High Court construes wording as aggregating language to give effect to limit of liability

In Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc [2016] EWHC 3278 (Comm), the High Court considered the wording of a clause in an insurance policy and was prepared to interpret the clause as an aggregating clause. Although aggregating provisions are normally worded so as to aggregate claims both for the purposes of the insured's excess and the insurer's limit of indemnity, the Court was not prepared to "rewrite" the policy to achieve this effect here. The aggregating provision applied only to the limit of indemnity.

Background

Spire Healthcare Limited ("Spire") held a combined liability insurance policy ("the Policy") with Royal & Sun Alliance Insurance Plc ("RSA"), providing, inter alia, cover for medical negligence. A large number of clinical negligence and related claims were brought against a number of Spire hospitals (insured under the Policy) relating to allegedly unnecessary and/or inappropriate and/or negligent procedures carried out by Mr Ian Paterson, a Consultant Breast Surgeon who carried on his private practice at these hospitals between 2004 and August 2011.

Spire applied for declaratory relief as to the effect of certain provisions in the Policy, arguing that there was no operative aggregation clause so far as any limits on cover were concerned and that the maximum cover was £20 million. In the alternative, Spire contended that if there was aggregation, then there was also aggregation in respect of the excess payable by the insured.

RSA argued that there was aggregation in respect of limits of cover which limited cover to £10 million, but none in respect of the excess.

Decision

Judge Waksman QC considered that the relevant part of the Policy plainly contained aggregating language, aggregating linked claims to a limit of indemnity of £10 million, treating them as if they were a single claim.  As to the question of the excess, the judge declined to rewrite the Policy, and no aggregation was to apply.

Aggregation of Cover

Section 4 of the Policy provided cover for medical negligence claims brought on a "claims made" basis. The Schedule "Limits of Liability" (the "Schedule") set out limits to cover, and a further schedule set out the excess. The relevant part of proviso 5 of Section 4 (which Judge Waksman QC referred to as 5 (a) for clarity) provided as follows:

"(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."

The judge referred to the judgment of Longmore LJ in AIG v The Law Society [2016] Lloyd's Rep. IR 289 which set out examples of the traditional wording for a wide aggregation clause, such as "any claim or claims arising out of all occurrences…Consequent on or attributable to one source or original cause". Judge Waksman QC determined the proviso was "unquestionably" aggregation wording; indeed it used the words set out by Longmore LJ.

The judge considered the provision made sense in its own terms, being as how it prescribed a consequence for a set of claims of this description ie. that they were all subject to the limit of indemnity in the Schedule.

The Schedule provided a limit of indemnity for medical negligence for "any one claim" of £10 million and £20 million in respect of "all damages costs and expenses arising out of all claims during the Period of Insurance". Spire submitted there was no wording ascribing a limit to "claims arising out of one cause" which, together with proviso 5(a), could have operated as an aggregation clause. Further, Spire submitted that it was not clear which limit should apply and therefore the limit of £20 million should apply, under the contra proferentem rule.

Judge Waksman QC, in rejecting Spire's arguments, identified three categories of claim: a single claim, a number of non-linked claims and linked claims falling within proviso 5(a). He considered a third financial limit relating to claims arising out of one cause was not necessary, because linked claims were to be treated as a single claim. The lower financial limit would obviously apply since the purpose of aggregation was to reduce cover in the case of linked claims and in the Schedule the lower amount specifically referenced "one claim".

RSA's interpretation was preferred as better fitting Lord Neuberger's indicia in Arnold v Britton [2015] AC 1619, as summarised: (i) the natural and ordinary meaning of the clause was aggregation, (ii) this was consistent with other parts of the Policy and (iii) consistent with the overall purpose of proviso 5(a), i.e. aggregation and the different limits in the applicable Schedule, (iv) although no factual matrix evidence was adduced, aggregation might be expected, objectively, where many different hospitals were insured and where many claims could arise from one cause, and (v) it is certainly consistent with common sense.

Aggregation of Excess

The second issue in the case was whether if there was an aggregation provision it applied to the excess as well as the limit of indemnity.

Under the Policy the relevant excess was £25,000 for each and every claim, not to exceed £750,000 in the aggregate in the period of insurance. Spire submitted that if proviso 5(a) operated as an aggregation clause in respect of cover limits, it would be illogical if there was no equivalent aggregation in terms of the excess, limiting it to a single excess of £25,000 for a group of aggregated claims.

Whilst the judge could see the force of that point, he considered achieving that result would amount to rewriting this part of the Policy and declined to do so. He quoted Morison J in Countrywide Assured Group Plc v Marshall [2003] Lloyd's Rep. IR 195: "Normally, I accept, the policy will be worded so that the aggregation of the claim will involve an aggregation of the excess in respect of claims so that claims are aggregated both for excess and limit…I am not persuaded that the plain and ordinary meaning of the words in this policy should be corrupted, as I think they would have to be, to make this policy work "normally"".

Although "Event" was defined as "one occurrence or all occurrences of a series consequent on or attributable to one source or original cause", "Claim" was not so defined, and therefore it could not be said that the word "Claim" included a group of linked claims.

Comment

The decision highlights the Court's willingness to interpret aggregation clauses purposively where it is clear aggregating language is present. However, the Court was not prepared to "corrupt" the wording to read in a complementary aggregation provision for the purpose of the excess.

Insureds and insurers must therefore ensure that where there is a provision purporting to aggregate claims, limits are clearly stated for linked and non-linked claims. If a reciprocal right to aggregate excess is required, this must be expressly stated, as the courts remain reluctant to rewrite the policy to achieve this result.