Decades later, who pays occupational disease claims?
The vexing question as to when an occupational disease policy is triggered has been answered by the UK Supreme Court – whether or not the decision was fair or not is, however, a moot point.
Short-term insurance policies are usually issued on a year-to-year basis, but different policies may be issued by different insurers to the same employer over the years. Let’s assume an insurer issues a policy covering liability for occupational diseases such as asbestosis, and let’s consider the example of an employee who works for a company that uses asbestos for 40 years, then retires. After retiring, he discovers that he has contracted asbestosis and sues his former employer.
Which of the policies issued by various insurers during the 40-year period will cover such a claim:
• Is it the policy that was issued 40 years ago, when the employee was first exposed to asbestos;
• Is it any of the policies issued in any of the subsequent years he was employed;
• Is it the policy that was in force when he first discovered that he had contracted asbestosis;
• Is it the policy that’s in force when he decides to issue a summons against his employer;
• Or is it all of these policies?
The question is of importance to the solvency of insurance companies. If the court rules that it is the policy that was issued 40 years ago, insurers wouldn’t have reserves set aside for that. Technically, if insurers estimate their total liability from these and other similar claims, many would be insolvent. These liabilities are being imposed ex post facto (after the fact).
The question of when and which policy is triggered is a vexing question that has been debated for decades. The old wording said a policy would provide indemnity for the employer for losses that occur – but it is impossible to know when asbestosis actually occurs.
The matter finally wound its way through the UK legal system, and in March this year, the UK Supreme Court handed down its decision in BAI Run-off Ltd and others v Durham (and others) 2012 UKSC 14. The case combined nine cases all dealing with the same point. The cases involved mesothelioma, a form of lung cancer caused by prolonged exposure to asbestos. The case involved 45 barristers (called advocates in this country), 25 of whom were QCs (Queen’s counsel; senior counsel in this country), and was presided over by five judges.
These cases would already have cost the UK insurance companies hundreds of millions of pounds in legal expenses alone (consider that the Libor matter currently involving British banks has already cost Barclays over £100 million, and so far no criminal charges have even been laid).
It’s clear that an answer to the “trigger” question had already cost a great deal of money, even before any compensation was granted.
The cases dealt with employers’ liability policies, which are taken out to indemnify the employer against claims from employees. The matter was complicated by the fact that different wording existed in previous years, and that the wording of many policies had also changed over time. A further complication was that, in some cases, employers had gone insolvent – as had some insurers.
In South Africa, conceptually, employer’s liability is provided as part of the worker’s compensation legislation and related policies are not as important as they are in the UK, where employers are obliged by law to purchase employer’s liability insurance. Yet another complication in that country is that the UK Parliament had passed specific legislation to deal with the asbestosis type of problem – the Compensation Act of 2006.
The approach of the court was to interpret the policy wording in light of the legislation which made the purchase of employer’s liability insurance compulsory. In that way, the influence of individual policy wording was restricted. If the legislation requires a specific degree of cover, the wording in individual polices should be interpreted to provide that cover (paragraph 47 of the judgement). The judge called this novel rule “a powerful tool in the interpretation of such insurances”. The cover that is provided is not found merely in the wording of the policy, but in the wording of the Act of Parliament. Liability of insurers was thus found to be on a causation basis – a much broader basis than individual policy wording would suggest – and obviates a decision on when a policy is triggered. For purposes of this case, therefore, words such as “contracted” or “sustained” in reference to diseases was held to have no particular significance and both were taken to refer to causation of the disease.
The Solicitors Journal April 23, 2012 summed up the judgement as follows: “… the Supreme Court determined that the responsible employers’ liability insurance policy to answer a claim made by a mesothelioma victim against a defendant employer, no matter the wording (“sustained” or ”contracted”) was the policy in place at the time of asbestos exposure. The insurers had argued the relevant policy was that which was in place at the time the disease developed; for many, a time when no defendant, and hence no policy, existed at all.”
An interesting aspect of the case was the intervention by the government against the insurers. The government argued that the court should find the insurers liable because if it did not, the taxpayer would become liable. Judges, so the argument goes, should do their civic duty and hold insurers liable because so doing would spare the taxpayer. It is interesting to note that in terms of this view, someone must always be liable – it’s just a question of which person is liable. This view does not accept that there can be cases where no-one is liable.
The government’s argument, of course, has no foundation in law. It is what is called the Deep Pocket argument – those assumed to have money (even if in fact they do not have money) are liable. This is a very socialist, entailment argument. This argument also forgets that it is not insurance companies which foot the bill, but the policy holders. This is a form of tax on policy holders. The Supreme Court dismissed this argument, which in this case was of little very significance since by then the court had already decided insurers were liable. The government got its way and the cost was shifted on to the public via the insurers to shareholders and policyholders.
Legally Speaking is a regular column by Professor Robert W Vivian, a leading authority on insurance and risk management. He has written a number of books on South Africa’s business history.