American Home Assurance Company v Saunders

[1988] HCATrans 22

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl25 of 1987

B e t w e e n -

AMERICAN HOME ASSURANCE COMPANY

Applicant

and

JAMES GEORGE SAUNDERS

Respondent

Application for special leave

to appeal

MASON.CJ

DEANE J

TOOHEY J

American

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 19 FEBRUARY 1988, AT 11.50 AM

Copyright in the High Court of Australia

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MR T.E.F. HUGHES, QC:  May it please the Court, in this matter

I appear with my learned friend, MISS C.F.T. WEIGALL,

for the applicant, the defendant below. (instructed

by B.J.R. Fudge)

MR A.J. LESLIE, QC:  If the Court pleases, I appear with my

learned friend, MR D. LETCHER, for the respondent.

(instructed by Turner Freeman)

MASON CJ:	Mr Hughes.
MR HUGHES:	Your Honours, in an attempt to shorten the time

that the hearing of this application may take, I have

given to my friend, and if I may, I will hand up to Your Honours, an outline of what we want to say or,

perhaps rather more than an outline, but I hope that

will be helpful.

MASON CJ: Yes, I am sure it will be, Mr Hughes.

MR HUGHES:  Your Honours, the matter raises questions of law

concerning the interpretation of a corrnnon form accident insurance policy or personal injuries insurance policy and it raises those question in

specific relation to the applicability of the policy

to diseases of gradual onset, in this case a

malignant disease known as mesothelioma which has

as its originating but not its only cause by any

means the inhalation of blue asbestos fibres into

the lungs.

MASON CJ: It is a form of asbestosis, is it?

MR HUGHES:  Yes, Your Honour, yes. The first question is

whether the event identified by the plaintiff as a

compensable injury fell within the definition of

"injury" which we set out at a subsequent page of

this outline. The second question is whether, if so,

the plaintiff was disentitled to compensation by

reason of the operation of excusion clause, the

exclusion being number 5.

Now, we set out in paragraph 2 of this document

why we say the decision has significance beyond the

confines of the individual case; why it is to be

regarded perhaps as a test case on the applicability

of this form of policy to diseases of gradual onset.

If I may say so, I have with perhaps uncharacteristic

understatement not quite accurately specified the

number of persons who are covered by this form of

policy. Under this form of policy there are, so it

is estimated, 120,000 people covered; under another
form of policy with substantially identical wording,

in excess of 5000 and there are at least two other

underwriters,QBE and a company called Cigna, which

issued policies which contain substantially identical

wording.

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MASON CJ:  But how many of all these people could conceivably

be suffering from this form of asbestosis?

MR HUGHES: Well, that is a question that I cannot answer.

Obviously very few of them but, of course, asbestosis,

there are coronary diseases; there are diseases caused by the inhalation of silicosis, the subject of a wide-range of legislation in the States. That is the

or mesothelioma, as this particular disease is called,

is not the only disease, Your Honours, of gradual onset.

best answer I can give to Your Honour.

MASON CJ: Yes. It seemed to me that even though there is,

perhaps, potential for a number of other cases to

arise, that questions here relate to a particular

form of contract and the resolution of those questions

does not raise any general principle of contract law

or of interpretation.

MR HUGHES:  The case does not involve either of those types

of question, Your Honour. On the other hand, it is a

common form policy, the interpretation of which may

well have ramifications outside the particular case.

The other point I should mention is that in the case

we mention on page 2 of our outline, AUSTRALIAN CASUALTY

CO LTD V FEDERICO, the then Chief Justice Sir Harry Gibbs,

noticed that there is:

a number of cases in which the courts have

considered ..... accident -

policies -

containing the same words as those of the

policy in the present case ..... N6ne of

those decisions is binding on this Court.

None of the earlier cases deal with the application of such
a policy wording, definitive of injury, to be specific,

to the contraction of a disease by a gradual process

which originated, as here, in an event or events occuring

long before the commencement of cover.

