The Court of Appeal has set out the correct interpretation of a medical negligence policy which was responding to over 700 actions pursued against a surgeon who operated without his patients’ consent. The key issue was the approach to aggregation, i.e. treating multiple matters as arising from a single cause. The sums to be recovered under the policy would form part of the appellant clinic’s share of an overall settlement of those actions approved by the High Court in 2017.
Former consultant surgeon Ian Paterson was convicted in 2017 of assaults arising from having performed unnecessary and unjustified breast tissue removal over several years. His initial 15 year jail sentence was increased by the Court of Appeal to 20 years following a reference by the Solicitor General. He was struck off by the General Medical Council without the need for a hearing. In December 2017 the Government set up a non-statutory inquiry into his activities.
A £37 million settlement involving several hundred claimants against Paterson and the hospitals and clinics where he worked was approved by the High Court in the period between the sentence being confirmed and the inquiry being set up. Under its terms Spire Healthcare would contribute around £27m with the balance of £10m from Paterson’s medical defence indemnifier and the Heart of England NHS Trust.
Spire called on its own insurers in respect of its liability to the settlement. It had a liability policy with RSA, the medical negligence section of which featured a £10m limit of indemnity for any one claim and an overall limit of £20m for all claims (during the period of insurance). There was a proviso to the medical negligence cover which purported to be an aggregation clause, i.e. it sought to treat as a single claim “all claims … consequent on or attributable to one source or original cause.”
The excess under the medical negligence section was £25,000 for “each and every claim”. If there were numerous claims, the “aggregate insured’s contribution” in respect of medical negligence would be capped at £750,000.
Spire and RSA disputed the meaning and effect of the cover. If what Paterson did amounted to separate claims then Spire might be thought to recover £19.25m, that being the overall £20m limit less the aggregate insured’s contribution. If, in contrast, his activities were to be treated for insurance purposes as attributable to one original cause – i.e. aggregated – then at face value Spire’s recovery might be thought to be £9.975m, that being the single claim limit less a single excess. Spire therefore sought a declaration from the Commercial Court.
At first instance, Waxman J held that the proviso to the medical negligence cover did, on proper interpretation (and adopting the approach to contractual interpretation set out by Lord Neuberger in 2015 in Arnold v Britton), operate as an aggregation clause. The claims against Paterson in respect of which Spire sought indemnity would therefore be treated as one claim and subject to the £10m limit.
He went on, however, to find that the proper interpretation of the excess to be paid by Spire was not subject to aggregation in the same way. This meant that multiples of £25,000 would have to be borne by Spire up to the – confusingly named in this context – “aggregate insured’s contribution” of £750,000 specified in the policy. This finding largely turned on the differences between how the words “event” and “claim” were used in the policy.
The judge saw the force of Spire’s argument that, if the proviso operated as an aggregation clause for the purpose of limits, “it would be illogical if there was no equivalent aggregation … in terms of contribution”. Nevertheless, he found that to do that here would amount to rewriting the policy in a way that was not justified by the words used. Aggregation therefore operated in the insurer’s favour at both points: limit and excess.
The wording of the policy would be determinative in each instance and there was no general rule that an aggregation clause should work in the same way for the purposes of claims and excesses. Waxman J referred to 2003 Countrywide Assured Group Plc v Marshall, in which:
“Morison J observed … that normally one would expect to see the aggregation of a claim for the purpose of limiting cover also to have the same effect in respect of the payment of any excess, so that the aggregation would benefit both insurer and insured in different ways. But whether that was so in any given case depended on the wording actually used”.
It is not at all surprising that Spire appealed, given that £10m rode on aggregation as regards the limit and a further £725,000 as regards the excess / contribution. In a comparatively short judgment on 2 March 2018 the Court of Appeal rejected Spire’s argument. Therefore, unless there is a further appeal and a different outcome, Spire recovers £9,250,000 from the policy with RSA.
Simon LJ gave the judgment of the Court. He noted the overall settlement reached with Paterson’s patients, in the context of which “the question of the level of the indemnity in the case of multiple claims attributable to one source or original cause is therefore highly material to Spire’s ability to recover under the policy.”
He took the same approach as the judge and followed the guidance on interpretation in Arnold v Britten. This meant that: “In construing a contract of insurance, the Court seeks to give effect to all the words of the policy that bear on the issue. Doubtless clearer words in [the proviso] would have put the question of whether it was an aggregation clause beyond doubt; but the Court construes the contract as it is and not as it might have been drafted.” In addition, he repeated the guidance from AIG v Woodman, a solicitors’ professional negligence case decided by the Supreme Court last year, that aggregation clauses in insurance policies “should not be approached with a predisposition to interpret them in either a broad or narrow way.”
It is clear that this case turned on the language used in the policy in question and to a very significant extent on the meanings to be given to two everyday five-letter words: “claim” and “event”.
If there are any wider points to be taken from it, the following may be among them:
- The actual words used in the insurance policy are crucial and there is no general rule or presumption that aggregation should work in the same way (the judge described that as “parity of aggregation”) for limits and excesses
- Spire appears to be the first Court of Appeal authority on this point and it further emphasises the need, in future placements and renewals, for insurers, brokers and insureds being absolutely clear about their intentions for aggregation at these two key levels
- The reasoning in Spire applies equally to claims made policies of the type at issue (a variant of professional negligence business) as it does to occurrence-based wordings more commonly seen in mainstream casualty insurance.