Commonwealth Steel Company Ltd v Certain Underwriters At Lloyds Comprising Syndicate Nos 130, 144, 208, 210, 214, 235, 250, 404, 469, 490, 677 and 870

It was agreed that each of the policies from the 1963-1964 policy year, up to and including the 1967-1968 policy period, responded in terms. The question was whether more than one policy could apply to a particular risk or whether only one policy, being the insurers said, the first policy, could respond. The defendants argued that cases in the Court of Appeal (Orica Ltd v CGU Insurance Ltd [2003] NSWCA 331 and Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226) had developed a legal rule directed to the response of insurance policies in respect of asbestos-related diseases, in particular mesothelioma. That rule was said to be that where there were a number of policies held by one insured, only the first policy responding in terms would in fact respond.

Held per Allsop P, Beazley and Giles JJA: (1) Orica Ltd v CGU Insurance Ltd [2003] NSWCA 331 should not be taken as an expression of a rule that once one policy covering liability in respect of mesothelioma responds, no later policy can respond.

(2) Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226 can be distinguished on a factual basis, as the question in that case was whether the first or last policy responded; in the present case, the question was whether more than one policy could respond to a particular risk.

(3) As a matter of construction, the insuring clause was satisfied on the agreed facts.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/00298520

ALLSOP P BEAZLEY JA GILES JA

Friday 12 March 2010 COMMONWEALTH STEEL COMPANY LTD v CERTAIN UNDERWRITERS AT LLOYDS COMPRISING SYNDICATE NOS 130, 144, 208, 210, 214, 235, 250, 404, 469, 490, 677 AND 870

Judgment 1 THE COURT: Before the Court is an agreed question (amended at the commencement of the hearing) referred to the Court of Appeal by the Commercial List Judge under r 1.21(1)(a) of the Uniform Civil Procedure Rules. That question is: "Whether, upon the true construction of Excess Common Law Policies No. SB67/11788-4244 and No. SB67/11789-4253 in respect of the period of risk from 31 March 1967 to 31 March 1968 ("the 1967-68 policies") and in the events which have happened, the plaintiff is entitled to indemnity for the loss occasioned to it by reason of its liability to Christopher William Kozaczynski (Deceased) in the sum of FIVE HUNDRED AND TWENTY FIVE THOUSAND DOLLARS ($525,000.00) pursuant to the judgment in that sum in proceedings in the Dust Diseases Tribunal of New South Wales No. 159 of 2000 dated 13 November 2000 ("the loss") or any part thereof under the 1967-68 policies (as the plaintiff contends) or whether the only policies under which the plaintiff is entitled to indemnity for the loss are those subsisting in any one of the policy years prior to the 1967/68 policy year. It is noted that:

(a) there is no agreement that the exposure to asbestos in the 1962/63 policy year constitutes an injury that was causative of the disease of mesothelioma;

(b) there is agreement that the exposure to asbestos in each of the policy years 1963/64, 1964/65, 1965/66, 1966/67 and 1967/68 was causative of the disease of mesothelioma." 2 Prior to these proceedings, Mr Kozaczynski, a former employee of the plaintiff, died of mesothelioma having been diagnosed with that condition in 2000. The defendants are underwriters under two policies of insurance on risk in the period 31 March 1967 to 31 March 1968. The question posed is whether these insurers for that particular policy year are liable to indemnify the plaintiff. 3 A statement of agreed facts was filed and is as follows (the insertions in brackets being what we take from the material referred to in the statement of agreed facts):

(a) At all material times, the plaintiff carried on business as a steel mill at Waratah near Newcastle in the State of New South Wales. (b) During the period from 2 December 1962 until 5 July 2000, the plaintiff employed a Mr Christopher William Kozaczynski to work for it at the steel mill, initially as an apprentice bricklayer and later as a tradesman and foreman bricklayer.

(c) During the course of each year of his employment by the plaintiff from 1962 to 1986, Mr Kozaczynski was exposed to, and inhaled, asbestos fibres in the manner and to the extent described in the Statement of Claim in proceedings in the Dust Diseases Tribunal of New South Wales No. 159 of 2000 dated 11 July 2000 ("the proceedings"), the Statement of Particulars in the proceedings dated 13 September 2000, the affidavit of Mr Kozaczynski sworn on 15 September 2000 and as recorded in the various medical reports and other documents being documents 5 to 19 of the Court Book (which has been signed for identification) ("the Court Book").

(d) Mr Kozaczynski was diagnosed with mesothelioma on 5 July 2000.

(e) The aetiology of mesothelioma is as set out in the judgment of Fitzgerald AJA in EM Baldwin & Son Pty Ltd v Plane (1998) 17 NSWCCR 434 at 477-478, a copy of which is at document 35 of the Court Book.

[(ei) The adoption of the aetiology of mesothelioma in paragraphs [89]-[96] of the reasons of Fitzgerald AJA in Plane , is an acceptance of the views of Professor Henderson, relevantly that: (a) Development of mesothelioma is related to the cumulative effect of all asbestos fibre inhaled in the material period. (b) Earlier exposures are more significant than equivalent later exposures. (c) The heavier the exposure, the greater the significance of the exposure. (d) It is not medically appropriate to ascribe the cause of mesothelioma to one or other of the amphiboles to which the person is exposed.]

(f) Mesothelioma is not the result of successive deteriorations but is an indivisible injury which a person cannot contract twice.

(g) The plaintiff and the first and third defendants accept the assumptions, facts, calculations, opinions and conclusions expressed by Professor Geoffrey Berry in the report dated 25 September 2003, a copy of which is at document 33 of the Court Book.

