Changing the law

Only a few weeks after a lengthy judicial process which culminated in a landmark judgment on asbestos in the House of Lords, the Prime Minister has now indicated that the government will take steps to overturn the ruling in whatever way it can. The ruling in question was May's Barker v Corus, which effectively stated that insurers' liability for asbestos should be commensurate with contribution to the risk. Their lordships indicated that relevant considerations that should be taken into account include the time, intensity and type of each exposure, and that non-negligent and self-employed exposures should proportionately reduce liability (see box one).

Naturally there was uproar in many quarters following the ruling, which effectively means that compensation to the victims of asbestos-related disease will be cut, as an insurer will only have to pay its share of damages where the blame rests among several insurers. Outraged at what they felt was a selling short of innocent victims, a total of 32 MSPs, including Jim Wallace, former justice minister, subsequently condemned the ruling as overturning the traditional Scots law approach to such cases and described it as a breach of natural justice. Furthermore, members from all six parliamentary parties signed Labour MSP Des McNulty's motion calling for full compensation to be given to all victims and their families. At the time he said: "I think it's entirely unfair that people who suffer from this dreadful disease should be deprived of any part of their compensation. I think the House of Lords judgement is entirely wrong."

The government has now bowed to such public pressure, and in an unusual move is prepared to legislate almost immediately to overturn a judicial ruling. Although the exact details of how it intends to overturn Barker have still to be unveiled this month, observers believe the most likely scenario is for an amendment to be made to the current Compensation Bill which is going through parliament. Details of such an amendment have already been provided by claimant solicitors Thompsons and were presented to the Scottish Executive in the wake of the ruling by Frank Maguire, senior partner of the firm. If they are adopted by the government, they would see a fundamental overhaul of the current legal environment and without doubt place insurers with exposures in a particularly difficult position (see box two).

Strong reaction

Understandably, reaction to the government's decision to seek to change the legal situation has been almost as strong as the reaction to the decision in the first place. "Tony Blair is pushing for a change in the ruling but any move could make things worse, as you need to stand back and work out how you're going to resolve the injustice for the claimant," says Walter Andrews, vice president, programme management, technical advisory, at Marsh, who adds that simply hoping to overthrow the decision of the courts without thinking about the wider implications for the industry will not be helpful. In fact, he suggests a more radical way forward for the time being, in order that all parties involved in these tricky issues relating to long-tail disease claims can come to a better solution: "It could be better if to suspend all payments for the time being until these issues are resolved".

Simon Staples, a partner at law firm Davies Lavery, also councils caution for the government, especially if it decides to go down the route of adopting amendments to current legislation going through parliament. "Intending to use the Compensation Bill to overrule the House of Lords is very extreme," he comments. "A two or three line amendment to the Bill would be hijacking the parliamentary process and would shift the whole balance back to the defendant."

"There can be very few public precedents for this," he continues. "It's pretty dramatic that you can allow a situation to proceed to the highest court in the land - which itself can set a precedent. It's not very democratic, and if they put this amendment in late in the day it won't get the proper attention."

In his opinion, although the grievances of the claimants are understandable, simply taking their side also fails to take into account the legitimate grievances of the defendants as well: "I do get a bit frustrated when my clients get penalised because they are a company that is still going. (Overthrowing Barker) penalises those insurance companies that do well." Besides, he adds, it is not as if the Lords' ruling has made life dramatically different for claimants in any case. "Insurers didn't like Fairchild v Glenhaven when it came out but they stuck by it. Barker isn't that different to life before Fairchild - nothing has been taken away from claimants."

Despite the hackles being raised for those on the defendant side of the fence by Tony Blair's pronouncement, a sense of perspective still needs to be had by all concerned. After all, despite the fears of insurers that the actual Barker judgement could be overturned by new legislation, this is not necessarily the case, as there are more palatable alternatives out there. Once such possibility is that of a pool arrangement, perhaps supported by the government. As Simon Staples proposes: "It does raise a question as to whether there should be a scheme established similar to the Motor Insurers' Bureau. Why can't insurers that have had a part in this contribute pro rata to a pool so that people can be compensated?"

