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Construction and Interpretation: Aggregation Clauses

Posted on 14 March 2018

Construction and Interpretation: Aggregation Clauses

In August 2017, the prison sentence of Ian Paterson, the disgraced breast cancer surgeon, was increased to 20 years. His acts have been likened to those of Harold Shipman and he has been described as carrying out the "systematic mutilation of vulnerable victims"[1]. Paterson was employed by Spire Healthcare.

In the recent decision of Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc [2018] EWCA Civ 317, the Court of Appeal considered how much of Spire's contribution towards a £37 million settlement fund (established for distribution amongst the claimant victims) could be recovered from Spire's insurer, Royal & Sun Alliance Insurance Plc ("RSA"). The central issue was one of aggregation.

The Background

Spire Healthcare Limited ("Spire") operates a number of private hospitals across the UK. More than 700 former patients of Ian Paterson, a surgeon employed by Spire, claimed that he had carried out operations which were unnecessary, inappropriate and negligent. Spire entered into a settlement agreement, pursuant to which a £37 million settlement fund was established; Spire's contribution to that fund was £26.9 million. Spire sought to recover an indemnity from RSA under a combined liability insurance policy ("Policy"). It argued that aggregation did not apply in respect of the Policy's medical negligence limits of cover, so that the applicable limit of cover was £20 million. RSA contended that aggregating language wording applied reducing the limit of cover to £10 million.

Policy Wording

Two sections of the Policy were central to the dispute:

  • Policy Schedule: this provided a limit of £10 million for any one claim and an overall limit of £20 million in respect of damages costs and expenses arising during the insurance period; and
  • Proviso 5A: this provided that the total amount payable in respect of all damages costs and expenses arising out of all claims …consequent on or attributable to one source or original cause …shall not exceed the limit of indemnity stated in the Schedule.

Decision

The Court found in favour of RSA. It considered the combined effect of the Schedule and Proviso 5A on the assumption that the reader of the Policy had "the characteristic of a sophisticated assured who is assisted by professional advice". Despite the alleged ambiguity of the Policy's wording, the Court held that the combined effect of these provisions created three categories of claims, each with its own limit of indemnity/amount payable: (i) a limit of £10 million for single claims; (ii) a limit of £10 million for linked claims; and (iii) a limit of £20 million for all claims in any period of cover, irrespective of their sources or original causes.

Agreeing with the first instance Judge, the Court held that Spire's claim fell into category (ii) above on the basis that the £26.9 million settlement was in respect of a number of linked claims arising from one source, and therefore subject to a cap of £10 million.  

Comment

Despite an acknowledgement by the Court that the Policy wording could have been clearer, there was also an acknowledgment that aggregation clauses can operate in favour of the insured - by capping the amount of the deductible per claim - as well as in favour of the insurer - by capping the total sum insured. As such, language of this type is not to be approached with a predisposition towards either a broad or a narrow interpretation. Further, in circumstances where a policy is written in respect of corporate risks, courts are likely to assume insureds are more sophisticated and have a better understanding of policy terms into which they enter. Higher standards tend to apply to corporate policyholders.

In this case, unsurprisingly, the Court interpreted the wording as drafted, rather than how it might have been drafted. It found that the words used in proviso 5A were "plainly words of aggregation"; having looked at the meaning and operation of the Policy in the round, it held that the Policy was clear and the limit of cover language used was aggregating language: Spire's recovery was therefore limited to £10 million.


[1] Solicitor General, Robert Buckland, 3 August 2017

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