[(g1) The adoption of Professor Berry's report is an acceptance of the following relevant propositions: (a) The risk of mesothelioma is a consequence of a period of exposure to asbestos dust and increases as time passes since exposure. (b) The relative contribution of periods of exposure can be assessed by reference to exposure level (including type of asbestos) and duration of exposure. (c) The percentage contribution to the total risk of contraction of mesothelioma for Mr Kozaczynski (for whom risk came home) for each year are set out in the following table: Exposure Relative Elimination rate Start date End date Exposure Nil 10% 1) Apprentice 02-Dec-62 30-Jun-63 2 8.44 4.47 01-Jul-63 30-Jun-64 2 13.72 7.87 01-Jul-64 30-Jun-65 2 12.59 7.98 01-Jul-65 30-Jun-66 2 11.58 8.10 01-Jul-66 30-Jun-67 2 10.58 8.20 01-Jul-67 30-Jun-68 2 9.69 8.29 2) Tradesman 01-Jul-68 30-Jun-69 1 4.40 4.16 01-Jul-69 30-Jun-70 1 3.99 4.18 01-Jul-70 30-Jun-71 1 3.61 4.18 01-Jul-71 30-Jun-72 1 3.27 4.17 01-Jul-72 30-Jun-73 1 2.93 4.13 01-Jul-73 30-Jun-74 1 2.82 4.09 01-Jul-74 30-Jun-75 1 2.33 4.02 01-Jul-75 30-Jun-76 1 2.08 3.96 01-Jul-76 30-Jun-77 1 1.83 3.85 01-Jul-77 30-Jun-78 1 1.60 3.73 01-Jul-78 30-Jun-79 1 1.40 3.60 01-Jul-79 30-Jun-80 1 1.22 3.46 01-Jul-80 30-Jun-81 1 1.04 3.28 01-Jul-81 22-Nov-81 1 0.37 1.25 3) Foreman 23-Nov-81 30-Jun-82 0.25 0.13 0.46 01-Jul-82 30-Jun-83 0.25 0.19 0.72 01-Jul-83 30-Jun-84 0.25 0.16 0.67 01-Jul-84 30-Jun-85 0.25 0.13 0.61 01-Jul-85 30-Jun-86 0.25 0.11 0.58]

(h) The proceedings were settled on 13 November 2000 upon terms that there would be judgment for Mr Kozaczynski against the plaintiff in the sum of $525,000.00, with each party to pay its own costs ("the judgment"). A copy of the order for judgment is at document 29 of the Court Book. (i) The plaintiff paid Mr Kozaczynski the sum of $525,000.00 pursuant to the judgment, on or about 7 December 2000 ("the loss").

(j) During various periods of risk in the period between 2 December 1962 and 31 March 1974, the plaintiff was entitled to insurance cover under and in accordance with the terms of a number of excess common law policies of insurance, including the policies identified at documents 38(d) and 39(b) of the Court Book ('the policies"). From 1 April 1974 until 1986, the plaintiff, which was at that stage a subsidiary of BHP Limited, was entitled to insurance cover in the nature of excess common law cover as a subsidiary of BHP which was a self insurer during this period. (k) The underwriters of each of the policies varied from year to year during the period between 2 December 1962 and 31 March 1974. (l) The amount available under each policy from 1962 to 1974 is each individual underwriter's several proportion of the sum insured. (m) The policies included Policy No. SB67/11788-4244 in respect of the period of risk from 31 March 1967 to 31 March 1968, underwritten by the first and second defendants (as to 82.5% and 17.5%, respectively) with a limit of $200,000.00 each and every disaster (unlimited in all) and an excess of $15,000 each and every event ("the first layer"); and Policy No. SB67/11789-4253, underwritten by the third defendant (as to 90.499%), in respect of the same period of risk, with a limit of liability of $300,000.00 each and every disaster (unlimited in all) and an excess of $215,000.00 each and every event ("the second layer") ("the 1967-68 policies"). (n) The terms of the 1967-68 policies and each of the other policies during the period from 2 December 1962 to 31 March 1972 (omitting policy numbers, periods of risk, limits, excesses and other amounts) were as follows: ATTACHING TO AND FORMING PART OF POLICY NO (number) - COMMONWEALTH STEEL COMPANY LIMITED - This Policy is to cover the liability of Commonwealth Steel Company Limited (hereinafter referred to as the Employer) to its employees as follows:

If at any time during the period commencing [date] and ending [date + 12 months], any employee in the immediate service of the Employer shall sustain any personal injury (fatal or non fatal) by accident while engaged in the service of the Employer in work forming part of or process in [sic] his business … the Employer shall be liable to make compensation for such injury solely under or by virtue of: (a) Compensation under the Workers Compensation Act of any State as amended up to the date of the inception of this Policy and of any subsequent amendment of the said Act and/or Acts at terms to be agreed to Underwriters [sic] , or (b) Damages independently of the said Acts for personal injury or fatal accident to any Employee of the Assured, The Underwriters shall pay up to [amount] for the ultimate nett loss in respect of each and every disaster which the Assured may pay, or for which it may be liable in excess of [amount] in respect of each and every disaster anywhere in the Commonwealth of Australia or New Zealand.