Besides, there is no telling yet whether the principles laid down by Barker will themselves be fundamentally challenged, or whether a broader industry-based solution will be brokered by the government. While this is still the case, the significance of May's decision cannot be underestimated.

Outcome of the decision

"It's an exceptionally important decision for the insurance industry," comments Tony Boyes, head of disease at Langleys solicitors in Yorkshire. "The previous decision of Fairchild relaxed the laws on causation, making it easier for claimants to bring claims. So, if you could only find one defendant but there were in fact six companies involved, then that one defendant would have to pay the whole lot - and the average settlement is somewhere around £150,000. If you could find one insurer for one year, then that insurer would have to pay the whole lot. However, now damages have to be apportioned, so an insurer on risk for only one year out of five only pays one fifth of the overall damages. You can now satisfy yourself as to what your percentage liability is, enabling you to minimise costs."

"My own view is that it's the right development," he states, adding: "The House of Lords in Fairchild made it easier for companies by relaxing causation rules, and having relaxed rules for claimants it only seems fair that the apportionment rules should also be modified. After all, there are a dwindling number of claimants who can be traced, and a dwindling number of insurers that are solvent, with the likes of Chester Street and Independent having gone under, so there's a finite pot that can be exhausted."

Whatever the outcome of the government's current decision, though, it is not only the insurers who are affected by the current legal twists and turns concerning mesothelioma and asbestos in general. According to Marsh's Walter Andrews, the current state of play also has important repercussions for brokers as well.

Fragile market

"From a broker's point of view the employers' liability market is fragile, and there are not that many players in the market," he explains, adding that this fragility could well be disturbed if someone decides to pull the plug and exit the market. "My concern as a broker," he muses, "is that whatever the decision is that is taken (by the government), it doesn't destabilise the market. Insurers do not have a bottomless pocket and the solution will not be an easy one. I'm just a bit concerned that the government is going to jump in head first."

Perhaps one such possible solution will shortly be unveiled by the British Insurance Brokers' Association, on whose behalf Andrews contributed to a report looking at the problems raised by Barker and proposing some ways forward for the long-tail liability market, though at the time of going to press this report was yet to be made public.

One can only hope that the way forward eventually proposed by the government is one that does not pander unnecessarily to the claimants for the sake of popular appeal but is instead a sensitive solution to an extremely difficult problem. After all, the last thing both sides want is further legal challenges with time running out for the victims of asbestos, and the financial pressures on liability insurers ever tightening.

- See 'Compensation chaos looms', page 12, for additional comment.

BOX ONE: BARKER V CORUS - THE ESSENTIALS

In 2002's landmark Fairchild v Glenhaven judgement, the House of Lords decided that as one fibre alone was sufficient to cause mesothelioma, each exposure materially increased the risk of the claimant developing the condition. Accordingly, each and every employer was jointly and severally liable for the full extent of the claimant's losses. Following this judgment, claimants could sue one solvent employer for the entire claim, even though other employers might have contributed to the risk.

Mr Barker's first employer was insolvent and his widow sued Corus alone. At first instance, Corus were held liable for the whole of the claim, subject to a deduction of 20% for contributory negligence because of the period of self-exposure by Mr Barker.

Corus appealed on the basis that an employer should only be required to pay damages according to the extent of their contribution to the risk. The House of Lords agreed. They ruled that employers should not be liable for more than the damage they caused. Compensation should be apportioned pro-rata to reflect the contributions of each culpable party. The net result is that a claimant must sue all the employers who allegedly exposed him to asbestos. If any of them are insolvent, the claimant will not be able to recover that share of the compensation.

BOX TWO: DRAFT AMENDMENT TO THE COMPENSATION BILL, AS PROPOSED BY THOMPSONS

- Where a person suffers mesothelioma, anyone who materially increased the risk of that injury occurring, shall be deemed to have materially contributed to the injury in the absence of proof to the contrary.

- Where two or more persons are in breach of duty, and pursuant to section 1 of this amendment are deemed to have materially contributed to the injury, they shall each be jointly and severally liable.

- In this Bill 'injury' shall mean personal injuries and consequential loss and damage.