Compensation payments to the families of those who have suffered and died as a result of asbestos-related illnesses have been dramatically cut following a landmark ruling in which law lords came down in favour of employers.

The test case was brought by Mary Murray and Sylvia Baker, two widows whose husbands died from asbestos-related cancer mesothelioma. This followed a challenge made by insurers over an earlier judgement instructing full payouts for the bereaved families and operatives who contracted the disease at work.

In 2003, a court ruling established that employers who exposed employees to asbestos could be held fully liable for compensation even if the operative had worked for several companies and could not prove when or who had been instrumental in causing the illness.

The current appeal revolved around the argument by insurers that they should only pay a proportion of the damages because in each of the two cases the employers represented had only contributed to part of the workers' total exposure to the asbestos.

Commenting on the decision, Ian Fall, head of asbestos litigation for Thompsons Solicitors, acting on behalf of Mrs Murray and the GMB union, said: "On a legal technicality, which will make no sense to most people, the court has deprived our client of full compensation for the death of her husband.

"The real winner here is the insurance industry, which now stands to save billions of pounds."