The term 'Ultimate Nett Loss' as used herein shall be understood to mean the sum actually paid in cash in the [settlements] of claims of which the Assured is liable after making proper deductions of all recoveries, salvages and other insurance and excluding office expenses and salaries of employees of the Assured. Legal costs shall be paid as hereinafter provided. The Assured shall notify the Underwriters of any claim or claims of which they may receive [advice] and which appear likely to interest the Underwriters under this insurance and shall provide the Underwriters with all information relative thereto and with copies of all papers relating to such claims or that may be required by the Underwriters. The Underwriters shall be given every opportunity of co-operating with the Assured in the settlement of or defence of all claims in which the Underwriters are likely to become interested. In the event of a claim being settled before it is adjudicated upon by the Workers Compensation Commission or other Tribunal, on account of any one accident for not more than $[amount] then no costs shall be payable by the Underwriters. Should, however, the sum required for adjustment of the claim on account of any one disaster exceed $[amount], then the Underwriters shall contribute to the costs in the proportion that their interests in the claim to be adjusted or paid in accordance with the award of the Workers Compensation Commission or judgment of any other Tribunal bears to the whole amount paid for adjustment, or in satisfaction of the Award [or judgment] . No appeal from an award of the Workers Compensation Commission or award of any other Tribunal shall be made by the Assured without the consent of the Underwriters (unless time does not allow) and if they consent to the appeal, they shall contribute to the costs thereof in the proportion that their interest in the claims prior to the Appeal bears to the whole amount of the claim prior to the Appeal... Twenty-four months after the expiry of this Policy the Assured shall advise the Underwriters of any claims which may remain unsettled and which may cause a claim under this Policy. The Underwriters may then or at any time thereafter demand that the Assured make a final claim on the Underwriters in respect of such unsettled claims. In that event the Assured and the Underwriters shall mutually appoint an actuary or appraiser who shall investigate, determine and capitalise any such unsettled claims and the sum so determined shall be considered the amount of the losses and the payment l by the Underwriters of their proportion of this sum shall constitute complete release of the Underwriters for such loss so valued. It is noted that subject to the conditions, stipulations and limitations of the Policy, the [indemnity] is to extend to include and cover the liability of the Assured for compensation and/or damages in any of the Australian States or Federal Capital Territory under any Act, Law or Ordinance in force at inception date of Policy equivalent or of similar nature to those contemplated by Indemnities (a) and (b) of the Policy, Provided that in the event of any amendment of such Act, Law or Ordinance after such inception date, the Assured is to be held covered against any additional liability created by any such amendment subject to and pending adjustment of premium by Underwriters. DISASTER - The word 'disaster' shall mean an accident or series of accidents arising out of the one occurrence. SALVAGE AND RECOVERY CLAUSE - All salvages, recovers and payment recovered or received subsequent to a loss settlement under this Policy shall be applied as if recovered or received prior to the said settlement and all necessary adjustments shall be made by the parties hereto. Notwithstanding anything contained in the wording to the contrary, it is hereby understood and agreed that where the sum required for adjustment of a claim on account of any one disaster exceed $[amount] up to $[amount] then the Underwriters hereon shall bear the whole of such costs and expenses which may be incurred in the settlement of such claim. The Policy includes workers compensation claims under the terms of this Policy where the aggregate of any lump settlement exceeds $[amount], subject to prior approval by Underwriters of any lump settlement. (o) The plaintiff claimed indemnity for the loss under all of the policies by letter dated 4 November 2003. A copy of this letter is at document 34 of the Court Book.

(p) The present proceedings were commenced on 10 November 2006.

(q) The first and third defendants have submitted to the jurisdiction of the Court.

(r) The plaintiff has attempted to serve the second defendant in Germany with initiating process. The second defendant is aware of the subject proceedings but denies being properly served with such process and has not submitted to the jurisdiction of the Court. (s) The only issue is whether, upon the true construction of the 1967-68 policies and in the events which have happened, the plaintiff is entitled to indemnity for the loss under the 1967-68 policies (as the plaintiff contends) or [whether] the only policies under which the plaintiff is entitled to indemnity for the loss are those subsisting in any one of the policy years prior to the 1967/68 policy year (as the first and third defendants contend). (t) In the event that the plaintiff is entitled to indemnity for the loss under the 1967-68 policies, the plaintiff is entitled to:

(i) Judgment against the first defendant, in respect of the first layer of cover, in the sum of $165,000.00 together with interest on that sum from 30 December 2004 to the date of judgment at the rates of interest prescribed from time to time for the purpose of s 100 of the [ Civil Procedure Act 2005 ];

(ii) Judgment against the third defendant in the sum of $271,497.00 in respect of the second layer of cover together with interest on that sum from 28 February 2005 to the date of judgment at the rates of interest prescribed from time to time for the purpose of that section of that Act; and (ii) Costs. (u) In the event that the plaintiff is not entitled to indemnity for the loss under the 1967-68 policies, the summons should be dismissed with costs. 4 It was common ground that in each of the policies the entitlement to indemnity depends on injury being sustained in a policy period and the insured (plaintiff) being liable (whenever) "for such injury". Thus, it was agreed that such liability as there may be for any personal injury need not arise within the policy period. It was also common ground that inhalation of asbestos dust or fibres was personal injury as referred to in the policies.

5 The plaintiff contends that if personal injury (being inhalation of asbestos dust or fibres) occurred in the policy period and if that personal injury was materially causative of, or materially contributed to, the contraction by the employee (Mr Kozaczynski) of mesothelioma and if the plaintiff employer was legally liable for such injury the relevant policy responds. The plaintiff contends that all policies, from at least the 1963-1964 policy year, respond. The plaintiff only presses its claim for those referable to the 1967-1968 policies. It does so, it is said, because the evidence of Professor Berry establishes that the 1967-1968 policy period was the period of greatest risk of asbestos related injury.

6 The defendant insurers contend that only the first policy that could respond (on the agreed facts the policy for the 1963-1964 period) responds.

7 The critically relevant agreed facts for the operation of the insuring clause of the policies, based on the statement of agreed facts and on the admissions made by the parties at the hearing, are as follows: (a) Mr Kozaczynski was an employee in the immediate service of the plaintiff during all relevant policy periods commencing with the 1963-1964 policy period, up to and including the 1967-1968 policy period.

