10 December 2007
Key Points:
Which insurance policy will respond to an asbestos related disease will depend on the "trigger" in that policy For policies triggered by "injury", inhalation of asbestos fibres will constitute an "injury" and the relevant policy is that in force when inhalation first occurred
One of the leading authorities regarding the relationship between asbestos exposure, liability and insurance is the NSW Court of Appeal decision in Orica Limited v CGU Insurance Limited [2003] NSWCA 331, a claim for mesothelioma in a workers compensation context. In this case, the Court laid down the principle that, although the inhalation of asbestos fibres constitutes "injury", a claim will only arise when the cause of action in negligence is completed by the manifestation of disease where indemnity is triggered by "liability". Without this completion there is no legal liability for which the insurer must indemnify. In addition, as the likelihood of disease increases over time, it is more likely that a later policy will respond to a claim for mesothelioma.
Revisiting the trigger
In Vero Insurance Limited v Power Technologies Pty Ltd [2007] NSWCA 2, the NSW Court of Appeal had an opportunity to revisit these issues in the context of a public liability policy. Mr Barlow worked at power stations operated by the Electricity Commission of New South Wales between 1968 and 1973. At the power stations he was exposed to asbestos dust and fibres. These were released when employees of the Electricity Commission did maintenance work and repairs on boiler tubes insulated with asbestos. The boilers had been designed, manufactured and installed by Power Technologies. Decades later Mr Barlow developed mesothelioma.
Mr Barlow's claim against his employer Delta Electricity was settled. Delta Electricity then successfully brought contribution proceedings against Power Technologies which, in turn, sought indemnity under its insurance policy with Vero. Vero refused the claim. The policy was triggered by "injury" during the policy period.
At first instance Justice Curtis decided that Vero was liable to indemnify Power Technologies under the policy.
Vero appealed on four bases. We will first focus on those bases concerning the relevant policy trigger.
When did injury occur?
Vero asserted that no cover was available under the policy as Mr Barlow had not suffered "bodily injury" during the relevant policy period.
The Court unanimously confirmed that the policy, being on foot when Mr Barlow initially inhaled asbestos, covered the claim. This was because the policy was triggered by "injury", not "liability", and "injury" occurred at the time of inhalation and penetration of the asbestos fibre. It did not matter that the mesothelioma developed much later. Mr Barlow was therefore found to have suffered bodily injury during the period in which Power Technologies was insured by Vero.
In this respect the decision is consistent with Orica where Chief Justice Spigelman stated that an "injury" can be said to have occurred upon inhalation of asbestos fibres, although he doubted that such "injury" would be compensable at common law. This meant that in the case of Orica, that since the policy in that instance was triggered by "legal liability", the policy did not respond to the claim.
The Australian position should be contrasted with the English approach, which has held that the mere inhalation of asbestos fibres was not an "injury" and that an "injury" could only be said to have occurred when an actionable disease developed. This is an important difference as policies in force now, when disease actually manifests, are likely to contain an asbestos exclusion. Therefore the potential exposure of English insurers to asbestos claims may be reduced. It also has implications for the attitude of London reinsurers to asbestos liabilities.
Which policy?
Vero, relying on Orica, argued that if it was held liable to indemnify the insured then it was only liable in respect of one policy and, where the policy is triggered by "injury", that was the policy on foot at the time of initial exposure (with a policy limit of $200,000) rather than last exposure (with a policy limit of $500,000).
The Court on Appeal agreed with Vero.
Justice Curtis had held that, contrary to the aetiology agreed in Orica (ie. that a single fibre is sufficient) and his finding regarding the policy trigger, Mr Barlow's mesothelioma resulted from the totality of his asbestos inhalation. Accordingly, he said, it was most probable that Mr Barlow's mesothelioma and therefore Power Technologies' liability arose in the final year of exposure.
There was, however, no suggestion that the policies in each of the years of cover responded so as to provide indemnity up to the amount of the policy in each year. Accordingly, the Court of Appeal considered that its decision regarding the policy trigger similarly decided the issue of which policy responded. The liability that was covered by the policy was in respect of sums for which the insured "shall become liable". That was a liability that arose once only - upon the first exposure, because that was the injury in respect of which the insured came under a legal liability to pay compensation.
In any event, Justice Curtis' interpretation of the evidence was doubted as the additional evidence adduced in Vero, from Hoyle DDT 71 of 1994, also established that the longer any particular asbestos fibre remained in the lungs the greater the chance that particular fibre caused the mesothelioma to develop. This was especially true where asbestos exposure was lower in later years, as was the case here. Accordingly, it could be argued that the initial exposure was most likely to have caused the mesothelioma.
The received medical knowledge in this area, that the greater the exposure the more likely it is that the risk will come home, which was critical in Orica, was not relevant under the Vero policy.
The reason for the different formulations in Orica and Vero is the fact that the policy in Orica responded to "liability" whereas the policy in Vero responded to "injury".
Reasonable precautions
Another argument put forward by Vero was that Power Technologies did not discharge its onus of proving that it had complied with the policy condition stipulating that the insured was to take reasonable care that only competent employees were employed and that reasonable precautions were taken to prevent bodily injury.
Vero was partially successful on this ground as the Court of Appeal held that Justice Curtis had not dealt with the first limb of the condition relating to competent employees. This issue was remitted to the DDT for reconsideration by Justice Curtis.
In respect to the reasonable precautions question, the Court in rejecting Vero's assertions adopted a position similar to that in Brescia Furniture Pty Limited v QBE [2007] NSWSC 598 (this case is discussed in detail in "More options for insureds in suing for damages"). The Court decided that, for the "reasonable precautions" condition to be breached, the insured must have actual knowledge of the risk and have deliberately or recklessly courted it. In this instance it was open to Justice Curtis to find that, even if Power Technologies should have known of the dangers of asbestos, it had no actual knowledge of the risk and therefore could not have deliberately or recklessly courted it.
This aspect of the Court's decision in Vero clarifies that mere negligence by an insured in failing to appreciate the dangers of asbestos will not be enough to breach a reasonable precautions condition.
Professional capacity
Finally, Vero also argued that the claim arose out of a breach of duty owed in a professional capacity thus falling within a relevant exclusion. This ground was rejected by the Court of Appeal. Power Technologies were deemed not to owe a professional duty to Mr Barlow but only owed him a duty of care as a third party who, it was reasonably foreseeable, might suffer damage as a result of Power Technology's negligence in designing, supplying and maintaining plant and equipment.
This is in line with the decision reached in Fitzpatrick v Robert Norman Job and Wendy Barbara Job trading as Jobs Engineering [2007] WASCA 63. In that case a narrow interpretation of "professional capacity" was adopted which limited the exclusion to claims arising out of breaches of duty owed to persons retained to perform work or services in the course of business. The duty did not extend to third parties. For more on Fitzpatrick click here.
Lessons for both insurers and insureds
This case provides valuable insight into the response of public liability policies to asbestos liability. It highlights the importance of paying close attention to the relevant indemnity trigger (eg. liability, injury or claim) when either making or assessing an insurance claim.
It also suggests that courts may adopt a narrow interpretation of "reasonable care/precautions" conditions and "professional capacity" exclusions in an asbestos context.
For further information, please contact Peter Mann.
