In our bulletin of 13 January 20171, we reported that insurer RSA had succeeded in establishing that the lower of two policy limits applied to “linked” claims made under the medical PI section of a Combined Liability policy. That first instance judgment has now been upheld on appeal2.

The insured, a private hospital operator, had paid more than £20m in respect of 700 or so negligence claims made by former patients. Its claims-made annual PI cover had a Schedule which provided a limit of £10m per claim, and of £20m in the annual aggregate. The body of the policy contained a clause (A) which stated that “all claims during any Period of Insurance ...attributable to one source or original cause...shall not exceed the Limit of Indemnity stated in the Schedule”, regardless of the number of claimants, and a clause (B) which stated that all claims made during the Period of Insurance, irrespective of the number of sources or original clauses or claimants “shall not exceed the Limit of Indemnity stated in the Schedule.”

It was not expressly clear whether clause A referred to the £10m per claim or the £20m annual aggregate limit stated in the Schedule, and the clause did not expressly say that all claims attributable to one source or original cause (i.e. “linked claims”) were to be treated as one claim (or Claim) for the purpose of applying the Limit. Spire argued for the £20m limit for linked claims, and RSA for the £10m limit. It appears there was no appeal against the Judge’s earlier finding, in RSA’s favour, that the policy deductible of £25,000 applied per claim (whether linked or not), up to a limit of £750,000.

In dismissing Spire’s appeal against the Judge’s finding that the £10m limit applied to linked claims, the Court of Appeal applied the following principles:

  1. In construing the policy, the starting point was the combined effect of the relevant provisions, without giving greater weight to either the Schedule or the main policy wording; and,
  2. the Court assumed the insured was a sophisticated reader of the policy, which had the benefit of professional advice;
  3. the policy could have been drafted more clearly, but this was not uncommon and the Court should construe the contract as it is, not as it might have been drafted.
  4. aggregation clauses can work either in the insured’s or the insurer’s favour, depending on the circumstances, and so the Court should not be predisposed to narrowing or broadening their effect.

The Court of Appeal held that the “cause or original cause” clause was clearly an aggregation clause: it identified a unifying factor and linked the claims, and it provided that the limit for linked claims could not be exceeded. Clauses A and B and the Schedule together provided a coherent scheme for limiting recovery in respect of a single claim (£10m), a set of linked claims (£10m), and unlinked claims (£20m.) Lord Justice Simon said: “I accept that it would have been much neater and more elegant if linked claims were defined to constitute one single claim by an appropriate definition of “Claim” ....But, in frequently used, modified and revised policies of insurance, neatness and elegance are often lost.” Since he found there was no ambiguity in the policy drafting, he saw no role for the doctrine of interpretation contra proferentem (i.e. where there is an ambiguity in the contract, that element will be construed against the author/insurer).