Ponzi schemes and aggregation clauses: Bank of Queensland Ltd v AIG Australia Ltd [2018] NSWSC 1689
The application of aggregation clauses to Ponzi schemes is an area bereft…
In Spire Healthcare, His Honour Judge Waksman QC (sitting as a judge of the Commercial Court) gave judgment for the defendant insurer (“RSA”) as to whether the policy of combined liability insurance aggregated the limits of cover provided by RSA and/or the excess or contribution payable by the claimant insured (“Spire”). The Court’s decision is considered by Ben Smiley of 4 New Square.
THE BACKGROUND FACTS
Spire is a private healthcare provider. It held a combined liability insurance policy (the “policy”) with RSA.
A number of a clinical negligence and related claims were brought by former patients of Mr Ian Paterson, a consultant breast surgeon who conducted his private practice at various Spire hospitals between 2004 and August 2011. Those hospitals formed part of the insured under the policy. At the date of judgment, claims had been notified to Spire in respect of 708 complainants, of which about 86 claims had been issued in the High Court Queen’s Bench Division.
A dispute arose between Spire and RSA as to aggregation under the policy. Firstly, Spire contended that there was no aggregation on the limit of cover. If that argument succeeded, the limit on cover would be £20 million, whereas if it failed, the limit would be £10 million. Secondly, (if it was wrong on the first argument) Spire contended that there was aggregation of the excess payable by it under the policy, so that its contribution of £25,000 would be payable for a group of aggregated claims.
THE ISSUES AND THEIR RESOLUTION
Issue 1: Aggregation of the limit of cover
Relevant terms
The policy was structured with six heads of liability cover, including (relevant for present purposes) Medical Negligence in Section 4. Section 4 provided cover against claims brought against the insured on a “claims made basis”.
Following those sections were schedules. The first of these was entitled “Limits of Liability” and set out financial limits to the relevant cover. For the Medical Negligence section, that schedule provided:
Section 4 Medical Negligence | |||
£10,000,000 | Limit of Indemnity | Any one claim and £20,000,000 in respect of all damages costs and expenses arising out of all claims during the Period of Insurance |
Within Section 4 itself, further relevant terms included:
“1 The total amount payable under this Section (Including all Extensions and memoranda) shall not exceed the Limit of Indemnity stated in the Schedule…
4 where the Company is liable to indemnify more than one person the total amount payable in respect of damages costs and expenses shall not exceed the Limit of Indemnity
5(a) The total amount payable by the Company in respect of all damages costs and expenses arising out of all claims during any Period of Insurance consequent on or attributable to one source or original cause irrespective of the number of Persons Entitled to Indemnity having a claim under this Policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity stated in the Schedule
(b) the total amount payable by the Company in respect of all damages arising out of all claims during any Period of Insurance irrespective of the number of sources or original causes of such claims and irrespective of the number of Persons Entitled to Indemnity having claims under this Policy in respect of those sources or original causes shall not exceed the appropriate Limit of Indemnity stated In the Schedule …”
The judge’s decision
The judge determined that Proviso 5(a) in Section 4 constituted an aggregation clause, to which the limit of indemnity of £10,000,000 applied. His reasoning was, in brief summary, as follows:
Issue 2: Aggregation of the excess
As noted above, the policy was structured with various schedules following the Sections dealing with the individual heads of liability cover. One of these schedules was entitled “Insured’s Contribution”. It provided insofar as relevant as follows:
“The indemnity provided by this Policy shall not apply to the Insured’s Contribution as stated below:
…
Section 2 | £25,000 each and every Event |
Section 4 | £25,000 each and every claim |
Section 5 | £25,000 each and every claim |
Section 6 | £25,000 each and every claim |
Provided that
(a) in the Period of Insurance the total of the Insured’s Contribution shall not exceed the amount of the Aggregate Insured’s Contribution
Event shall mean one occurrence or all occurrences of a series consequent on or attributable to one source or original cause”
The judge noted that since the word “claim” was not defined (unlike the word “Event”), it was impossible to say that the word “claim” connoted and included a group of linked claims. Consequently, a contribution of £25,000 was payable by Spire for claim (even if linked) up to the Aggregate Insured’s Contribution (of £750,000).
Spire sought to persuade the judge that if Proviso 5(a) operated as a aggregation clause in respect of cover, it was illogical for there not to be an equivalent aggregation of the contribution. Despite seeing the force of the point, the judge rejected Spire’s argument. He had regard to the dictum of Morison J in Countrywide Assured Group plc v Marshall [2003] Lloyd’s Rep IR 195 at [13] that although a policy would normally be worded to aggregate both excess and limits of cover, it would depend on the wording of the policy and circumstances in which it was written. The judge held that to achieve the result sought by Spire would “simply amount to rewriting this part of the policy in a way which does too much violence to the language”.
CONCLUSION
Spire Healthcare is a straightforward example of the Court robustly upholding the natural wording of a policy. Here, the language used in respect of the limit of cover was that of aggregation, which made sense as construed by the Judge, and the contrary interpretation would have rendered the key proviso redundant. Likewise, although it would perhaps have made more commercial sense for there to be an equivalent aggregation of the contribution, and that had been done by the definition of the word “Event” in respect of another part of the policy, the Court would not rewrite a policy to give that effect to the provision.
Editorial note: The Court of Appeal heard Spire’s appeal on 2 June 2017. It will be interesting to see whether the Judge’s interpretation of the policy in either or both respects is upheld.
Keywords: Aggregation, Liability insurance
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