Court of Appeal allows insurer’s appeal in aggregation dispute

On 11 January 2022, the Court of Appeal handed down its decision in Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc [2022] EWCA Civ 17, allowing the insurer’s appeal and finding that the claims all arose out of the same source or original cause, namely, the consultant’s conduct in disregarding the welfare of his patients and performing operations on them without their informed consent.

Claims had been brought by patients who had suffered negligently performed and/or unnecessary breast surgery carried out by a consultant breast surgeon at two hospitals operated by Spire over a period of around 14 years. A compensation fund was set up for the victims, to which Spire contributed around £27 million.  

Spire’s combined liability policy applied a limit of £10m to “…all claims during any Period of Insurance consequent on or attributable to one source or original cause…” and an overall aggregate limit of £20 million. RSA accepted that the damages were covered but argued that they were subject to a single £10m limit, on the basis that they all arose out of the surgeon’s deliberate misconduct. Spire argued that there were two separate groups of claims such that two limits of indemnity of £10 million applied (up to the aggregate limit of £20 million), these being: (1) those arising from negligent surgery (referred to as the Group 1 claims) and; (2) those arising from unnecessary surgery (the Group 2 claims).

At first instance ([2020] EWHC 3299 (Comm)), the High Court agreed with Spire and held that the £20 million aggregate limit applied. The High Court concluded (amongst other points) that there were clear causative differences between the two groups of claim - in the Group 1 cases, the surgery was negligent while in the Group 2 cases, surgery was unnecessary and most likely for financial gain - and that the surgeon had different motivations in respect of each. Further, the High Court held that the management issues within Spire that led to the continuation of the two strands of misconduct were entirely different in nature.

However, the Court of Appeal disagreed, allowing the insurer’s appeal and holding that all the claims within Group 1 and Group 2 aggregated such that the £10 million limit applied.  Looking first at the approach to the wording in question, the Court of Appeal made the following observations:

• The usual principles of contractual construction apply and aggregation clauses are to be construed in a balanced fashion without a predisposition towards a narrow or broad interpretation: Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48; AIG Europe Ltd v Woodman [2017] UKSC 18.  
• The clause in question was a standard wording and, as such, “it is appropriate to follow the construction of identical or materially similar provisions in earlier cases, unless there is a clear contextual distinction or other strong reason that suggests it would be inappropriate to do so.”
• The phrasing “consequent on or attributable to one source or original cause” was well-known to mean that the aggregation clause was very broad and achieved “the widest possible effect” (per Longmore J in AIG Europe Ltd v OC320301 LLP and others [2016] EWCA Civ 367 and earlier authorities). Further, as per Lord Mustill in Axa Reinsurance UK Ltd v Field [1996] 1 WLR 1026, “A cause is…something altogether less constricted [than ‘event’]. It can be a continuing state of affairs; it can be the absence of something happening. Equally, the word “originating” was in my view consciously chosen to open up the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate.”  Furthermore, “original cause” in this context does not mean “proximate cause”, but instead connotes a considerably looser causal connection (Beazley Underwriting Ltd v The Travelers Companies Incorporated [2011] EWHC 1520 (Comm)). The “original cause” need not, therefore, be the sole cause of the insured’s liability. However, there must be some limit to the degree of remoteness that is acceptable (American Centennial Insurance Co v INSCO Ltd [1996] LRLR 407) and “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.”  Also, there is no distinction in this context between an “originating cause” and an “original cause” (see Countrywide Assured Group Plc & Others v Marshall and others [2002] EWHC 2082 (Comm)); nor is there a distinction between “source” and “original cause” (Standard Life Assurance Ltd v ACE European Group [2012] Lloyd’s Rep IR 655): “…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.”

The Court of Appeal found that the Judge at first instance had not applied the correct test to conduct the wide search for a unifying factor in the history of the claims that the authorities required him to carry out, with the Court noting: “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.”  Further, the Court disagreed with the Judge’s approach in conducting an analysis of the surgeon’s motivation for his conduct, finding that his motivations were irrelevant to Spire’s liability.

Looking at the circumstances of the case in question, the Court referred to Cox v Bankside [1995] 2 Lloyd’s Rep 437, where the negligence of one individual underwriter was held to be the originating cause for the purpose of an aggregation clause of this type, even though his negligence took different or multiple forms. The claims made against Spire, while differing in some respects, arose from “a pattern of deliberate (and dishonest) behaviour by one individual who operated on hundreds of patients over 14 years in the two private hospitals run by Spire, with cavalier disregard for their welfare.”  The Court pointed out that there may be cases where, 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 Court found that any or all of: (i) the surgeon in question; (ii) his dishonesty; (iii) his practice of operating on patients without their informed consent; and (iv) his disregard for his patients’ welfare could be identified under the wide aggregation wording in the policy as a unifying factor, irrespective of which group the patient claims fell into.  None of these factors, the Court noted, could be described as “falling within the realm of remote or coincidental causes which provided no meaningful explanation for what happened.”

Accordingly, the Court of Appeal allowed the insurer’s appeal, finding that the two groups of claims aggregated, such that the £10 million limit of indemnity applied only once.

Comment

This case follows a separate unsuccessful claim brought by Spire against insurers seeking to recover under the £20 million aggregate limit of the policy. In those proceedings (Spire Healthcare Ltd v Royal & Sun Alliance Insurance Plc [2018] EWCA Civ 317; [2016] EWHC 3278 (Comm)), the High Court and Court of Appeal rejected Spire’s assertion that the relevant policy wording did not operate as an aggregation clause because it did not clearly set out the consequences of several claims being aggregated together.

This decision is a useful illustration of the Court’s interpretation of the aggregation language “consequent on or attributable to one source or original cause” and is an example of how, on the particular facts of this case, the negligent or dishonest conduct of an individual can be deemed an original cause within an aggregation clause of this type even though the negligence may take different or multiple forms.