Another way of putting the significant aspect of this

case outside the confines of the particular litigation

was stated by the President in the Court of Appeal where

at page 44 of the record His Honour pointed out that

if the majority is right in its conclusions:

An insurer is held liable to indemnify a

person for a consequence of a disease

whose course was irreversibly set in train

more than 30 years ago -

and that for trifling premiums, the fixing of which

would have had no relationship to a prospect of having

to cover such risks as this.

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Now, we set out the relevant policy wording

and unless Your Honours want me to I shall not recite

that. There is a chronology. Now, the significant

fact that arises from the chronology, which is a

chronology as to quite undisputed facts, and from the

summary of the medical evidence, is that this particular

disease with which the plaintiff was afflicted proceeds
in stages. Here the first stage commenced between the
years 1950 and 1955. First of all, the fibres are

inhaled, then after a considerable period of time

they penetrate, having lodged in the lung - in which

they may never lodge because they may be expelled by

physiological processes before becoming fixed in the

lung - but having lodged in the lung they may but

not necessarily will penetrate to the outer cover of

the lung known as the pleura and then after that

happens there are several possible physiological

outcomes: nothing further at all may happen; nothing

worse than the development of pleural plaques may

happen; and the third and worst outcome is the

development of mesothelioma accompanied by pleural

effusion.

There was no evidence - and this was common ground

in the case - capable of establishing exactly when the

asbestos fibres penetrated the lungs and no evidence

capable of establishing what time elapsed or was likely

to have elapsed between the lodgment of the fibres in

the pleura and the onset of the mesothelioma. The

identified injury was the onset or contraction of the

disease of mesothelioma.

Now, we set out on page 5 a brief summary of the

way we sought to make our case. In short, we said

that when one looks at the definition of "injury",

it is a.very special definition, special in the sense
that it takes one away from the ordinary common meaning
of "bodily injury'~ In a workers' compensation context
"bodily injury" has been held to include the contraction

of a disease, a physiological process following the

invasion of the body by some virus or bacteria. But

here the injury had to be caused by "violent, accidental,

external and visible means" and not only "caused" but

"caused solely and directly". And then the third

condition specified that the particular cause had to
"operate ( solely and to the exclusion of all other
causes)" in producing the event or the loss which was,

of course, the disability scheduled in the policy.

DEANE J:	Was Mr Justice Kirby in your favour on this point?
MR HUGHES:	His Honour founded, ultimately, in our favour on

the exclusion.

DEANE J:	On the exclusion, but what about on this point?
MR HUGHES:	He did not express a final view but it is

fair to say, Your Honour, that the· tendency of his

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judgment was in our favour although he said, at the

end, dealing with the particular topics:

I will assume for the purpose of dealing

with the case that the respondent is right

on that point.

I can put it no higher than that. He certainly was in

our favour on the applicability of the exclusion clause

and there was a marked difference of approach between

the majority and the President on the exclusion.

DEANE J:  It is the old problem of which end do you start?

That if you start from one end it comes close to

concurrent findings of fact against you.

MR HUGHES: Well, not really, in our respectful· submission,

because the question of causation on undisputed facts,

really, is ultimately a question of law.

DEANE J: That depends whether it is a meaning of words or

it is a question of deduction from the facts, does it

not?

MR HUGHES: It is a meaning of words problem here; the meaning

of words as to be applied to uncontested facts.

DEANE J:  I think that is probably right but it is not

self-evident that it is out of the grey area to me,

Mr Hughes, but as I say I think what you say is probably

right.

MR HUGHES:  In my submission that is the correct evaluation

of the position in this case.

Now, the criticisms that we would make of the

majority judgment are several and they include these:

we respectfully submit that Mr Justice Mahoney paid

undue attention to what was really an irrelevant

question, namely, the ordinary meaning of the expression

"bodily injury". That meaning had no place in the

case because of the multiform or multi-faceted

contractual definition of "injury" for the purposes of

the policy. Moreover, His Honour's judgment

erroneously, with respect, attributed to us a

concession, never made, "that the onset of the

mesothelioma constituted a bodily injury under the

policy". If I had made that concession - if I had been

minded to make that concession, I would have been minded

never to advise my client to take the case on appeal,

with respect.

