Market News > Addleshaw Goddard Alert-To aggregate or not to aggregate:the £75 million question.
Standard Life Assurance Ltd v Oak Dedicated Ltd & ors (defendants) & (1) Aon Ltd (formerly Aon Group Ltd) (2) Reynolds Porter Chamberlain (a firm) (Part 20 Defendants) [2008] EWHC 222 (Comm)
The Commercial Court judgment in this recent case is a stark reminder of the need for insureds and their brokers to check policy wordings carefully to ensure the appropriate cover has been obtained. The decision left the claimant, Standard Life Assurance Ltd ("Standard Life"), with a significantly reduced scope of cover, making a potential insurance recovery of £75 million highly unlikely.
Background
A professional indemnity policy (the "Policy") issued in favour of Standard Life was placed by the second defendant, Aon Ltd ("Aon"). It provided cover of £75 million in excess of £25 million for claims made during a period of three years from 15 May 1998 to 14 May 2001. During this period, Standard Life had to pay compensation to a large number of investors for claims arising out of the misselling of mortgage endowment policies. Payments of over £100 million were made to over 97,000 investors, although the average per investor payment was less than £10,000.
Standard Life sought an indemnity from the Policy's underwriters for the full policy limit of £75 million. The underwriters rejected the claim on a number of grounds, leading to the present litigation. A staged trial was ordered, with certain issues, including aggregation and the liability of Aon, being determined before others.
Aggregation
Both the slip and the schedule to the Policy, but not the policy wording, included the following excess clause:
"£25 million each and every claim and/or claimant".
The underwriters contended that the £25 million excess amount was applicable to each of the underlying claimants. Standard Life argued that the terms of the contract of insurance were to be found in the policy wording, which did not contain the excess clause; and, alternatively, that the above wording meant that the excess could be satisfied by either aggregating the claims, the claimants, or both.
Whilst acknowledging the well established rule that when a slip is followed by the full policy wording, the latter supersedes the former, Tomlinson J took the view that a slip is admissible evidence when considering issues of construction of the insurance contract. In this particular case, he felt it would be counter-intuitive to disregard the slip, and believed it likely that the words "and/or claimant" in the slip would have been considered by the parties to the contract of insurance. Since the same phrase was also in the schedule, it had to be given a meaning of its own, rather than be construed to fit within the terms of the policy wording.
Tomlinson J noted that in the context of Standard Life's business and likely exposure to a multitude of small claims, a per claimant deductible applying across the board was plainly inappropriate: there were better means to limit liability, including the use of exclusions in the policy wording. Nonetheless, the court had to consider the words actually used by the parties, and there was no plausible purpose for the inclusion of the words "and/or claimant" in the Policy other than to achieve a per claimant excess. Hence the Policy did not allow the aggregation of related claims made by separate claimants.
Was Aon negligent?
Tomlinson J had no difficulty finding that Aon had been negligent in placing the Policy. He held no reasonably competent broker would have concluded that the Policy clearly met Standard Life's requirements. At the relevant time, coverage without a per claimant deductible was readily available, and thus Aon could have sourced a better suited policy for Standard Life.
Another key consideration was that the phrase "each and every claim and/or claimant" had no market meaning. Interestingly, Tomlinson J stated the duty of a broker was not only to obtain the requisite insurance coverage, but also to ensure the coverage was clear enough so as to leave no room for significant debate and expose its client to the risk of litigation. Thus he specified that even if he had decided against the Underwriters on the aggregation issue, because the Policy had given rise to litigation he would have found Aon negligent in any case.
In the new era of contract certainty one would hope that these types of issues will be less common in the future. However, and as always, brokers would be well advised to ensure their policy wordings are clear and understood by all, particularly if they add new clauses to standard terms.
