Aggregation – the principles

We look at the Court of Appeal decision in Spire Healthcare Limited v Royal & Sun Alliance Insurance Ltd and the principles around aggregating insurance claims.

Aggregation – the principles

Aggregation allows more than one loss covered by the same policy to be treated as a single loss when applying policy deductibles or limits. The question of aggregation often turns on whether a series of losses (or claims, acts or omissions depending on the policy wording) are linked by a "unifying factor"; this will be a question of construing the policy wording as a whole, as applied to the facts.

There is a vast body of authority looking at aggregation in the context of different policy wordings and different factual matrices, but key principles include:

• A policy may contain express or implied aggregating wording.
• Cover by reference to a “cause” (for example for “claim or claims arising from one originating cause)” will be more widely construed than that based on an “event” or “occurrence”; an originating cause may even mean a state of affairs.
• For multiple losses to constitute one “event” or “occurrence” the courts will look at the connecting factors, often (but not always) within the “unities” framework adopted in Kuwait Airways Corp v Kuwait Insurance Co SAK (No. 1) [1996] 1 Lloyd’s Rep 664; are there unities of cause, locality, time and the intention or motive of any human agents?
• Where cover is for a series of “related” or “similar” acts, omissions, claims or events, there will still need to be a clear connection between the individual acts for them to be considered sufficiently related.

The Spire dispute

A dispute arose between Spire and its insurer (RSA) in relation to the interpretation of an aggregation clause in the context of medical negligence claims by over 750 former patients of a doctor employed at one of Spire’s hospitals.

The policy covered:

“The total amount payable … 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” (our emphasis)

RSA accepted that Spire was entitled to an indemnity, but the underlying claims arose because Spire’s doctor had performed some surgical procedures incorrectly or incompletely, and others entirely unnecessarily. RSA argued that all of the patient claims were consequent on or attributable to one source or original cause, namely the doctor’s conduct, whereas Spire argued that the claims should be split into two groups (with two separate £10m policy Limits).

The Court of Appeal's view (with judgment delivered by Lady Justice Andrews) is that all of the patient claims aggregated. As a “matter of ordinary language, and applying the principles applicable to aggregation clauses expressed in these wide terms”, the doctor’s conduct and disregard for his patients was a unifying factor in the history of the claims, irrespective of which patient group he was dealing with. The judge had erred at first instance in searching for what he termed a “single effective cause” for all of the patient claims, rather than to conduct the wide search for a unifying factor in the history of the claims that the authorities required him to carry out.

Comment

Andrews LJ observed that clauses using “original” or “originating” cause are standard policy wordings which “use a traditional and well-known formula to achieve the widest possible effect” (referring to Longmore LJ in AIG Europe Ltd v OC320301 LLP and others). Unless there is a “clear contextual distinction or other strong reason that suggests it would be inappropriate”, previous authority in relation to similar wording should be followed.

The negligence of one individual can be an “originating cause” for the purpose of an aggregation clause, even where the negligence takes different or multiple forms (as acknowledged by the Court in Cox v Bankside [1995] 2 Lloyd's Rep 437, albeit there the Court was faced with a different factual scenario, namely different individuals who made the same mistake). Andrews LJ commented in Spire that “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”.

The claims against Spire were based upon a pattern of deliberate (and dishonest) behaviour by one individual. We note that in the Baines v Dixon Coles decision (as considered in this article) the Court of Appeal held that a series of thefts by the same individual over a number of years did not have a sufficiently unifying factor. This may seem anomalous, but makes more sense when considering the different policy wordings. The Dixon Coles cover was triggered by “one series of related” acts/omissions, rather than being “cause” based; it is well-established that “originating cause” type wordings are subject to the broadest possible interpretation. The Court in Dixon Coles referred back to Lord Hoffmann’s analysis in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd, in which he “pointed out that the nature of the act or event that the clause treated as a unifying factor depended on the precise choice of wording”.