(b) In each policy period, commencing from 1962-1963, and beyond, Mr Kozaczynski inhaled asbestos dust or fibre. Such inhalation was personal injury. (c) In each policy period, commencing from 1962-1963, that inhalation and that personal injury was sustained by accident while engaged in the service of the plaintiff in work of the plaintiff's business. (d) The personal injury in each policy period from 1963-1964 materially caused or materially contributed to the contraction by Mr Kozaczynski of mesothelioma. (e) The plaintiff is liable at common law for the contraction by Mr Kozaczynski of mesothelioma in a sum represented by the settlement.

8 The plaintiff's submission have a factual and intellectual simplicity built on the above agreed facts. It submitted: (a) Personal injury (by inhalation of asbestos dust or fibres) was sustained by accident within the 1967-1968 policy period. (b) The personal injury occasioned within the 1967-1968 policy period materially caused or contributed to the condition (mesothelioma). (c) The plaintiff was liable to Mr Kozaczynski for his mesothelioma. (d) This was not negated by the fact that personal injury by inhalation of asbestos dust or fibres was sustained by accident within earlier policy periods and also materially contributed to the condition.

9 The defendants' response focussed upon the phrase "shall be liable … for such injury" in the insuring clause. It did not follow, it was submitted, that because an injury that materially caused or contributed to the condition for which the plaintiff was liable occurred within the policy period that the policy for the 1967-1968 policy period responded. This was because, it was submitted, cases in this Court (Orica Ltd v CGU Insurance Ltd [2003] NSWCA 331; 59 NSWLR 14 and Vero Insurance Ltd v Power Technologies Pty Ltd [2007] NSWCA 226; 5 DDCR 206) had developed a legal rule directed to the response of insurance policies in respect of asbestos related diseases, in particular mesothelioma. That rule was said to be that where there were a number of policies held by one insured (here an employer), only the first policy responding in terms would in fact respond. Thus, it was submitted that even if, as between Mr Kozaczynski and the plaintiff, the former could sue the latter in tort (or under statute) for his mesothelioma based on the personal injuries in all the years, and even if a court could conclude that the latter's liability to the former for his mesothelioma was based on legal responsibility for each and every personal injury (as materially causing or contributing to the condition), in the policies in question the phrase "shall be liable … for such injury" referred only to liability for the first personal injury in the first policy period which materially caused or contributed to the condition.

10 It was accepted by the defendants that this conclusion had to flow out of the terms of the insurance policies. That meaning, however, was to be extracted by reference, in part, to the legal rule said to have been developed by this Court and apt for the particular difficulties thrown up by asbestos related conditions and, in particular, mesothelioma.

11 The defendants' argument was founded upon what Spigelman CJ said in Orica at [51]-[59] as employed by the Court in Vero. Given the importance of these passages in the Chief Justice's reasons, we set them out in full: "[51] The issue that arises here is whether more than one policy responds. I proceed on the basis of an assumption that there was penetration of the worker's lung in each of the three years, the cumulative effect of which was that he contracted mesothelioma.

[52] The line of authority on which the appellant relied on the issue of when the employer's liability arose is relevant. That case law turned, in relevant respects, on the particular provisions of the statutory policies under consideration in each case. Nevertheless, the issue that was being determined was the effect, for purposes of compensation under the Act, where relevant incapacity arose from the cumulative effect of injuries that had occurred in more than one year.

[53] Different views were expressed in this respect, but they were resolved by the judgment of this Court in MMI v NEM , approving the approach taken by Cole J in Manufacturers Mutual Insurance Limited v National Employers' Mutual General Insurance Association Limited (1989) 5 ANZ Insurance Cases ¶60-906 (" MMI v NEM at trial"), in which his Honour relied particularly on the reasoning of Deane J in National & General Insurance v South British Insurance (at 334-335).

[54] This line of authority concluded that where incapacity results from a number of injuries sustained by an employee in the course of employment with the one employer, in the case of a single consequence, relevantly, "where partial incapacity has resulted from a number of separate injuries", to use the words of Deane J in National & General Insurance v South British Insurance (at 335) applied by Cole J in MMI v NEM at trial (supra, at 75,793) and implicitly accepted by Samuels JA and Priestley JA on appeal in MMI v NEM (at 76,965), the liability to pay compensation under the Act is 'properly to be seen as flowing from the last injury and as having arisen at the time of that injury'. (See also Insurers' Guarantee Fund - NEM General Insurance Association Ltd (in liq) v GIO General Ltd (1994) 33 NSWLR 247 especially at 264-265; MLC Insurance Ltd v Pinto (1994) 10 NSWCCR 101 especially at 108-109; Insurers' Guarantee Fund - NEM General Insurance Association Ltd (in liq) v Manufacturers Mutual Insurance Ltd (unreported, 12 August 1994, NSW Court of Appeal, Handley, Sheller and Powell JJA)). For the respective purposes to which these authorities relate, only one 'injury' was found to have the requisite consequences.

[55] Although each of the cases turns on the particular section of the statute in issue, a similar result appears appropriate in the present case. The 'liability' arises only once. My conclusion fits no more elegantly into the words of the policy than the cases to which I have referred fit into the various statutory contexts where the result has been as I have indicated. Nevertheless this is, in my opinion, the proper construction of the policy.

