Equitas Insurance Ltd v Municipal Mutual Insurance Ltd

JurisdictionEngland & Wales
JudgeLord Justice Males,Lord Justice Leggatt,Lord Justice Patten
Judgment Date17 April 2019
Neutral Citation[2019] EWCA Civ 718
Docket NumberCase No: A4/2017/1278
CourtCourt of Appeal (Civil Division)
Date17 April 2019
Equitas Insurance Limited
Municipal Mutual Insurance Limited

[2019] EWCA Civ 718


Lord Justice Patten

Lord Justice Leggatt


Lord Justice Males

Case No: A4/2017/1278






Royal Courts of Justice

Strand, London, WC2A 2LL

Colin Edelman QC and Keir Howie (instructed by Norton Rose Fulbright LLP) for the Appellant

Alistair Schaff QC and Tim Kenefick (instructed by Cooley (UK) LLP) for the Respondent

Hearing dates: 18 th to 20 th March 2019

Approved Judgment

Lord Justice Males



In 2002 the House of Lords created a special rule of causation in the law of tort to enable claimants suffering from mesothelioma as a result of exposure to asbestos to recover damages even though it was not possible to prove on the balance of probabilities which of two or more employers was responsible for the exposure which caused the claimant's disease: Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22, [2003] 1 AC 32. This decision together with the subsequent intervention of Parliament in the Compensation Act 2006 gave rise to what has become known as “the Fairchild enclave”, an area of law within which conventional principles have had to be adjusted to take account of the implications of this decision and to ensure that the anomalies which it has thrown up do not result in injustice – or, as Lord Sumption, taking a less sanguine view, was to describe the process, in which the law has moved from “each one-off expedient to the next”, generating “knock-on consequences which we are not in a position to predict or take into account”: see his dissenting judgment in International Energy Group Ltd v Zurich Insurance Plc UK Branch [2015] UKSC 33, [2016] AC 509 (“ IEG”) at [114].


The initial challenge posed by Fairchild was to determine whether and how liability should be apportioned between employers when there could be many employers over a period of years, any one of whom might have been responsible for the critical exposure. The solution eventually adopted, that each of the employers was liable in full, no matter how short the period of exposure for which it was responsible, created a different problem. If an employer had a series of annual Employers' Liability (“EL”) policies, perhaps with different insurers, and perhaps some years when there was no insurance in place, which policy responded to the loss and how should the loss be apportioned between the various insurers on risk or (in cases where there was a period during which an employer had no insurance) between the insurers and the employer?


The present appeal raises similar questions, but in the context of reinsurance. They fall to be decided within the Fairchild enclave and potentially require the adaptation of conventional principles of causation, double insurance, self-insurance and (perhaps) subrogation in order to achieve a just solution to the problems raised as between the EL insurer which has paid a claim without allocating it to any particular policy year and its reinsurers.


These novel and difficult questions arise on an appeal pursuant to section 69 of the Arbitration Act 1996 from an award made by Flaux LJ sitting as a judge-arbitrator in accordance with section 93 of the Act. Leave to appeal was given by a previous decision of this court on the basis that they are questions of general public importance ( [2018] EWCA Civ 991). I will come in due course to their precise formulation, but in broad terms the question is whether an insurer which settles a claim for liability for mesothelioma arising under EL insurance policies which span several years of exposure to asbestos can claim an indemnity for its full loss under whichever annual reinsurance within this period it chooses in order to maximise its reinsurance recovery, or whether it is limited to claiming under each annual reinsurance policy a pro rata share of the settlement sum; and, if the former, what rights of contribution and recoupment are available to the reinsurer(s) against which the claim is made.


It is apparent that the decision in Fairchild itself and the subsequent developments within the Fairchild enclave have been heavily driven by the policy that victims of mesothelioma should be fully compensated, without having to make multiple claims and without bearing the risk that one or more of the potential defendants is insolvent. The position which the law has reached so far is that any employer who has exposed a victim to asbestos in breach of duty, for however short a period, is liable in full to a victim of mesothelioma, while any EL insurer of such an employer is liable in full to indemnify the employer, again regardless of the period for which it has provided insurance and received premium. Provided, therefore, that there is at least one solvent employer or solvent EL insurer who can be identified as having provided cover at some time during the period of wrongful exposure, the victim will have a remedy against a defendant who is good for the money.