Those findings which colour His Honour's judgment

can be seen at pages 51, 56 and 57 of the record.

His Honour, with respect, went wrong in saying, and I quote from His Honour's judgment at, I think, page 57:

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What is here in question is the meaning of

"bodily injury" according to the ordinary

meaning of the term.

And we would say that that approach, unfortunately,

distracted His Honour from appreciating the

significance of the definition of "injury" as set

out in the policy. There was, of course, discussion

in argument of cases such as DEEBLE V NOTT, 65 CLR,

FAVELLE MORT V MURRAY, 133 CLR - I need not take

Your Honours to them.- The only concession we made

was to the effect that in the context of the statutory

provisions there in question, and they were workers'

compensation-type legislation, an injury could consist

of an internal physiological change attributable to

employment risks.

The applicant's argument to the Court of Appeal, as appears from the written outline presented to

that court, specifically asserted that the penetration

of the fibres through the lung into the pleura

was not an event satisfying the description "external"

and "visible" in condition (b) or item (b) of the

definition of "injury" but, as we say, His Honour

incorrectly attributed to us, at page 58 of the record,

a concession to the opposite effect and one can see

what a substantial impact the attribution to us in the

argument we were trying to present of such a concession

or admission would have.

His Honour's reasons, we would go on to say, show

that he failed to perceive the significance of

condition (c) in the definition of "injury". While

accepting that the onset of the plaintiff's disability

was causally attributable to several discrete events -

and this appears at page 55 of the record - namely,

the inhalation of fibres; the penetration of fibres

into lung tissue; the penetration of fibres through lung

tissue into the pleura and the ultimate development of
the disease, His Honour failed to appreciate that the

concatenation of these events meant that the

inhalation of the fibres could not be the "sole",

"direct" or "independent" cause of the disability.

Now, coming to the view taken by the majority on

the meaning of the exclusion clause, we say that

Mr Justice Mahoney can be arguably said to have erred in his approach to the interpretation of the clause.

We rely, of course, on the contrary reasoning of the

President, Mr Justice Kirby. His Honour Mr Justice Mahoney

correctly concluded that the expression "any event"

in the exclusion clause number 5 which is in the

supplementary book at page 81, Your Honours, that that

expression referred to the insured's disability - one

of the scheduled disabilities, in this case, total

incapacity for work. His Honour, however, we would say,

incorrectly concluded that where such an event is due to

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a number of causes, it is necessary, for the purpose of

determining whether the exclusion applies, to select

and isolate the predominant cause and that the exclusion

will apply only if that cause is a disease. One objection

to this approach may be thought to be, Your Honours, that the relevant exclusion uses the expression "a consequence

of disease", not "the consequence ... ". So, if, we would

say, one of the operative causes of the disability
is a disease the exclusion applies. Another objection

is that on the undisputed medical evidence the proximate

cause of the disability was not, as a matter of law,

we would suggest, the inhalation of fibres because

mesothelioma does not necessarily ensue as a result of

TlO	that. The critical cause was the penetration of the fibres into the pleura and if that is the correct
approach the exclusion would apply, assuming against us
that the facts attracted or came within the definition of "injury" contained in the policy.

So, in short, we would submit to the Court that

having regard to the widespread currency of this policy,

it is, as I understand, the policy written in more than

one State of the Commonwealth, and having regard to the

doubt that, in our respectful submission, clearly attends

and on a construction of the exclusion,

the correctness of the decision of the majority of the of "injury"

this is a case that has, first of all, sufficient

general application to warrant the grant of special

leave and it is a case in which it would be appropriate

and suitable to resolve the differences of opinion that

have arisen in the Court of Appeal at trial level.

DEANE J: One problem you face is, is it not, that when you

have insurance companies with the ability to draft their

own contracts, if you have a case in which the insured

succeeds at first instance and on first appeal, there

are very strong reasons in justice for saying that the

insurance company should not be allowed to argue things	like the difference between 11 a" and "the" on a, yet
again, second appeal to this Court.

