December 23, 2014

(Re)insurance Weekly Update 47 - 2014

A summary of recent developments in insurance, reinsurance and litigation law

This Week's Caselaw

Heneghan v Manchester Dry Docks: Whether employer severally liable after exposure to asbestos by several employers caused employee’s lung cancer

The claimant employee was exposed to asbestos over the course of his working life, during which he was employed by the six defendant employers. He died from lung cancer and the issue in this case was whether each defendant was liable and, if so, whether it would be liable in full or in part. The parties agreed that the claimant’s cumulative exposure to asbestos had increased his risk of developing lung cancer fivefold. Since the claimant was also a smoker, this risk had further increased by a multiple of five.

Following the decision in Fairchild v Glenhaven Funeral Services Ltd (2002), a defendant to a mesothelioma claim is liable if the negligent exposure “materially increased the risk” of the claimant developing the disease. This is an exception to the normal common law rule that that a claimant must show, on the balance of probabilities, that the defendant’s tort caused his injury (applying the “but for” test). This exception was developed because for mesothelioma it is impossible to say which exposure to asbestos triggered the disease. It resulted in an employee being able to sue any one of his employers in full.

The issue in this case was whether the common law should, for these purposes, treat lung cancer in the same way as mesothelioma. Jay J held that it should, because the two are “legally indistinguishable”. He therefore rejected the defendants’ argument that there is an “intermediate” category of cases which fall between the conventional approach and Fairchild.

However, the judge also held that apportionment was appropriate in this case: “A proportionate recovery may not be a particularly principled one, in the sense that in an indivisible injury case such as the present principle would require full recovery; but …. After all, adherence to the conventional common law approach, which is entirely principled, would lead to no recovery at all”.

Ted Baker v Axa: Costs consequences after insurers win case/effect of a Part 36 offer

As has been reported in Weekly Updates 41/14 and 19/12, the insured won on a preliminary issue (that the insurance policy in question did cover theft by employees) (“Part 1”) but its claim failed because of a breach of a claims cooperation clause (“Part 2”).

The successful insurers had made two Part 36 offers which were not accepted by the insured. Since these were defendant offers, the general rule is that the court will order the costs of the proceedings in favour of the defendants (from the expiry of the relevant period of the first offer “unless it considers it unjust to do so”).

Adopting the observations by Briggs J in Smith v Trafford Housing (2012), Eder J held that the burden of showing such injustice is a “formidable obstacle”. Generally, the mere fact that the defendant failed on certain issues would not necessarily of itself make it unjust to displace the general rule. However, he also noted that a Part 36 offer does not give the defendant “carte blanche to run any defence whatsoever so as to entitle such defendant necessarily to expect that the CPR Part 36 consequences will automatically to apply to those issues on which such defendant lost”.

In this case, the judge held that it would be unjust to require the claimants to pay the entirety of the costs of Part 1. That was because this issue had concerned the proper construction of successive insurance policies, which he felt “could and, in my strong view, should have been dealt with during a short trial of perhaps 1-2 days” – instead the trial had taken “an inordinate” 7 days. However, they were entitled to their costs in respect of Part 2.

Tchenguiz v Director of the SFO: Whether documents disclosed by the SFO to the applicant could be used for collateral purposes

The applicant sought the court’s permission under CPR r31.22 to make collateral use of documents disclosed to him by the SFO in proceedings taking place in Guernsey. CPR r31.22 provides that a party to whom a document has been disclosed may use that document only “for the purpose of the proceedings in which it is disclosed” except if (amongst other things) the court gives permission. In Weekly Update 41/14, we reported the Court of Appeal’s judgment on an earlier application made by the applicant to use disclosed documents in foreign proceedings. The Court of Appeal held that there is a strong public interest in preserving the integrity of criminal investigations. The difference in this case was that the documents which were the subject of the application had not been generated as a result of the interaction between the SFO and any foreign authority concerning a criminal investigation.

Eder J held that that made no difference. The SFO is entitled to protection of all materials created in the criminal process. Nor did it matter that the threatened prosecution had been abandoned by the SFO since the earlier decision: “In my view, there is nothing in the authorities to suggest that the abandonment of a threatened prosecution would in any way destroy or remove such strong public interest; and, as a matter of principle, I see no reason why it should although I accept that the fact that such prosecution has been abandoned is a potentially relevant factor which needs to be considered – and which I certainly do bear in mind – in the context of the overall balancing exercise”.