[56] The employer becomes 'liable to pay' upon a single penetration with respect to the whole of 'his liability' at common law. When another penetration occurs the employer's 'exposure' or 'risk', and therefore 'liability', is not changed. I refer, of course, to 'liability' where appearing in the second and third points set out (at [7] supra) that is, 'liable to pay an amount' and 'for which the employer shall be so liable'. It may be that the employer's 'liability independently of the Act' has become more likely to come home, because of the cumulative effect of the exposures, but that is a different matter. Establishing the state of affairs in which the employer is 'liable to pay' occurs only once. That state of being 'liable' is not affected by other exposures.

[57] Only one cause of action will arise at common law against the employer for the development of mesothelioma, despite there having been multiple 'injuries' within the meaning of the policy. There will be only one occasion on which the employer will become 'liable to pay'. It does not matter in the present case when that occurs.

[58] On this basis also, the appellant's case that more than one policy responded should be rejected.

[59] Accordingly, if the view I have expressed above that no policy responded is wrong, in my opinion, only one policy would respond."

12 The Chief Justice's reference to the various cases in [53] and [54] that dealt with the operation of workers compensation legislation (the Workers Compensation Act 1926 (NSW) (the "1926 Act") and the Workers Compensation Act 1987 (NSW) (the "1987 Act")) was related to his Honour's statement in the last sentence of [54] that only one injury was found to have the requisite consequences. It is unnecessary to examine all these cases in detail. They raise, at times, complex issues in the operation of the relevant workers compensation legislation over the years, in particular in dealing with the consequences of successive injuries in respect of incapacity for work and the legislative responses to such issues. Disputes over the operation of provisions, such as s 7A of the 1926 Act and ss 16 and 22 of the 1987 Act, require close attendance to the development of case law and legislative intervention: see for example Insurers' Guarantee Fund - NEM General Insurance Association Ltd (in liq) v GIO General Ltd (1994) 33 NSWLR 247 and MLC Insurance Ltd v Pinto [1994] NSWCA 206; 10 NSWCCR 101. 13 From these cases it can be taken that since Morris v George [1977] 2 NSWLR 552, a single incapacity, total or partial, may result from separate injuries. There are references, however, to the likely rarity of such a conclusion: see for example Pinto at 104 per Clarke JA. This may flow from the distinction in the jurisprudence sometimes drawn between a finding that an injury was a contributing cause of an incapacity and a finding that the incapacity resulted from the injury, as referred to by Clarke JA in Pinto at 104: Morris v George at 566-568 per Moffitt P; National Employers' General Insurance Association Ltd v Calver [1983] 3 NSWLR 107 at 109; and Pinto at 104. These distinctions need not be explored here. 14 It is necessary, however, to say something more of three decisions referred to by the Chief Justice in Orica and upon which the defendants placed some weight in argument in the present appeal: National & General Insurance Company Limited v South British Insurance Company [1982] HCA 62; 149 CLR 327; MMI v NEM [1989] NSWSC 6; 5 ANZ Insurance Cases ¶60-906 (Cole J) and MMI v NEM (1991) 6 ANZ Insurance Cases ¶61-038 (Court of Appeal).

15 First, it was submitted that South British stood as authority for an imposed rule of policy in workers compensation cases that the last injury of a series of injuries was always solely causatively responsible for a single condition of incapacity, even if other injuries could be seen to materially cause or contribute to the single condition. 16 In South British the question arose as to which workers compensation insurer of a series of insurers of one employer was liable for certain compensation under the 1926 Act. Between 1966 and 1977, the worker suffered a number of injuries to his back culminating in an incident on 5 January 1977 when he became totally incapacitated for work until March 1978 and partially incapacitated from 1 April 1978. Sometime after 5 January 1977 his employment was terminated on the ground that he was medically unfit for work. In July 1978, while unemployed and partially incapacitated, he sought suitable employment with the employer. The employer could not offer such employment and from 25 July 1978 he was deemed totally incapacitated by reason of the 1926 Act, s 11(2). An award of compensation was made against the employer: for partial incapacity from 1 April 1978 to 24 July 1978 and for deemed total incapacity (under s 11(2)) thereafter. Proceedings were commenced by the employer against its five insurers that had been on risk from 1966 to 1981. The insurers compromised as to liability for the partial incapacity payments under s 11(2). The primary judge (Yeldham J) found that the fourth insurer (National & General), being the insurer at the time of the last causative injury, was solely liable to indemnify the employer for the deemed total incapacity payments. The fifth insurer (National Employers' Mutual) was on risk from 25 July 1978.

17 The judge of the Workers Compensation Commission concluded that the partial incapacity from 1 April 1978 was a result of, at least, the injury on 5 January 1977 and three injuries in 1967, 1973 and 1975. Deane J (with whom Mason, Murphy, Wilson and Brennan JJ agreed) put it (at 330) that "there was a single existing partial incapacity and … that incapacity resulted from, at least, the four separate injuries" (emphasis added).

18 At 332-333, Deane J made clear what was at issue in the case. The question was not which insurer or insurers was or were liable for the single partial incapacity which was caused by each and all of the injuries occurring while the insurers were on risk. Rather, the question at issue was which insurer or insurers was or were liable in respect of payments to which the worker was entitled, not on the basis of his partial incapacity, but on the basis of deemed total incapacity under the 1926 Act, s 11(2).

