On 9 July, Insurance Insider and The Insurer both reported that Equitas Insurance and Municipal Mutual Insurance had settled long-standing legal proceedings, the effect of which is to prevent the insurer from ‘spiking’ its reinsurer under an excess of loss liability reinsurance policy.[i]
In edition 271 of BC Disease News, we summarised the Court of Appeal’s judgment in Equitas Insurance Limited v Municipal Mutual Insurance Limited  EWCA Civ 718.
The upshot of this landmark decision was that the employers’ liability (EL) insurer (MMI) could not allocate 100% of its liability (an action called ‘spiking’), in an asbestos-related disease claim, to a chosen year of reinsurance cover.
The position between EL insurers and reinsurers is noticeably different from the relationship between employers and EL insurers, regarding the apportionment of liability in mesothelioma claims.
We reported on the case of Zurich Insurance PLC UK Branch v International Energy Group Ltd (Rev 2)  UKSC 33, in edition 96 of BCDN (here). In that instance, the Supreme Court Justices reasoned that, where the Compensation Act 2006 is in force, the Fairchild principle (employers are held jointly and severally liable for ‘materially increasing’ the risk of the claimant’s mesothelioma)[ii] and the Trigger litigation[iii] ratio (EL insurers are obligated to indemnify employers against exposure-based liability incurred under Fairchild) apply.[iv]
Hypothetically, therefore, an indemnifying EL insurer can be ordered to pay 100% of a claimant’s compensation payout, but reserves a right to pro-rata contributions from co-insurers and from the employer itself (in respect of uninsured periods), so that it may be reimbursed for time not on risk.
Concluding our precis on the Court of Appeal decision in Equitas, we predicted that MMI would seek to appeal the ruling and it is our understanding that a July hearing had in fact been listed.[v] However, in light of recent events, the Supreme Court was not tasked with considering the legal issues which arose at the 1st appeal (i.e. if ‘spiking’ were permitted, how would one calculate the recoupment of any contribution for time not on risk?).
With the claim now having been discontinued, the Court of Appeal ruling is maintained as the established guiding authority for reinsurers. Obiter discussion in Zurich (and by extension, the Fairchild principle and the ‘Trigger’ litigation) remain distinguished, on the basis that there is a ‘seriously arguable case for treating the insurance and reinsurance positions differently’:
‘I am of the view there is force to the submission that, if it is determined that Fairchild and IEG mean the courts have given the reinsured a choice as to how to allocate its losses to its reinsurers, there could be some basis for a duty of good faith in order to restrain the manner of exercise of the freedom of choice, which this novel principle has created within this unique reinsurance context. Contrary to Flaux LJ's determination, this could require the reinsured to allocate his losses in line with the Barker principles and the normal common law approach’ [Gloster LJ, at para 27 of Equitas].
‘Spiking’, for now at least, is prohibited.
[i] Anna Sagar, ‘Reinsurers vindicated as Equitas and MMI settle mesothelioma clash’ (9 July 2020 Insurance Insider) <https://insuranceinsider.com/articles/134350/reinsurers-vindicated-as-equitas-and-mmi-settle-mesothelioma-clash> accessed 28 July 2020.
‘Equitas and MMI settle key mesothelioma dispute ahead of Supreme Court; major victory for reinsurers’ (9 July 2020 The Insurer) <https://www.theinsurer.com/news/equitas-and-mmi-settle-key-mesothelioma-dispute-ahead-of-supreme-court-major-victory-for-reinsurers/9640.article> accessed 28 July 2020.
[iv] Ryan Dolby-Stevens, ‘Case Comment: Zurich Insurance plc UK Branch v International Energy Group Ltd  UKSC 33’ (2 July 2015 UKSC Blog) <http://ukscblog.com/case-comment-zurich-insurance-plc-uk-branch-v-international-energy-group-limited-2015-uksc-33/> accessed 30 July 2020.
‘PRESS SUMMARY: Zurich Insurance PLC UK Branch (Appellant) v International Energy Group Limited
(Respondent)  UKSC 33’ (20 May 2015 Supreme Court) <https://www.supremecourt.uk/cases/docs/uksc-2013-0057-press-summary.pdf> accessed 30 July 2020.
‘PRESS SUMMARY: Employers’ Liability Insurance “Trigger” Litigation: BAI (Run Off) Limited (In Scheme of Arrangement) and others v Durham and others  UKSC 14’ (20 March 2012 Supreme Court) <https://www.supremecourt.uk/cases/docs/uksc-2011-0027-press-summary.pdf> accessed 30 July 2020.
[v] Jonathan Sacher and Oliver Saunders, ‘No Reinsurer Spiking Allowed - Now Settled English law: Equitas and MMI Supreme Court case is discontinued’ (8 July 2020 Bryan Cave Leighton Paisner) <https://www.bclplaw.com/en-GB/insights/no-spiking-allowed-equitas-and-mmi-case-is-discontinued.html> accessed 28 July 2020.