Date: January 2012

Occasionally we come across cases that our clients and partners might find informative or useful.

Legal challenges relating to claims and policy conditions are a fact of life and happen with increasing regularity. Two case studies caught our eye recently, one relating to wear and tear under property covers and another regarding Employer’s liability and pleural plaques.

Case Study 1 – Employer’s liability and pleural plaques

The case relates to a challenge made by AXA General insurance Ltd and 46 other insurers against The Lord Advocate (Scotland) following the decision to reverse the common law rule established in Rothwell v Chemical & Insulating Co. Ltd. (2008) and provide that pleural plaques and related conditions are, with retrospective effect, deemed to constitute actionable harm.

The Supreme Court unanimously rejected the insurers’ arguments.

Pleural plaques are areas of fibrous lung tissue bought about by long-term exposure to asbestos. In most cases they do not cause any impairment to health. Prior to the 1990, when medical evidence emerged that pleural plaques were benign, it was common practise for liability insurers pay claims indemnifying employers.

In a test case, Rothwell v Chemical & Insulating Co. Ltd. (2008) it was held that pleural plaques didn’t give rise to a claim for physical harm and anxiety flowing from the risk of malignancy was not of itself actionable because there was no physical harm.

The reversed ruling of Rothwell byScotland was challenged by insurers on constitutional grounds, which was unanimously rejected by the Supreme Court.

You can read the full adjudication by clicking on the link in the Further Reading section of this document.

Case Study 2 – Property insurance and wear and tear

Most property insurance excludes liability for loss caused by wear and tear. The Supreme Court of Victoria in JSM Management Pty Ltd v QBE Insurance (Australia) Ltd, recently decided that the phrase “wear and tear” is to be given a narrow meaning, applying only to losses, which are ordinarily the result of use or natural forces. Extraordinary losses, therefore, fall within the scope of the cover.

The original claim, bought by the landlord of a trucking depot called JSM, was for damage sustained to a hard standing area caused by incorrect usage by the tenant. The insurer, QBE, argued that the damage was caused by wear and tear, due to the tenant using a container forklift many tonnes heavier than recommended for the hard-standing it was being used on.

The Supreme Court of Victoria used the Oxford English Dictionary and Macquaries Dictionary, which they determined, in summary meant ‘damage due to or sustained during ordinary usage,’ as opposed to extraordinary events.

They went on to rule that the damage to the hard-stand was due to extraordinary use and QBE was therefore, liable for the loss.

You can read the full adjudication by clicking on the link in the Further Reading section of this document.

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Chartered Loss Adjusters

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Further Reading

Liability case: Supreme Court Judgement

Property case: Supreme Court of Victoria

where you can download the full adjudication.