The recent House of Lords’ decision in Barker v Corus, and the subsequent controversy, culminating in a government pledge to legislate around the ruling, has ensured that asbestos is once again a major concern for the UK insurance/ reinsurance industry.

Whilst the US has seen an increase in asbestos-related claims, this has not yet occurred in Europe, although it may be that there could yet be an acceleration in claims in the future.

The situation for insurers with potential asbestos-related liability exposures has, for some time, been uncertain in the UK. In the last few years several high profile court decisions have tackled the mesothelioma liability issue. Fairchild v Glenhaven Funeral Services Limited (House of Lords, 2002) and, subsequently, Phillips v Syndicate 992 (High Court, 2003) marked a high point for claimants and a corresponding low point for employers and their insurers.

In Fairchild, it was held that where an employee is negligently exposed to asbestos whilst in the employment of several different employers, and subsequently contracts mesothelioma, the employee is entitled to sue each and every employer for the full amount of his loss, regardless of the fact that it cannot be shown which exposure led to the illness. The case therefore introduced an exception to the normal English law rules on causation in mesothelioma cases.

The Phillips case held that the full amount of the damages awarded against an employer in a mesothelioma case could be passed on to any one of the insurers that insured the employer during the period of exposure, notwithstanding that they were on risk for only part of that period.

Certain key questions were left unanswered by the Fairchild decision, most notably in relation to the limits of the exception that it introduced, and the extent and apportionment of a defendant’s liability. On 3 May 2006, the House of Lords provided some much needed guidance and clarification in its judgment in Barker v Corus (UK) plc and other related cases.

Mr Barker died from mesothelioma in 1996. There were three periods during which he had been exposed to asbestos at work: a period during which he was working for Corus; a period during which he was working for another company; and a substantial period of self employment.

The High Court and the Court of Appeal had both found in favour of the claimant on the basis of the Fairchild decision. Corus was therefore liable jointly and severally with the other company that employed Mr Barker, but subject to a 20% reduction in damages for Mr Barker’s contributory negligence. The other company for which Mr Barker worked was insolvent and without any identified insurer, leaving Corus to pay the damages on its own.

Corus appealed to the House of Lords which held that those held liable under the Fairchild principle should only be liable for a proportion of the claimant’s damage assessed according to that defendant’s contribution to the risk of injury. Corus would not therefore be liable for the contributions of the other company or Mr Barker himself.

The House of Lords therefore allowed the appeal but only to the extent of setting aside the award of damages against Corus and remitting the case to the High Court to redetermine the damages by reference to the proportion of the risk attributable to the breach of duty by the other company.

The judgment in Barker was welcomed by insurers. The potential combined impact on the insurance industry of the Fairchild and the Phillips cases should have been considerably reduced. Defendant employers in mesothelioma cases would only be responsible to the extent that they contributed to the risk of injury, so rather than simply having to find one employer responsible for a material exposure, claimants would need to identify and consider joining in each and every such employer to ensure 100% recovery.

Ordinarily, following a House of Lords decision, the story would end here. However, the question of who should pay the victims of asbestos-related illness is a tricky one, in which social and political, as well as legal, considerations have significant impact. The insurance industry may take the view, supported by the highest court in the land, that insureds should not bear the full burden of compensating victims where others have contributed to the risk.

However, claimants’ groups, their lawyers, trade unions and other lobbyists disagree. They have been quickly mobilised to condemn the Barker ruling, sparking an immediate reaction from the Government. Shortly after the ruling, at a trade union conference, Tony Blair said "I regret that judgment. I’m looking at the moment to see the best opportunity for us to change it. If we can change it, we will".

The ABI has been in talks with the Government and has proposed a number of alternative schemes to deal with the liabilities in question. However, the Government has apparently rejected these, favouring an amendment to the Compensation Bill, which would hold negligent employers (and therefore their insurers) jointly and severally liable (in effect, reinstating the Fairchild ruling). It is intended that this could come into force as early as the end of July 2006.

The wording of the proposed amendment is crucial - it is not clear whether it will relate exclusively to asbestos, or if other long-tail liabilities could also be caught by this latest legislative twist. Providing a satisfactory legislative framework for asbestos claims is a complicated business. If the Government is to meet the deadline it has set, this legislation will obviously be drafted at speed, and with little time for consultation.

As matters currently stand, therefore, despite the House of Lords’ ruling in Barker v Corus, the uncertainly over asbestos liability is as great as ever. Furthermore, on the horizon is an even greater uncertainty - with the development of new technologies, such as nanotechnology - is there a risk that the imminent changes to the law could be exposing companies, and the insurance industry, to many more, as yet unforeseen, long-tail liability claims?

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