19 The reasons of Deane J were directed to answering this latter question only. Importantly, whilst his Honour found (at 334) that as a general proposition liability under the 1926 Act arose at the time of the happening of the injury, referring to Fisher v Hebburn Ltd [1960] HCA 80; 105 CLR 188 at 202-203 and Geraldton Building Co Pty Ltd v May [1977] HCA 17; 136 CLR 379 at 384 and 404, he said (at 334-335) that this did not mean that all successive employers were responsible to give suitable employment where partial incapacity resulted from a number of injuries. Rather, only the employer at the time of the last causative injury was so obliged. The failure by that employer to provide suitable employment crystallised that employer's (and no one else's) liability to pay compensation on the basis of deemed incapacity. This conclusion fell from the proper construction of s 11(2). He then dealt (at 335) with successive injuries and one employer as follows: "Similarly, where the underlying partial incapacity has resulted from a number of separate injuries sustained by a worker in the course of his employment with the one employer who has failed to provide suitable employment, the liability to pay compensation in respect of notional total incapacity is properly to be seen as flowing from the last injury and as having arisen at the time of that injury."

20 The conclusion of Deane J (at 335) that the liability to pay compensation on the basis of notional total incapacity in the event of a failure to fulfil the statutory obligation to provide suitable employment arose on, and flowed from, the occurrence of the last injury from which the partial incapacity resulted, was based on a close construction of the working of the 1926 Act and in particular of ss 9 and 11. As Deane J said at 335: "The Council's liability to pay compensation in respect of notional total incapacity was not 'to any degree dependent' upon the continuance of the partial incapacity which attracted the provisions of s. 11(2) ( Bain v Frank G O'Brien Ltd [1976] HCA 29; (1976) 135 CLR 158 at 164) and, while it existed, displaced any liability to pay compensation in respect of that partial incapacity."

21 In this last respect, Barwick CJ said in Bain v Frank G O'Brien at 163-164 (to which Deane J made reference), that the right to compensation based on deemed total incapacity is not bound up with continuing partial incapacity. It is a consequence of the failure of the employer to provide suitable employment. Barwick CJ said in Bain at 163-164: "But there are considerations particular to an award based on notional incapacity to which I would refer. Section 11 (2) deems an injured worker for whom suitable employment is not provided to be totally incapacitated. This is a situation created by the Act and at the time of the employer's failure to provide suitable employment. It is not a situation which is, in any sense, made dependent on the existence or extent of the worker's incapacity for the future. The Commission, no doubt, in pursuance of its powers under s. 36 to which I have referred, may alter that situation: but until it does so, the deemed total incapacity remains. Section 11 (2) does not say that so long as the worker is, in fact, incapacitated to any degree he shall be deemed to be totally incapacitated. It says that the incapacity which has given him the right to seek of his employer suitable employment is deemed to be total: that is to say, he is deemed to have no capacity to earn any salary or wages. It is that incapacity to which the award refers when it speaks of the 'said incapacity'. That notional total incapacity is not, in my opinion, to any degree dependent on the continuance of incapacity in fact."

22 Thus, the content and operation of s 11(2) of the 1926 Act provided the foundation for Deane J to say, as a matter of construction of the 1926 Act, that the liability to pay the compensation on the basis of deemed total incapacity flowed from the last injury and the (unfulfilled) request then made to the employer for suitable employment. The insurer on risk at the time of the last injury was the only insurer that covered this s 11(2) liability.

23 This was not formulation of legal policy. It was the construction of a statute. South British does not stand for the proposition sought to be taken from it by the defendants.

24 The defendants also referred to South British as a decision illustrative of the approach to liability under the 1926 Act and later workers compensation statutes that, for the purposes of compensation under those Acts, where a single consequence of incapacity resulted from the cumulative effect of different injuries, the liability to pay compensation was properly to be seen as flowing from the last injury and having arisen at the time of that injury. As shown by Morris v George, that is too simplistic a statement. Further, South British, properly understood, is illustrative of no such proposition.

25 In MMI v NEM, various insurers (MMI, QBE and Industrial Liability Underwriters) sought declarations regarding contribution from another insurer (NEM) in respect of moneys paid or payable in respect of injuries suffered by a worker of an employer. The plaintiff insurers and NEM and another insurer were the workers compensation insurers of the employer from 1972 to 1987, NEM being on risk from 30 June 1973 to 31 March 1979, during which period the worker suffered three injuries. MMI was on risk from 1 April 1986 to 31 March 1987 during which period the worker was demoted because of his injury and the worker sued the employer. The Workers Compensation Commission found that the worker was demoted as a result of the series of aggravations to his back since 1973. 26 Cole J dismissed the claim for contribution. The appeal was dismissed by the Court of Appeal. No double insurance arose because the insurers were underwriting separate and different risks: MMI v NEM (1989) at 75,792 (Cole J) and MMI v NEM (1991) at 76,964-965 (Samuels JA, with whose judgment Meagher JA agreed and Priestley JA writing a concurring judgment). This conclusion is irrelevant to the present debate. There were, however, obiter statements of principle by Cole J and the members of the Court of Appeal that were relied on by the defendants. 27 In dealing with the liability to make payments for partial incapacity under s 11(1) of the 1926 Act, Cole J said at 75,793: "Where, however a single partial incapacity results from a number of injuries sustained by the employer in the course of his employment with the one employer, it is consistent with the view stated by the High Court in South British , when dealing with sec. 11(2), that the obligation to make payment pursuant to sec. 11(1) is 'properly to be seen as flowing from the last injury and as having arisen at the time of that injury' (Deane J at 335). Thus the insurer at risk, at that time is responsible to indemnify the employer."

28 The statement of Cole J may be consistent with Deane J's reasons in South British in the sense of not being contrary to it, but this was the very question that Deane J said he was not deciding. Cole J's statement is conclusory. That it is not inconsistent with Deane J's reasons gives it no logical support.