MR HUGHES:  Your Honour, if the appeal turned on that

small - - -

DEANE J: Well, I was not saying it did, Mr Hughes, but we are

in an area of clauses which are obviously susceptible of

different interpretation according to different minds.

Well now, really, the insurance industry, surely, has

to get its act together and remove all these sorts of

doubts so that if people are insured they know precisely

what they are getting.

MR HUGHES:  Yes. Your Honour, the answer to that train of

though which, of course, is something, with respect,

that has to be taken into account is this: this is nbt

potentially a one-off case. There are a lot of outstanding

risks; secondly, I am not relying, and I would not wish

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to be taken by what we endeavour to put as relying,

in relation to the exclusion, solely on the miniscule

difference between "a" and "the". There is a

substantial argument - and knowing that Your Honours

will have read the papers, I do not want to go to the

judgment of Mr Justice Kirby but the reasons are laid out and we say that the two strains of reasoning

clearly compete with each other make the result of the

case so far of doubtful validity.

DEANE J: But if you were right, for example, an employee of

an asbestos company who contracted the injury while in
the employ of that company and solely by reason
of the employment would not be covered because of the

exclusion.

MR HUGHES: That is so but, of course, this is - that may well

be so, Your Honour. I would like to consider the

ramifications of that proposition before I finally

commit myself to it. But, of course, one knows

that a worker has his other rights under legislation

which protects him against injuries resulting from

invasion of the body resulting in physiological change

in the nature of disease.

The other point which, perhaps, may be put in the balance against the considerations that Your Honour

has expressed is simply this, that it may be that

in relation to matters in respect of which the insurer

is not now on risk these policies can be rewritten

but here the consideration urged by the President in the

Court of Appeal perhaps comes into play. If policies have to be rewritten so as to include such risks

the. premiums are going to go up and perhaps it

can be said that provided the injured plaintiff or

the unfortunate plaintiff in this case can be protected

as to costs having regard to the general scope of

applications, even though of limited generality of

this policy and the doubt that attends the judgments
in the Court of Appeal, the case is a proper one for

special leave and we place ourselves unconditionally

in the hands of the Court as to - - -

DEANE J:	I see the force of that.
MR HUGHES:	The only matter to which I should revert briefly

is that the proposition that Your Honour put to me

may be, to a point, correct, with respect, but the
question that still remains outstanding is what happens
in the case of the worker who contracts the disease
as the result of a progression of physiological events

during the course of the employment although the

exposure to the disease causing matter, the asbestos,

happened years and years before. It is the anomaly,

as we would describe it, that the court's decision, the

majority's decision, write into this policy that would

attract the intervention of this Court, given the other

circumstances to which I have endeavoured to allude.

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Those are the matters which we would rely upon

to support special leave and we say it is a proper

case.

MASON CJ: Yes, thank you, Mr Hughes. Mr Leslie?

MR LESLIE:  If the Court please. I regret that I must

contradict my learned friend and Your Honour the

Chief Justice concerning questions of fact. The

disease of mesothelioma is not a disease of gradual
onset at all nor is it a form of asbestosis. Asbestosis

is a progressive disease arising from the scarring of lung tissue over many years. Mesothelioma is a

disease that arises swiftly, suddenly and is invariably fatal. It occurs, as was found in the judgments of the courts below, within a very short space of time,

certainly within the period during which the insurer

was on risk.

The number of claims that must arise in these circumstances, I submit, would be very small. I

venture to suggest there has only been one. The disease is not irreversible as was said by the learned President of the Court of Appeal. It happens at the end, if at

all, of a very long latency period, something like

30 years, but it is not inevitable. It happens in a

mercifully small number of cases but when it does

happen it is swift and invariably fatal, certainly not

a disease of gradual onset nor a disease that comes on

slowly or irreversibly.

My learned friend has complained about the

description of his concession of "bodily injury". What

was conceded was that the insured had suffered bodily

injury. What was disputed was that he had suffered

bodily injury within the meaning of the policy.

