Supreme Court Recognises Equitable Right of Contribution in Mesothelioma Claims

20 May 2015

Zurich Insurance PLC UK Branch v International Energy Group Limited

Today (20 May), the Supreme Court handed down its judgment in this highly anticipated case relating to mesothelioma claims.

This was a Guernsey claim and thus not subject the joint & several liability imposed by the UK Compensation Act 2006. The Supreme Court unanimously found that Guernsey’s Common law was the same as the UK’s, before this Act. Therefore, the apportionment sanctioned by the House of Lords in Barker v Corus was applicable.

That did not, however, leave the mesothelioma claimant bearing any shortfall whatsoever. His claim had been met in full by the insured and the question for the Supreme Court was whether and if so how the full amount should be split between insurer and insured?

All seven members of the Court agreed that because of Barker, Zurich’s legal liability to its insured was for 6/27ths of the claim, that being the proportion of the period of exposure for which Zurich was on risk. The insured’s defence costs, however, would not be apportioned in this way and should be met in full by Zurich. This is the narrow and immediate effect of the case.

A wider effect also arises because the Court went on to examine the possible outcome had the Compensation Act 2006 applied - meaning that Zurich would have been liable to the insured for all of the claim.

On this issue, a majority of 4-3 (led by Lord Mance) would have recognised an equitable right of contribution or recovery. That would have meant that while Zurich could be called on by the insured to meet the claim for damages (and claimant’s costs) in full, Zurich must be given an equitable right of contribution to those damages against other insurers, and its insured in respect of periods for which Zurich was not on risk.

Zurich’s net liability to its insured would therefore have remained at 6/27ths of the damages, but in this analysis reflecting a set-off of the equitable contributions for the periods for which Excess provided cover (2/27 years) and for which the insured was self-insured (19/27 years). On this same Compensation Act point, the minority (Lord Sumption analysing the issues) would have concluded that Zurich’s legal liability would simply be for the 6/27ths and hence would not have gone as far as to recognise the equitable contribution in the majority decision.

For the majority, Lord Mance added that it would have been probable, had the insured been insolvent, that the claimant would have secured a full recovery (ie 27/27ths) against Zurich had he had to claim under the Third Party (Rights Against Insurers) Act 1930. While this conclusion is not part of the ratio of the case, it is entirely consistent with majority’s reasoning (on the basis that had the insured been insolvent Zurich would simply have had no exercisable equitable right against it).

BLM will be publishing a more indepth analysis of today's judgment this week.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of BLM. Specialist legal advice should always be sought in any particular case.

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Nick Pargeter

Nick Pargeter

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