This policy driven outcome has resulted in some significant anomalies when judged by reference to fundamental principles of tort and liability insurance law. This has been regarded as necessary and acceptable in order to ensure that victims of mesothelioma are fully compensated. So far, the law has devised novel principles and solutions within the Fairchild enclave to accommodate these anomalies. Viewed broadly, the issue in the present case is whether it can now be said, at the reinsurance level, that the policy of ensuring compensation to victims has successfully worked itself out so that, as between reinsured and reinsurer, the law can return in a principled way to a more orthodox approach.

The facts


I begin by summarising the facts found by the judge-arbitrator.


The respondent, Municipal Mutual Insurance Ltd (“MMI”), was established in 1903 as a mutual insurance company providing insurance, including EL insurance, to local authorities and other public bodies. During the period between 1 January 1950 and 31 December 1981 MMI provided EL policies to numerous insured entities. Although the wording varied in immaterial respects over the years, its policies provided cover in the event of the insured employer's liability for an employee sustaining bodily injury or disease arising out of or in the course of his employment. Each policy was an annual policy. It appears that the cover provided by MMI was without limit and without any deductible.


MMI reinsured its liability under these policies with Lloyd's syndicates whose liabilities have since been transferred to the appellant (“Equitas”). These were annual excess of loss policies, although the retention varied. In the early years the retention was only £1,000 each and every accident, but it increased over the years and eventually by 1981 the retention was £150,000. There were various layers of reinsurance with Lloyd's syndicates and in some cases with other reinsurers. One higher level reinsurer, for example, was Mercantile & General Reinsurance Company Ltd (“M & G”), but that company ceased to provide cover in 1969 and, in 2005, entered into a Solvent Scheme of Arrangement.


The layers also changed over time. In 1950 the first layer was £50,000 excess of £1000, while by 1981 it was £100,000 excess of £150,000. After 1974 Lloyd's did not participate in the first layer of the programme, but only in higher layers. Other reinsurers also participated on some layers in later years.


The wording of the reinsurance provided by the Lloyd's syndicates varied from time to time, but not in material respects for present purposes. Taking the figures from the earlier policies, the reinsurers agreed to pay MMI:

“the excess of loss of £1,000 … up to but not exceeding £51,000 … ultimate net loss on account of each and every accident but unlimited as to the number of accidents during the period of this Agreement which the Company may be called to pay under any one or more of their policies which may be involved in any one accident. Underwriters' liability hereon being limited to £50,000 … ultimate net loss on account of each and every accident”.


The term “ultimate net loss” (or “UNL”) was defined to mean “the sum actually paid by the Company in settlement of their liability …”. It is common ground that this does not refer to actual payment by MMI but to the sum which was payable by it when its liability was finally ascertained either by judgment or agreement: Charter Reinsurance Co Ltd v Fagan [1997] AC 313.


The reinsurance policies provided also (in a clause not set out in the award but which we were shown without objection) that:

“The Liability of the Reinsurers hereon shall follow the liability of the Company to their respective Policyholders and the Reinsurers shall not be entitled to object to any of the terms and conditions either general or special of any of the original Policies.”


MMI's employer insureds have faced a large number of claims from employees who were exposed to asbestos during their periods of employment and who have contracted mesothelioma. As a result of the Compensation Act 2006, an insured employer who has tortiously exposed an employee to asbestos is liable in respect of the whole of the damage caused to the victim by the disease irrespective of whether the victim was also exposed to asbestos by another employer. So far as the employee claimant is concerned, there is no need to prove which employer caused the critical exposure. Moreover, it is unnecessary and irrelevant for the employee, in a case where the employment extended over more than one year, to identify the year in which the critical exposure occurred.


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