The Labour MP John MacDougall, whose death prompted the latest by-election to threaten Gordon Brown’s premiership, was suing the government for refusing to pay compensation for the illness that killed him.

The 60-year-old former Labour MP for Glenrothes had launched a court action against the Ministry of Defence (MoD) last November after the government turned down his request for a £300,000 payout. MacDougall believed that his lung cancer was contracted a result of working at the Royal Naval dockyards in Rosyth in the 1960s and 1970s when he was exposed to asbestos.

The disclosure that Brown’s government blocked the payment will be acutely embarrassing for the prime minister, who paid tribute to MacDougall at his funeral last week, describing his illness as the “cruel legacy” of his exposure to asbestos on the dockyards of his youth.

Other senior Labour figures who attended the funeral included Jack McConnell, the former first minister, Douglas Alexander, the international development secretary, and Des Browne, the defence secretary who was ultimately responsible for refusing MacDougall’s claim. Friends said that the dispute added to the strain on MacDougall and his family before he died.

Scott Brady, MacDougall’s parliamentary researcher and friend, said it was “preposterous” compensation was not paid out until after people with mesothelioma — an asbestos-related cancer — had died.

“The case is not yet settled and to me it is absurd that, with a disease that has a median survival rate of nine months, companies can be given over a year to make a compensation offer,” he said.

“It is a horrific disease and no monetary figure could compensate for the deterioration in a person’s health and their suffering, but at least if there was a quick resolution it would be an awful lot easier on the family without that to worry about.”

Campaigners for the 90,000 British people who have the incurable disease, which attacks the thin membrane coating the lungs and abdomen, accuse the government and the insurance industry of failing victims.

Gordon Bell, MacDougall’s lawyer, confirmed that the compensation case remains active and that surviving relatives may continue it. It is to be heard before the Court of Session in October.

MacDougall began work at Rosyth as a teenager in the 1960s alongside men working with asbestos insulation on pipework.

“They would be breaking off old asbestos lagging and replacing it with new asbestos lagging which they mixed up beside where he was working,” said Bell.

The MoD said: “We have every sympathy with John MacDougall’s family in their grief. In this case, as in all others, the MoD considers claims for compensation on the basis of legal liability. Where there is a proven legal liability to pay compensation we do so.”

The SNP is the 1-4 favourite to take the Glenrothes seat.

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