Playing with lives

Did the Association of British Insurers play fair on Fairchild? Jon Robins reports on the anger at the insurers' tactics

“Sanity has finally been restored.” That is how Adrian Budgen, a partner at Irwin Mitchell, views the unanimous decision of the Law Lords last month to overturn earlier rulings that had barred victims of asbestos cancer from compensation on the grounds that more than one employer exposed them to the deadly dust.
The bitterly-fought series of cases – collectively known as Fairchild v Waddington & Leeds City Council – is expected to restore the rights of hundreds of asbestos cancer victims, and in the process cost the insurance industry billions of pounds.
The Court of Appeal ruling last year stunned claimant lawyers and marked the end of an annus horribilis. “We had a terrible year,” notes Budgen. “Not only did we have the two decisions in Fairchild but we had other problems, such as Chester Street going belly up and then Turner & Newall (T&N) declared insolvent.”
Chester Street, formerly Iron Trades, was the insurance company that handled many of the asbestosis claims. When it went into liquidation it left victims in the lurch. Stricken T&N employees, one of the largest group of sufferers in the country, were also unsure if they had a fund to claim against.
But Fairchild was the biggest upset and has been billed by many as the most important occupational disease case in history. It concerned three people whose lives had been ruined by a particularly nasty form of asbestos cancer – two widows, Judith Fairchild and Doreen Fox, and Edwin Matthews, who is presently critically ill. Mesothelioma is the worst kind of disease that derives from exposure to asbestos; it is fatal and death is very painful and comes quickly – on average, between 18 months and two years.
“The insurers were handed a windfall by the Court of Appeal last December,” says Frances McCarthy, the immediate past president of the Association of Personal Injury Lawyers (Apil). That recent case law began with another Court of Appeal ruling in Holtby v Brigham & Cowan, which covered the situation where an employee suffers an occupational disease due to the negligent conduct of more then one employer. The appeal judges held that negligent employers should share the burden.
The rationale of that asbestosis case was applied to the mesothelioma victims in Fairchild. But the claimant lawyers argued that they were not the same. “Asbestosis is divisible in the sense that it is possible to apportion damages between different defendants on a time-exposed basis,” explains Budgen. “Mesothelioma is an all-or-nothing disease, unlike asbestosis, which is graded form mild to severe, and it's uniformly fatal. People are desperately ill from the word go.”
The Holtby argument led to the 'fatal fibre' defence in Fairchild that is credited to Chris Phillips, head of insurance litigation at Halliwell Landau, who represented one of the defendants. Mesothelioma is believed to be caused by exposure to one single asbestos fibre. Consequently it was argued that, where it could not be proved which defendant had exposed them to the fatal fibre, claims must fail against all defendants.
When the Court of Appeal upheld the ruling, it was overturning 30 years of practice that employers had been held jointly and severally liable. “It wasn't as if people had never been able to recover for mesothelioma cases,” McCarthy points out. “Everyone had been recovering for these cases for years and insurers had been taking insurance premiums for years and were perfectly happy doing so. Suddenly they were handed this windfall and they behaved totally cynically about it.”
Insurers thought that if such an argument was valid in mesothelioma cases, then why not other cancer cases, or asthma or brain damage from mobile phones? According to Budgen, defendant insurers were already trying to extend the Fairchild principle to single-exposure cases, cases where there was background exposure, or where there was more than one insurer involved. He continues: “So we could see the potential that, if the judgment had been left intact in the Court of Appeal, it would have been used and abused by the defendant industry and there would have been years of satellite litigation.”
The anger felt by claimant lawyers to the “cynical” application of the judgment was extended to what they see as the oppressive conduct of the defendant insurers in the run-up to this year's hearing. In particular, the Association of British Insurers (ABI) comes in for severe criticism.
Clearly, there was a lot at stake for both sides and the ABI had put the figure at £200m a year payable in total mesothelioma compensation. This was the background for the hearing in the House of Lords in April.
Shortly before this year's April hearing the ABI approached Apil through McCarthy and the Trades Union Congress with a draft scheme for all mesothelioma victims. The group mapped out the kind of arrangements that it would consider acceptable. “But when we got the details of the scheme it contained none of those,” recalls McCarthy. “I was very surprised that it made no effort to even try and be tempting.”
According to Anthony Coombs, a partner at John Pickering & Partners, which represented Fox and Matthews, such arrangements would have left them worse off. “It would have resulted in much lower compensation payments than had been given to victims prior to the Court of Appeal decision. The victims would still have to prove compensation in the normal way,” he says.
