Business Interruption Insurance after the FCA test case: Corbin & King Limited & Ors v AXA Insurance UK Plc  EWHC 409 (Comm)
In Corbin & King v AXA, Mrs Justice Cockerill found policyholders were…
In Spire Healthcare v Royal & Sun Alliance Insurance, the Court of Appeal considered the construction and operation of an aggregation clause in the context of hundreds of claims against a healthcare provider, all of which arose from the conduct of the rogue breast surgeon Ian Paterson. The Court took a sensibly straightforward approach to the identification of the “original cause” of the claims, finding that they had all arisen from Mr Paterson’s misconduct and could therefore all be aggregated pursuant to the clause.
The respondent, Spire, was the operator of two private hospitals at which the rogue breast surgeon Ian Paterson conducted operations for around 14 years, until his suspension in 2011.
While still in practice, Mr Paterson performed operations on patients without their informed consent. He was found both to have misreported pathology test results prior to conducting surgical procedures that turned out to be unnecessary and to have performed mastectomies that were clinically indicated inadequately, exposing the patient to an unnecessary risk of recurrence. In 2017, Mr Paterson was sentenced to 20 years imprisonment for wounding with intent to do grievous bodily harm.
Mr Paterson’s conduct also gave rise to group litigation against Spire, brought by around 750 of his former patients. The litigation was settled shortly after Mr Paterson’s conviction by the setting up of a compensation fund for the victims, to which Spire contributed around £27 million.
Having settled the proceedings, Spire sought to claim under its combined liability insurance policy, underwritten by RSA, the appellant. The policy was subject to an aggregate overall limit of £20 million, and Spire sought an indemnity in that amount.
RSA accepted that it was liable to provide an indemnity, but sought to rely on an aggregation clause in the insurance policy, which provided:
“The total amount payable by [the Insurer] 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 the Policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity stated in the Schedule.” (Emphasis supplied).
The Limit of Indemnity stated in the Schedule was £10 million; RSA contended that its liability was capped at that amount.
The issue was therefore whether each patient’s claim against Spire in respect of Mr Paterson’s misconduct was attributable “to one source or original cause”, such that the aggregation clause applied.
At first instance, HH Judge Pelling QC held that Spire was entitled to claim up to the policy limit of £20 million.
The Judge took the view that the unifying factor for the purposes of the aggregation clause was not Mr Paterson or the basic fact of his misconduct, considering that approach too vague and remote. Instead, the Judge held that a difference should be drawn between patients for whom a mastectomy was clinically indicated but was not properly performed (Group 1) and patients on whom Mr Paterson performed mastectomies that were clinically unnecessary (Group 2). While the aggregation clause applied within those two groups, it did not apply between them.
The Judge considered it significant that the Group 1 patients did require surgery while the Group 2 patients did not. He also conducted an analysis of Mr Paterson’s potentially differing motivations with respect to each group: most of the Group 2 patients were private patients from whom Mr Paterson had collected fees, whereas the Judge found that his reasons for his conduct in relation to the Group 1 patients had never been adequately explained.
The Court of Appeal unanimously allowed the appeal.
The correct approach to construction
Giving the leading judgment, Lady Justice Andrews provided a useful restatement of the correct approach to the construction of “original cause” wording in aggregation clauses. This widely-used formula is intended to be of broad effect: a “cause” need not be an event but can be a continuing state of affairs or the absence of something happening (citing, at , the well-known remarks of Lord Mustill in Axa Reinsurance UK Ltd v Field  1 WLR 1026).
An “original cause” need not be the sole cause of the insured’s liability, but there must be a genuine causative link between the cause and the loss and some limit to the acceptable degree of remoteness:
“In searching for the unifying factor, one must not go back so far in the causal chain that one enters the realm of remote or coincidental causes which provide no meaningful explanation for what has happened” (at ).
Interestingly, the Court of Appeal took the view that the inclusion of the word “source” in the policy wording did not add anything to this analysis. Holding that the Judge had been right to treat “source” and “original cause” as interchangeable, Lady Justice Andrews said, at :
“…the word “source”, when added as an alternative to “original cause” simply serves to emphasise the intention that the doctrine of proximate cause should not apply, and that the losses should be traced back to wherever a common origin can reasonably be found.”
Was there a single unifying factor?
The Court of Appeal held that, contrary to the view taken by HH Judge Pelling QC, Mr Paterson’s conduct did amount to one “source or original cause”.
Ben Elkington QC and Ben Smiley submitted on RSA’s behalf that it was wrong to draw a distinction between the patients in each group in circumstances in which Spire’s liability to them, and the claim for an indemnity, was the same. The correct approach was to ask whether there was a single factor behind all the claims; the answer to that question was plainly that there was, namely, Mr Paterson’s misconduct. The Judge had approached the problem from the wrong direction, seeking to identify differences between the claims of the Group 1 and Group 2 patients rather than focussing on the obvious unifying factor.
The Court of Appeal accepted that analysis. At , Lady Justice Andrews held:
“In my judgment, Mr Elkington’s criticisms were sound. Having correctly adumbrated the applicable principles, the Judge failed to conduct the wide search for a unifying factor in the history of the claims that the authorities required him to carry out. Indeed, he appears to have noted the factors that were common to all the claims but then disregarded them, in the course of searching for what he termed a “single effective cause,” which is not the correct test.”
Factors such as Mr Paterson’s motivation for his conduct in each instance were irrelevant to Spire’s liability and therefore to the application of the aggregation clause.
The Court of Appeal’s judgment provides welcome guidance as to the correct approach to the application of aggregation clauses in insurance contracts, and indicates that unnecessary complications should not be introduced to the exercise: in many cases, the “original cause” will be the obvious one.
The Court of Appeal sensibly declined to set a general rule as regards claims arising from the conduct of one individual, saying (at ):
“There may be cases in which, on the facts, the behaviour of one individual will be too remote or too vague a concept to provide a meaningful explanation for the claims, but this is not one of them.”
Nonetheless, applying the approach set out in the judgment is likely to lead to a similar outcome in very many cases in which the claims the insurer seeks to aggregate relate to one individual’s behaviour.
A potentially important aspect of the judgment in respect of which some further clarity may be necessary, however, is the finding that “source” and “original cause” are interchangeable in the aggregation clause context. While it did not ultimately affect the outcome of the appeal, this conclusion seems in some respects at odds with ordinary English usage and could, in other cases, prove significant.
Disclaimer: This article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.
© Carola Binney 4 New Square, 11 February 2022
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