EMPLOYERS’ LIABILITY INSURANCE - MARSH

Asbestos claims and Insurance archaeology – buried treasure

How many of you reading this article could locate your household insurance policy from five years ago, let alone 30 years ago? This is the problem many companies in the UK find themselves in when it comes to historic Employers’ Liability (EL) claims. Many UK companies have inadequate insurance histories to respond to these claims. Often companies have merged, disposed of business, or exited a non-core business and do not have the records or corporate knowledge to defend themselves when faced with a legacy EL claim, on a subsidiary dating back to the mid 1960s. So what is driving the majority of these legacy claims?  

Asbestos - UK businesses are being impacted by legacy asbestos claims with the deadliest form being Mesothelioma, a terminal condition whose symptoms manifest themselves decades after exposure and result in the victim’s life expectancy being cut to between twelve to eighteen months. Mesothelioma is caused by one fibre that may have been ingested many decades previously and which has been floating in the lungs harmlessly since that time. It causes no harm unless it attaches itself to the lung and starts to metastasise into a cancer. It has been accepted that the incubation period from that first creation of cancerous cells to diagnosis is around ten years, but in the recent Durham v BAI & Others, Mr Justice Burton noted that this period could be as little as five years.

It has been suggested that 30-40% of the total expected number of Mesothelioma claims have been filed to date and it has also been suggested the UK has more Mesothelioma claims as a percentage of the population than the United States and that the use of “blue” asbestos was more widespread than the UK.

The Compensation Act 2006 allows for joint and several liability in respect of Mesothelioma claims. The claimant can seek 100% compensation from a single defendant, although the Act specifically allows for the findings of contributory negligence and also allows for the one defendant (a responsible person) to recover from other “responsible persons” on an exposure basis or other mutually agreed basis of apportionment.

Currently there has been some litigation about EL trigger wordings for pre-1972 policies (period prior to compulsory cover). In November 2008 at the High Court Mr Justice Burton found for the status quo in Durham v BAI & Others though this is only a court of first instance judgement.

These recent court cases on Mesothelioma have brought asbestos problems to the attention of the public and the insurance industries. Mesothelioma and the costs of managing an organisation’s exposure to this deadly disease have emerged as a social and business challenge in the developed world.

Asbestos – the facts

• 5000 people die every year from asbestos[1]
• This number is expected to double during the next decade
• By the time that the death rates decline, it is anticipated that up to 250,000 people may have died[2]
• In November 2004 the actuarial profession predicted between 80,000 and 200,000 new insurance claims over the next 30 years, at a total cost of between £8billion and £20billion
• Marsh is seeing asbestos-related fatality claim settlements averaging around £200,000 to £250,000 inclusive of legal costs, although with considerable individual claim variance

It has been noted by many commentators that Mesothelioma claims are now more random and spread out and as a result are impacting on a wide cross-section of organisations, which can range from the expected pipe fitters to clerical staff and even TV cameramen.

The impact of legacy EL claims - The high level of mergers and acquisitions activity in the last half of the twentieth century has in many cases been followed by a contraction back to “core” business. The long term nature of Mesothelioma means employers should not assess their exposure based on current operations, but instead should appraise in detail the operations of every company they have ever owned.

This involves looking at the activities of these companies, the number of locations and historic employees involved, whether or not asbestos was directly used in these activities, and the workforce profile in terms of age, turnover of staff and occupations.

The clear implication for employers is that claimant solicitors prefer to act against solvent companies who are capable of meeting the full cost of the claim and their expenses. If the target company can not locate its historic insurance, for example because the target is a business they purchased back in the 1970s, they will have to find the cost from their own balances.

Members of the judiciary have made it quite clear that they will not accept the excuse that the defendant is still trying to track down the relevant broker and insurer, especially in respect of Mesothelioma. Their view is that it is the duty of the defendant to investigate liability within the pre-action protocol period. The report’s findings again emphasise the need for organisations to have reviewed their historic portfolio businesses and, where deemed appropriate, undertaken the necessary research in respect of historic employers’ liability carriers. 

Marsh solution – insurance archaeology 

Indiana Jones, as a notorious movie action hero of the 1980s, did much to glamorise the archaeology profession but, unfortunately, the job of an “insurance archaeologist” offers no similar passport to travel and adventure. It is however, an area attracting increasing interest.

Marsh formed in Norwich the first dedicated broker insurance archaeology unit in 1988 under the InSolutions brand in response to a need among North American companies to trace historical coverage they had purchased in the London insurance market. By the mid 1990s the unit had expanded into the UK EL and now 50% of the unit’s turnover is assisting UK companies. Clients vary from small family-run businesses in Norfolk to FTSE 100 multi-nationals.

How is it done? - Marsh has the largest archive of legacy broker insurance records, with well over 80 miles of filing stored in a specialist facility here in Norwich. These records in some cases date back to the late 1940s. The Norwich based team through their market knowledge and experience have an extensive network of contacts with other brokers and insurance companies. Researchers will also undertake site visits and review client’s archives looking for evidence of coverage, such as premium payments to an insurer in the accounting records.

The unit will also, in the case of diversified companies, undertake a full Companies House work-up, which often proves the claimant’s solicitors are suing the wrong company.

Conclusion - We would recommend to companies that can trace their histories back to the 1960s or earlier that they ensure that they have undertaken the necessary research to protect themselves from often unexpected legacy claims.

To quote Judge Master Whitaker - Senior Master of the Supreme Court in the Queen's Bench Division: “I would urge any companies that may be exposed to asbestos-related risk to do their “due diligence” well in advance – and bear in mind that risk may result from simply having owned, or even occupied, a building containing asbestos at some point in the company’s history.”

[1] TUC website
[2] TUC website