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United Despite Their Differences: Court of Appeal Overturns High Court Aggregation Decision in Spire Healthcare v RSA

  • United Kingdom
  • Insurance and reinsurance - E-briefings

24-01-2022

In a decision that could impact a number of Covid Business Interruption aggregation disputes, the Court of Appeal has determined that the High Court was wrong not to aggregate two groups of medical negligence claims together because it incorrectly focussed on their differences instead of searching for a factor which unified them.  The Appeal Court found that the misconduct of a consultant breast surgeon was such a factor and thus allowed the appeal in favour of insurers.

The Facts

Spire Healthcare Limited (“Spire”) is a company responsible for the operation of a number of private hospitals.  Royal & Sun Alliance Insurance Ltd (“the Insurer”), insured Spire under a combined liability insurance policy (“the Policy”), which was subject to a limit of indemnity £10 million per claim, with an aggregate overall limit of £20 million.

The underlying claims for personal injuries, which gave rise to Spire’s claim for an indemnity under the Policy, arose out of the serial misconduct of a Mr Ian Paterson, a consultant breast surgeon who carried out surgical procedures at two private hospitals operated by Spire. It transpired that Mr Paterson had performed a significant number operations on patients without their informed consent over a 14 year period. His conduct was accepted as being both negligent and dishonest.

The Issue

The Insurer accepted that Spire was entitled to indemnification.  The only issue on appeal was whether that liability was capped at £10 million due to the language contained in the aggregation clause, as the Insurer contended, or £20 million, as the Judge held.  The question was whether the multiple claims against Spire were all ‘consequent on or attributable to one source or original cause’ such that they would be treated as one aggregated claim, subject to the £10million limit of indemnity.

The trial Judge held that they were not, and found that Spire was entitled to an indemnity of £20m from the Insurer, on the basis that there were two distinct categories of claims for aggregation purposes.  Group 1 involved patients requiring surgery, but which was negligently carried out, whereas for the Group 2 patients, surgery was performed unnecessarily in circumstances where Mr Patterson falsely reported the presence or risk of cancer.

The Law

Lady Justice Andrews noted that aggregation clauses like this one, which refer to claims or occurrences “consequent on or attributable to one source or original cause”, use a traditional and well-known formula to achieve the widest possible effect. 

In the course of doing that she approved previous cases which confirmed that:

  • there is no distinction to be drawn between wordings referring to an “originating cause” and those which refer to an “original cause”.1
  • similarly, there is no distinction between the terms “cause” and “source”.
  • “original cause” in this context does not mean “proximate cause”, but instead connotes considerably looser causal connection.2
  • the “original cause” need not be the sole cause of the insured’s liability. However, it is still necessary for there to be some causative link between the originating cause and the loss, and there must also be some limit to the degree of remoteness that is acceptable.
  • in the search for the relevant 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.

With those principles of construction in mind, she held that all the claims were consequent on or attributable to one source or original cause (namely Mr Paterson, his dishonesty, his practice of operating on patients without their informed consent, and his disregard for his patients’ welfare). Thus Spire’s entitlement to an indemnity was limited to only £10m.

Comment

Whilst this is not a case which makes new law, it is a timely restatement of key aggregation principles as a spate of Covid-19 business interruption aggregation disputes brew in the market.   The decision could well have an impact on those cases despite the fact that it did not concern a similar type of policy to those under consideration. 

Notably, Lady Justice Andrews observed that the trial judge had fallen into error in that, instead of looking for a unifying factor, he appeared to concentrate on identifying differences between the patients’ claims falling within Group 1 and Group 2, and embarked upon an unnecessary and inappropriate analysis of Mr Paterson’s motivation for his conduct. Many parties are taking similar approaches to aggregation in Covid-19 insurance and reinsurance disputes.  For example, it is sometimes argued that Covid-19 business interruption claims from different jurisdictions cannot be aggregated together on the basis that they had the pandemic as their original cause, because those claims in fact arose from the different lockdowns which occurred at different times and in different ways. 

Certainly Lady Justice Andrew’s decisions will make those arguments more difficult where they are based on analogous wording. 

1. Countrywide Assured Group Plc v Marshall [2002] EWHC 2082 (Comm)

2. Citing Justice Andrew Smith’s passage in Beazley Underwriting Ltd v The Travelers Companies Incorporated [2011] EWHC 1520 (Comm)