The English High Court has now ruled that the time limit for an insurer liable to pay the entirety of an asbestos claim under the Compensation Act 2006 to claim a contribution from other insurers is only two years from settlement rather than the previously, widely held understanding, that the time limit is six years.
This means that insurers (and possibly reinsurers) need to act quickly to identify insurers/reinsurers on risk and pursue them within the much shorter time frame than was generally previously thought.
In RSA Insurance PLC v Assicurazoni Generali SpA, the original claimant, Mr Merritt contracted mesothelioma during his employment at a painting and decorating company.
RSA covered Mr Merritt’s employer for only the last 6 months of his 10 years of employment. Despite the proportionately short period of cover, RSA was liable for the entire claim under s3 of the Compensation Act which RSA duly paid.
RSA then sought to claim an equitable contribution from the other two insurers on risk during Mr Merritt’s employment (Aviva and Generali) for their proportionate share of the settlement sum on a time on risk basis. Aviva paid their share but Generali objected on the basis that RSA’s claim was now statute barred under the Limitation Act. In the alternative, Generali put RSA to proof on the reasonableness of the settlement.
Generali argued that RSA’s contribution claim fell within s 1(1) of the Civil Liability (Contribution) Act 1978 (the “Contribution Act”) and that therefore the shorter limitation period of two years applies (as set out in s10 of the Limitation Act 1980) rather than the usual period of 6 years.
s1(1) of the Contribution Act provides as follows:
"… any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)."
It was agreed between the parties that the application of the Contribution Act depended upon whether RSA’s claim for a contribution was a debt claim (in which case, limitation would be 6 years) or a damages claim (in which case limitation would be two years).
The Court accepted Generali’s argument that there was a long line of cases supporting their argument that liability arising under an insurance contract of indemnity is a “Damages Indemnity Liability” and held therefore that the Contribution Act and the two year limitation period would apply (and that RSA’s claim against Generali was time barred).
The second limb of Generali’s defence put RSA to proof as to the reasonableness of the amounts claimed. This limb of Generali’s defence did not need to be dealt with by the Court as the claim had been held to be time barred but the judge nevertheless rejected this aspect of Generali’s defence and held that the level of contribution should be determined on a time on risk basis. The Judge added that a change in approach would produce undesirable uncertainty leading to an inevitable increase in litigation for contribution claims.
The ability of reinsurers to claim contributions from other reinsurers is the subject of an appeal in the case of Equitas v MMI.
Equitas v MMI is an appeal of a decision by Flaux LJ acting as Judge-Arbitrator primarily on whether reinsureds can “spike” their reinsurers (ie. choose which reinsurance year to claim all its mesothelioma losses). Flaux LJ held that reinsureds could “spike” their reinsurers and reinsureds could seek contributions from other years.
In granting leave to appeal, the Court of Appeal identified three “potential problems” with Flaux LJ’s determination of this issue and so, reinsurers’ rights to claim contribution will be one of the issues to be decided on appeal. This means that the position as to reinsurers’ rights of contribution from other years are currently unclear which leaves the issue of limitation in respect of those claims also unclear.
Depending on the outcome of the Equitas v MMI appeal and provided RSA v Generali is not appealed, it appears entirely arguable that limitation in respect of contribution claims from other reinsurers is two years from reinsurers’ settlement, on the basis that liability under reinsurance policies is likely to be deemed to be founded in damages in the same was as liability under insurance policies is said to be. Reinsurers should therefore act promptly if they are to seek contribution for other years.
Reinsurers also need to bear limitation in mind in respect of claims they receive to ensure that they are not paying claims that, according to RSA v Generali, are time barred.