With the appeal before the Law Lords still fixed on 22 April, insurers then made offers in full settlement of their claims to the three victims. Each offer was conditional upon all three offers being accepted. The insurers also stipulated that if the House of Lords ordered that the appeals should continue in spite of the offers being accepted, then the offers would be immediately withdrawn. Also, the terms of the offers had to be kept confidential.
The appellants were given approximately 24 hours to decide. Fox rejected it, although she was offered £115,000, which Coombs points out is a large amount of money for a widow living on benefits.
“She knew that the result of the offers being accepted would be the continuation of the law as laid down by the Court of Appeal,” he notes. “This would mean that the majority of asbestos cancer victims in the future would not be compensated at all, unless the scheme proposed by the ABI was introduced.”
“She really deserves to be congratulated,” says Budgen. “Because if she wasn't prepared to take a stand, we wouldn't be talking about it today.”
At about the same time, the ABI filed an unsigned petition at the judicial office of the House of Lords. It read: “The present appeals will be settled by the payment of damages and costs. There will be no dispute left for decision by the House.” The petition also asked that the three appeals should be “withdrawn by consent, or directions given”.
Consequently, the House of Lords withdrew the appeals from the list on 22 April and brought forward another case to be heard, Callery v Gray (which was in fact another hugely contentious insurance case).
“We, as the lawyers for the appellants, knew nothing about this, and only found out after the appeals had been removed from the list,” recounts Coombs. “We protested through counsel, but it was unfortunately too late to restore the full hearing.”
According to Coombs, it became clear that the intention of the insurers – “coordinated by the ABI” – was to prevent the House of Lords from hearing the appeals so as to retain the benefit of the Court of Appeal decision for all future cases and to force through a scheme for mesothelioma victims providing for proportionate or time-exposed liability, further discounts on damages and fixed or limited costs. He reckons that there was a “substantial risk that this strategy would succeed”.
Such unbecoming behaviour led to an extraordinary exchange in the House of Lords. “What we believe we have been encountering is what I can only call a sordid attempt to manipulate the judicial process,” the most eminent of QCs, Sir Sydney Kentridge, told the Law Lords on behalf of the appellants.
Lord Bingham, who chaired the panel, seemed to share this view. “All their Lordships well understand why you wish to express the dismay that you feel at the terrible events that you have just described,” he said. “I think that you can take it that we all share that sense of dismay.” Certainly, Lord Hoffmann appeared to agree. “It is one thing to tell the House that an offer is being made which will render the substance moot, and to ask the House in its discretion to dismiss the hearing,” he said. “It is another thing to tell the House that the appeal has been settled.”
John Parker, head of general insurance of the ABI, has welcomed “the clarity” provided by the ruling. “It's good that the judicial process has now reached a definitive conclusion,” he said last month. “Insurers need to be able to price risks and make reserves within a clear and stable legal environment.”
Malcolm Tarling, an ABI spokesman, strongly refutes the suggestion that the ABI acted in an oppressive manner. In particular, he claims that the insurance industry had been working hard behind the scenes on a compensation scheme ever since the Court of Appeal ruling and that it was not produced at the eleventh hour to derail the hearing. “We looked into the practicalities of some form of industry compensation scheme, so that if the Lords actually upheld the Court of Appeal decision, there would be some sort of voluntary scheme so these people didn't miss out,” he says.
Phillips at Halliwell Landau also robustly rejects the suggestion that the insurers tried to ambush events. “I feel very strongly that anyone levelling this accusation against the ABI is monstrously unfair, unjustified and wrong,” he states. “The worst you could do is accuse them of poor communication, but this doesn't detract from their intention, which was bona fide.”
Phillips was not involved in the ABI scheme. He believes that the timing of the compensation scheme was unfortunate and should have been explained to the court. However, he believes that the claimants are trying to score political points by showing events in “the worst possible light”.
The compensation claims for the victims have now been in a state of stasis for over a year since last year's initial hearing. “I've had lots of clients whose cases have been stayed pending the outcome of Fairchild,” says McCarthy. “But I've also had claimants who've died while they're waiting.” It was for this desperate reason that the Law Lords brought the case forward in the first place and heard it in April. If the judicial process had proceeded at its normal snail-like pace, it might not have been heard until the autumn.
However, claimant lawyers are once again unhappy with the insurers and their lawyers. They complain that they are sitting on claims waiting for the written judgment. “What was the point in the Law Lords making the announcement last May?” asks Budgen. “There was no point unless it was to draw a line under it.”
“These are the most vulnerable kind of victims you can possibly have, and that's why I find it so amazing that insurers can behave so poorly towards them,” says McCarthy. “They're not people who've sprained their ankle or gone a bit deaf; these are people who go through a miserable time. They must have hearts of stone to behave in such a way.”