, it was statute-barred by virtue of the two year period prescribed in the 1978 Act.
2. Whether the original settlement was “reasonable” and the basis on which Generali’s contribution should be calculated; in particular whether the court should diverge from an equal apportionment which was the usual rule in cases of “double insurance” and, if so, whether the contribution should be proportionate to the insurers’ period on risk.

Judgment

Lords Mance and Sumption had come to different conclusions on the first issue in International Energy Group v Zurich Insurance UK Branch [2015] UKSC 33 1 [“IEG”]. However, HHJ Rawlings did not consider himself bound by either conclusion as the issue had not been fully explored in evidence and submissions and their conclusions were “obiter”.

HHJ Rawlings rejected RSA’s argument that the ambit of the 1978 Act was limited to claims between those who were liable to compensate the original victim rather than those liable to contribute pursuant to an indemnity given to the party with primary liability. He concluded that he was bound by the line of cases that have decided or confirmed that the liability arising under an insurance contract of indemnity is for unliquidated damages. The judge agreed that the treatment of insurance indemnities as unliquidated claims in damages created anomalies, particularly in circumstances such as this case, where the insurer pays under the indemnity as soon as it has a liability yet the liability is described as one for unliquidated damages for breach of contract. Whilst it was an unusual form of damages it was damages rather than debt nonetheless.

On that basis, the 1978 Act applied and the claim for a contribution was statute-barred.

In light of his conclusion, it was not strictly necessary for the judge to deal with the second issue but he elected to do so. By the trial, Generali no longer asserted that the settlement figure was unreasonable but did assert that any assessment of the contribution should be broad-based and therefore should take into account RSA’s failure to pursue a claim against previous employers and the occupiers of two factories where Mr Merritt stated he had been exposed to asbestos.

The judge acknowledged that the 1978 Act allows for a broad basis of assessment of a contribution, as was necessary to allow justice to be done to the wide variety of claims that fell within the Act, but also took into account that equal apportionment applied in traditional cases of “double insurance” (where two or more insurers covered the same insured for the same risk for the same period). He concluded that Lord Mance was not espousing a broad-based assessment when he held that a time on risk apportionment was appropriate in IEG, but rather was allowing a limited extension to the normal rule of equal apportionment to deal with the exceptional situation created by Fairchild whereby an insurer on risk for only a proportion of the period of exposure was nevertheless liable for 100% of the claim in mesothelioma cases. HHJ Rawlings considered that any further extension to allow an unfettered broad approach to assessment would create uncertainty with the inevitable and undesirable result of increased litigation to resolve issues between insurers.

The trial judge gave leave to appeal and an appeal is pending.

Comment

The circumstances of this case are yet another example of the ongoing ripple effect arising from Fairchild. There will always be cases where relevant insurers are not traced until more than two years after settlement leaving insurers without recourse to a contribution. On a time on risk apportionment between the three traced insurers, RSA would only have been liable for 8.02% of the claim. Such cases will affect all EL insurers and consideration could be given to a market agreement to deal with the situation.

Although this is only a first instance decision and “obiter”, the decision in respect of the assessment of the contribution is consistent with the current market practice for apportioning claims.