Proportionate Liability
In the House of Lords hearing, Leading Counsel for both sides accepted that, if a defendant had materially contributed to a mesothelioma, it would be liable to pay the full damages flowing from it even if another company had also exposed the sufferer to asbestos but for some reason had not been sued (e.g. because it was uninsured and had no assets). Consequently their Lordships found it unnecessary to make a ruling on the point. This tempted insurers to argue that they were only liable for their insured company’s proportion of the total asbestos exposure, and not for the full damages.
Phillips v Thermac Insulations Ltd
This issue arose in a claim brought by Mrs Sylvia Phillips, widow of the late Arthur Phillips who had worked as a lagger for Thermac from 1955 to 1957 and from October 1959 to 1970, a period of about 12 ½ years. Lloyds Syndicate 992 had insured Thermac from November 1957 to November 1968, covering about 9 years of Mr Phillips’ asbestos exposure. Thermac had long since ceased to trade, and any other insurers it may have had were unknown. Following Mr Phillips’ death from mesothelioma, Rodney Nelson-Jones obtained a High Court judgment against Thermac for £205,000 damages. However Syndicate 992 only paid £148,625 (72.5%) of this, matching the proportion of Mr. Phillips’ asbestos exposure by Thermac for which the Syndicate had held the insurance risk.
Phillips v Syndicate 992 Gunner and Others
Consequently Rodney started a fresh Court action against the Lloyds Syndicate itself for the balance of £56,375 plus interest. He relied upon the Third Parties (Rights Against Insurers) Act 1930, which entitled Mrs Phillips to claim against the Syndicate whatever indemnity Thermac would have been able to secure if it had still existed. Rodney instructed Frank Burton Q.C and the case was heard before Mr Justice Eady in the High Court on 30 April and 1 May 2003.
Witness evidence
During the hearing, Rodney testified that he had specialised in asbestos disease cases for nearly 25 years. He estimated that his colleagues and he had conducted a minimum of 250 mesothelioma claims during this period. None of our previous mesothelioma clients had suffered a shortfall in their compensation due to a defendant being insured for only part of the period of asbestos exposure. Syndicate 992 called as witnesses two retired insurers who described how insurers dealt with cases between themselves, and on one occasion with a solvent defendant, on a proportionate time exposed basis.
Policy wording
The Syndicate relied on condition 6 of the policy, which provided that “If at the time any claim arises under this policy there be any other insurance covering the same liability, the Underwriters shall not be liable to pay or contribute more than their due proportion of any such claim and costs and expenses in connection therewith”. This represented a standard “rateable proportion” clause as used in employer’s liability policies at the relevant time.
High Court Judgment
Giving judgment on 14 May, Eady J. stated that what gave rise to liability under the policy was Thermac’s continuing breach of duty towards Mr Phillips which included the insured period between October 1959 and November 1968. Throughout that period, Syndicate 992 were on risk for any negligence by Thermac that resulted in legal liability to an employee. It was accepted by them that this negligence materially contributed to his mesothelioma.
Rateable Proportion clause
Eady J. held that the Syndicate’s reliance on condition 6 was untenable. He stated that – “The plain purpose of the provision is to give the insurer the right to pay a “rateable proportion” in cases of double insurance (i.e. two or more policies covering the same risk at the same time). I can see no basis in authority, or on the construction of the language, for treating it as embracing successive policies of insurance”.
Business Efficacy
Syndicate 992 had also argued that it was necessary to imply such a “rateable proportion” provision covering successive policies to give the insurance contract business efficacy. Eady J tersely dismissed this, commenting that the contract did not need such a provision to make it workable.
Custom and Practice
Finally, Syndicate 992 argued that at some later stage after 1957-68 the custom developed of insurers only indemnifying proportionately according to their period of insurance cover. Eady J. found that – “Such a practice, if it existed between insurers, is quite different from an established custom or practice governing transactions between insurers and insured. There was no evidence to that effect. Had there been anything remotely to be characterised as a “custom or practice” in that context, it could hardly have escaped the attention of Mr Nelson-Jones during his long specialist career”.
Result
Consequently judgment was entered on behalf of Mrs Phillips for £56,375 damages which the Syndicate had withheld, together with interest and costs. The case is invaluable for establishing that insurers are liable to pay full rather than proportionate damages for a mesothelioma to which their insured have materially contributed, even if they only insured a defendant company for part of its total period of exposure.