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
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:
- The language of the provision was that of aggregation, using the same words as Longmore LJ in AIG Europe Ltd v OC320301 LLP  Lloyd’s Rep IR 289 had described as “The traditional and well-known way in which to formulate an extremely wide aggregation clause…”.
- The provision made sense on its own terms, prescribing a consequence for a set of claims described within it, which are subject to the limit of indemnity. The failure to use the word “limits”, which would have been more appropriate, was insignificant given the word “limit” was used in each of the sections, despite there being different limits in the Schedule.
- Spire’s argument that there was no wording in the Schedule specifying that the £10,000,000 limit applied to “claims arising out of one cause”, such that Proviso 5(a) was incomplete as an aggregation clause, as nothing was specified as a consequence of falling within it and it was unclear which financial limit would apply, was unpersuasive. It was plainly providing for the aggregation of linked claims so as to fall within the lower of the financial limits within the Schedule, since the purpose of aggregating clause is to reduce cover for linked claims. In the absence of ambiguity, the contra proferentem rule did not apply.
- The judge analysed the extent to which the rival interpretations would lead to the provisions within Section 4 being duplicative (and so redundant), having regard to authorities such as e.g. Tektrol Ltd v Internaional Insurance Co of Hannover Ltd  2 Lloyd’s Rep 701. He conceded that on either view, and having regard to other Sections within the policy, there would undoubtedly be a degree of duplication. However, the fact that Spire’s interpretation would render Provisos 5(a) and (b) as duplicative, such that 5(a) would be redundant, was significant.
- Various other points were considered regarding e.g. the fact that the position could have been better drafted, and the lack of any pleaded commercial purpose to RSA’s interpretation of Proviso 5(a).
- Ultimately, however, the judge held that RSA’s interpretation best fit the factors set out in Arnold v Britton  AC 1619 at  to : (i) the natural and ordinary meaning of the clause; (ii) consistency with other parts of the policy aggregating liability cover; (iii) consistency with the purpose of Proviso 5(a) and the Schedule (i.e. aggregation and different limits for different kinds of claim); (iv) there was no factual matrix evidence adduced and certainly none which counted against that interpretation, but aggregation might well be expected; and (v) consistency with common sense.
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|
(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  Lloyd’s Rep IR 195 at  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”.
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.