29 In the Court of Appeal, Samuels JA, who gave the leading judgment, recognised the clear proposition from the authorities that the expression in the standard form policy, "If … the employer shall become liable to pay compensation", contemplates liability which vests on the happening of a compensable injury. The risk against which the insurer undertakes responsibility "is the payment of compensation for incapacity in respect of the employer's liability for an injury occurring during the currency of the insurer's engagement": MMI v NEM (1991) at 76,964 (Samuels JA) (emphasis added). This led to the conclusion that the insurers were underwriting different risks. Thus, it was concluded, there was no double insurance. 30 Samuels JA also dealt by way of obiter dicta with a single incapacity and multiple injuries. Samuels JA said at 76,965: "Apart from the doctrine of double insurance, it was put by Mr Grieve that when incapacity results from more than one injury and cannot be said to result solely from one particular injury, liability to indemnify arises and attaches to each of the insurers on risk when any one of the injuries occurred to the extent that that injury contributed to the ultimate incapacity. That certainly is not an illustration of the doctrine of double insurance, and with all respect I do not know what authority there is for a proposition in those terms. There is no such express stipulation in the statutory contract of insurance, and no room for any implication. Indeed, I did not understand MMI to contend for any such implied term. The submission is met by the matters to which I have already referred." 31 Samuels JA then rejected as wrong in principle what Yeldham J had said in Layne & Bowler (Australasian) Pty Ltd v Pearson Machine Tool Company Ltd (unreported, 25 November 1983, Yeldham J). Cole J had also rejected what Yeldham J said. Yeldham J had concluded that two policies responded for liability to pay workers compensation for a single indivisible capacity if two injuries in two policy periods each causally contributed to the single incapacity. Yeldham J also concluded that there was double insurance and so contribution lay. 32 The rejection of Yeldham J's conclusion of the availability of contribution was founded on the ratio of the judgments of both Cole J and Samuels JA that the policies in question covered separate risks. Nevertheless, both Cole J and Samuels JA rejected Yeldham J's views that both policies responded. The reasoning of both Cole J and Samuels JA is, with respect, unexplained. Both statements are obiter. The underpinning of the opinion expressed by Samuels JA cited earlier can perhaps be seen to be his views concerning causation in insurance law. These views were most clearly expressed in National & General Insurance Co Ltd v Chick [1984] 2 NSWLR 86 at 97-98 where Samuels JA quoted R Colinvaux The Law of Insurance (4th ed, 1979, Sweet & Maxwell) at [4.32] as follows: "A loss may be the combined effect of a whole number of causes, but, for the purposes of insurance law, one direct or dominant cause must in each case be singled out." 33 This proposition has since been rejected by this Court: HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc [1998] NSWSC 436; 43 NSWLR 601; and by the Full Court of the Federal Court: McCarthy v St Paul International Insurance [2007] FCAFC 28; 157 FCR 402 at 421 [56]-[57], 422 [58], 429-438 [88]-[116] especially 429-31 [88]-[92]; and see also the English Court of Appeal in JJ Lloyd Instruments Ltd v Northern Star Insurance Co ('The Miss Jay Jay') [1987] 1 Lloyd's Rep 32. 34 Priestley JA rested his decision that there was no contribution on the fact that the policies covered different risks. 35 It is necessary now to turn to Orica. The policy with which the Chief Justice was concerned in Orica required that both injury and liability occur within the policy period. This is an important distinction from the present policies, in particular by reference to the discussion in [55]-[57] of the Chief Justice's reasons. At one level of generality it can be said that liability in respect of a single condition can only arise once. In particular, if it arises and engages a particular insurance policy, the employer may, as a matter of meaning of the following year's policy, perhaps not be seen as liable again for the engagement of the succeeding policy or policies. No detailed argument was put forward on this point or on the extent to which separate actions can, or cannot, be brought for separate damage suffered: cf Brunsden v Humphrey (1884) 14 QBD 141; and Marlborough Harbour Board v Charter Travel Co Ltd (1989) 18 NSWLR 223. 36 It may also be legitimate to say, as the Chief Justice does at [57], that there will be only one occasion on which an employer will become "liable to pay"; but, with respect, it is not at all clear that this is by reference to only one cause of action. There may have been multiple injuries over the years attributable to a series of tortious acts or omissions which might properly be understood as separate causes of action. The question might most clearly arise in the context of a statute of limitations. 37 Some of the statements of the Chief Justice might be taken (as they were by the defendants) as support for a general legal proposition that there can be only one policy of insurance that responds to the coming home of a risk covering mesothelioma because there is only one liability to pay based on one cause of action. 38 With respect, we have reservations as to the full scope of these statements if they can be taken so far, based in part as they were upon the views of Cole J and Samuels JA in MMI v NEM and in particular Cole J's use of Deane J's judgment in South British, which is beyond what we consider to be legitimate. 39 In any event, the Chief Justice's views were obiter in a case concerning a quite different insurance policy. We do not consider that what his Honour said should be accepted as determinative of the problem of construction posed by the policies in question here. 40 The defendants submitted that the reasons of the Chief Justice could be taken as the expression of a rule that once one policy covering liability in respect of mesothelioma responds, no later policy can respond. For the reasons above, we do not consider that the Chief Justice's reasons should be so taken.

