14 March 2017Insurance

Cape settles litigation with Aviva, RSA and Zurich but does not admit liability

Cape, a UK-based manufacturer of industrial materials, has agreed to pay a £52.5 million product liability settlement to three insurers relating to litigation over the carriers' historic employers' liability exposures, however, Cape has not admitted any liability, describing the settlement as "removing the distraction of a likely protracted appeals process".

Aviva, RSA and Zurich will receive an upfront payment of £18 million from Cape, inclusive of substantial legal costs, and a deferred payment of up to £34.5 million over the period from 2018 to 2023.

The dispute stems from the creation in 2006, when many companies were grappling with spiralling asbestos claims, of a Court Approved Scheme of Arrangement to administer the settlement of valid claims against Cape relating to its historical asbestos activities, whilst at the same time protecting the company from the potential threat of insolvency.

Since then, the scheme has operated effectively; Cape has met its obligations to fund the scheme and over £30 million has been paid to those who have become ill or to their dependents.

In 2015, however, Aviva, RSA and Zurich funded litigation in relation to a number of product liability claims relating to historic employer liabilities.

An initial trial ended on 23 February 2017. Although Cape claims that an updated opinion from Leading Counsel reinforced its view that its defence is persuasive, on 12 March 2017 it agreed to settle the litigation outside of the court process.

"The board is mindful that there remains a risk that the Insurer PL Litigation could have a material adverse impact on the Scheme, and in turn upon the Group and its stakeholders. The Board has therefore concluded that it is in the best interests of Cape and its shareholders to settle at the agreed level outlined below, thus removing a significant risk to the business, removing the distraction of a likely protracted appeals process and enabling management to focus on the development of the core business," Cape said in a statement.

The settlement is also separate from litigation relating to the employer liability claims brought by Aviva alone. Following a determinant judgment on 19 July 2016, Cape is seeking leave to appeal a number of aspects of that judgment and has increased the provision held against industrial disease claims by £9.7 million. An appeal hearing will be held in July 2017.

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