His Honour Mr Justice Mahoney correctly separated those

two questions at the foot of page 56 where he described

the case that had to be established by the insured:

necessary for the plaintiff -

insured -

to show that the onset of the mesothelioma

constituted a "bodily injury" and that it

was a bodily injury which satisfied -

the definition in the policy. And what His Honour was

saying was that the insurer had conceded "bodily injury"

but disputed "bodily injury" within the meaning of the

policy.

My learned friend refers to His Honour Mr Justice Mahoney

as having reached a correct conclusion about the meaning

of "event". His Honour made no conclusion at all.

His Honour assumed in my learned friend's favour and

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contrary to a very vigorous argument that was put by the	insured that "event 11 meant "incapacity", "total
disablement". The vigorous argument put by the insured
was that the events described in the policy were
"bodily injury", albeit bodily injury causing incapacity but the relevant events were "bodily injuries", so that the exclusion clause operated only upon bodily injuries
which had been caused by disease and did not operate upon the converse, that is to say, diseases caused by
bodily injury. That was the argument that Mr Justice Mahoney did not see fit to consider.
I would suggest that the:interpretation of the exclusion clause was clear and it ought to be
interpreted as I have suggested, that is to say, that
it excludes injury arising from disease but not disease
arising from injury. I would submit that the real
matter at issue is an issue of causation and that is
essentially a question of fact which has twice been
decided against the applicant. And I would submit,
for those reasons, that special leave should be
refused.

If, as my learned friend suggests, that the form

of the policy is in wide use, might I remind the

Court that in FEDERICO's case the form of words used

by the insurer were described as "notoriously obscure"

and perhaps it is in the public interest that the policy

should be re-formed rather than this Court should be

troubled to construe it in all the circumstances.

Might I finally suggest that if the Court is minded

to grant leave to appeal it should be on condition that

the costs are paid by the insurer in any event and upon

the further condition that the amount of the judgment

be paid forthwith. There has been no stay granted

but I would submit that the insured, having a terminal

condition, ought not to be further delayed or

inconvenienced by protracted litigation.

MASON CJ: Yes, Mr Hughes?

MR HUGHES: In answer to the last point raised by my learned

friend:	we place ourselves unconditionally in the hands
of the Court as to the imposition of conditions.	I say
no more on that aspect of the case.	My learned friend

has politely taken me to task and, indeed,

Your Honour the Chief Justice to task, for having	tentatively described this disease as 11 a disease of
gradual onset 11 • Strictly speaking, my learned friend
is right and what he says, of course, demonstrates what
difficult masters or poor servants words are. The point
of the case, however, is surely this on the undisputed
facts:  the disease is one that has a multiplicity of
causes, not a sole, single, independent cause. It is not
contested, as I understand it, that some of those causes
are invisible, perhaps non-violent and certainly not external. Now, to say - if I may put this about my

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learned friend's argument - that in those circumstances

the case raises only a question of fact is simply not

accurate. It is a case which involves the application
of perhaps difficult words to facts which are simply not
in dispute. It is a case of interpretation and one might
venture to think that the description that my learned
friend gives of the disease is rather more favourable

to our attempted view of the construction point than

was our own description of it because if this arises

out of the blue, as it were, when it may never have

arisen in a majority of cases, that demonstrates the
multiplicity of causation, and it is only another way

of putting, perhaps, one of our other arguments.

I do not think there is anything else that I can usefully

say in reply to my learned friend.

MASON CJ: Thank you, Mr Hughes.

The applicant insurer failed both at first instance

and in the Court of Appeal. The applicant's proposed

appeal to this Court involves no question of general

principle. It involves a question of interpretation of

an insurance policy which, though not altogether

straightforward, is of such a nature that the answer

may differ according to different minds. The .answer to

that question will not result in any elaboration of

general principle or better understanding of the law.

The case is therefore not a case suited to the grant of

special leave and the application is refused.

MR HUGHES: If Your Honours please.

MR LESLIE:  May we have an order for costs, if the Court pleases?

MASON CJ: You do not oppose that, do you, Mr Hughes?

MR HUGHES:  No, Your Honour.

MASON CJ: The application is refused with costs.

AT 12.26 PM THE MATTER WAS ADJOURNED SINE DIE

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