41 The defendants further submitted that that was how this Court in Vero applied the Chief Justice's reasons in Orica. In Vero the relevant policies were substantially similar to those here, except that they were public liability policies. A worker employed by the insured employer had contracted mesothelioma. A number of questions arose, only two of which are relevant to the present case. The first such issue was whether the bodily injury occurred during the relevant period of insurance. This was not the subject of admissions as it is here. A trial occurred before Curtis J in the Dust Diseases Tribunal. In respect of that issue, a relevant question was whether the inhalation of asbestos fibres was bodily injury. Beazley JA (with whom Campbell JA and Harrison J agreed) distinguished the reasoning of the Chief Justice, partly in the passages to which we have been referred and in earlier passages, as irrelevant because of the fundamentally different policy wording with which he was dealing. 42 The second relevant issue dealt with by Beazley JA in Vero concerned the question of which policy responded. There were a number of policies which the employer had taken out. The appellant, the insurer Vero, argued, relying on [56] and [57] of the Chief Justice's reasons in Orica, that it could be liable under only one policy and that was the policy on foot when the worker first suffered injury. 43 Curtis J had found that the last, not the first, policy responded. At [180] of her Honour's reasons, Beazley JA explained Curtis J's approach as follows: "[180] Curtis J had distinguished this case from Orica Ltd on the basis that in that case the parties had proceeded on an agreed basis as to the aetiology of mesothelioma. He considered that having regard to the additional medical evidence in this case, being the evidence of Professor Tattersall given in the matter of Hoyle DDT 71 of 1994, Mr Barlow's mesothelioma resulted from the totality of his asbestos inhalation. His Honour considered that the effect of Professor Tattersall's evidence was that it was not possible to conclude upon the probabilities that he would have developed mesothelioma without the impact of the ingestion of asbestos fibres in the final year of exposure. His Honour concluded, therefore, that it was not possible to demonstrate that the respondent would have been liable ' in respect of bodily injury occurring during ' any previous year of cover. On that basis, his Honour considered that the only probability was that the mesothelioma and, therefore, the respondent's liability, was caused by the final year of exposure. The indemnity under the policy in that year was $500,000." (emphasis added)

44 Beazley JA at [181] specifically noted that there was no submission put that more than one policy responded. The Court was being asked to answer the question whether the first or the last policy responded. Everything said by Beazley JA should be read in that context. In that context, Beazley JA supported the appellant's submissions, drawing as they did upon Spigelman CJ's reasons in Orica. Her Honour stated: "[181] In my opinion, the appellant's submission must be upheld. There was no suggestion in this case that the policies in each of the years of cover responded so as to provide indemnity up to the amount of the policy in each year. It is in this regard that I consider that the conclusion at which I have arrived in respect of the last issue determines the question as to which policy responded. The liability that was covered by the policy was in respect of sums for which the respondent ' shall become liable '. That was a liability that arose once only. On the construction which I have given to this policy, that liability arose upon the first exposure, because that was the injury in respect of which the respondent came under a legal liability to pay compensation and to which the policy responded. It is apparent from the received medical knowledge in this area, by which I mean ' received ' in the authorities, that the greater the exposure, the more likely it is that the risk will come home: see Spigelman CJ at [56] of Orica Ltd . But that is not the question which arises under the policy."

45 Her Honour's conclusion that the first policy responded was a matter of construction. That question being thus answered, the last policy could not respond as a consequence of both parties' arguments. The way the case was presented reinforced the relevance of the notion that "liability … arose once only". The conclusion and reasoning in [181] was relevant to reaching an answer based on the construction of an insurance policy in a context in which, on the arguments of the parties, either one or other policy responded. The conclusion and reasoning in [181] are not determinative of a different question as to whether more than one policy can respond to a particular risk. 46 The contents of [182] tend to reinforce the particularity of the conclusion based as it was also on the evidence. Beazley JA said at [182] and [185]: "[182] In any event, I am of the opinion that his Honour's conclusion that Mr Barlow's mesothelioma was caused by all of his exposure does not accord with Professor Tattersall's evidence. In order to understand the evidence, it is necessary to set it out in some detail, including the passage upon which the trial judge relied at [46] of his judgment. Professor Tattersall said that the ' exposure [to asbestos] gives rise to the presence of retained particles in the lung and it's that which causes the tumour to develop later '. Professor Tattersall was then questioned about exposure over, for example, a 10 year period. Professor Tattersall said the probability of developing mesothelioma was related ' to a retained dose '. He observed that the ' dose retained will be highest in year 10 of that exposure '. He said that if there was equal exposure in each of the 10 years then: '… since there's a relationship between the amount retained in the lung and the risk, there will be a greater risk in the 10th year than in the first year.' … [185] However, the question whether it could be said whether Mr Barlow was one of the persons who would develop mesothelioma is not at issue in this case. He fell within that class of persons who did develop mesothelioma. The question for determination was, on the probabilities, which exposure was likely to have caused the mesothelioma which Mr Barlow in fact contracted. As I have said, I consider this question has been determined by my finding that injury occurred at the time of initial exposure. Consistently with that, having regard to the dicta in Orica to which I have referred and having regard to Professor Tattersall's evidence, the likelihood is that it was the initial exposure which caused the mesothelioma in circumstances where in this case, the initial exposure was significantly heavier than the later exposure. " (emphasis added) 47 Factual considerations played a significant part in this reasoning. This was a consideration in the rejection of special leave to appeal to the High Court: Vero Insurance Limited v Power Technologies Pty Ltd [2008] HCATrans 134 (7 March 2008). 48 We do not consider that such use as was made of Orica in Vero elevates what was said by the Chief Justice to the status of a rule which, when applied to circumstances different to Orica (a different policy) and different to Vero (different issues propounded and admissions in the present case contrary to the facts considered relevant by the Court of Appeal in Vero), supplies a legal answer to the problem. 49 The problem here is one of construction of a commercial insurance policy. On the agreed facts the insuring clause was satisfied. 50 We would therefore answer the question in the affirmative. We would have entered judgment against the first and third defendants as suggested in [3(t)] above, but yesterday the parties indicated that there were issues about interest and costs which might have to be argued. These can be dealt with in due course. For the sake of good order it should be noted that the second defendant has never been served and the claim was dismissed by consent against the fourth defendant. **********

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