In Spire Healthcare, the Court of Appeal (Sir Geoffrey Vos and Simon LJ) heard an appeal to determine whether the policy of combined liability insurance aggregated the limits of cover. Graham Eklund QC of 4 New Square successfully represented Royal and Sun Alliance Insurance plc. The Court’s decision is considered by Ben Smiley of 4 New Square.
THE BACKGROUND FACTS
The appellant/claimant insured (“Spire”) is a private healthcare provider. It held a combined liability insurance policy (the “policy”) with the respondent/defendant insurer (“RSA”).
The policy was structured with six heads of liability cover, including (relevant for present purposes) Medical Negligence in Section 4. Section 4 provided cover against claims brought against the insured on a “claims made basis”.
Following those sections were schedules. The first of these was entitled “Limits of Liability” and set out financial limits to the relevant cover. For the Medical Negligence section, that schedule provided:
“1 The total amount payable under this Section (Including all Extensions and memoranda) shall not exceed the Limit of Indemnity stated in the Schedule…Within Section 4 itself, further relevant terms included:
4 where the Company is liable to indemnify more than one person the total amount payable in respect of damages costs and expenses shall not exceed the Limit of Indemnity
5(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
(b) the total amount payable by the Company in respect of all damages arising out of all claims during any Period of Insurance irrespective of the number of sources or original causes of such claims and irrespective of the number of Persons Entitled to Indemnity having claims under this Policy in respect of those sources or original causes shall not exceed the appropriate Limit of Indemnity stated In the Schedule …”
The policy further provided that the excess payable by the Insured under section 4 would be £25,000 each and every claim.
A number of a clinical negligence and related claims were brought by former patients of Mr Ian Paterson, a consultant breast surgeon who conducted his private practice at various Spire hospitals between 2004 and August 2011. Those hospitals formed part of the insured under the policy. At the date of judgment, claims had been notified to Spire in respect of 708 complainants, of which about 86 claims had been issued in the High Court Queen’s Bench Division.
A dispute arose between Spire and RSA as to aggregation under the policy.
THE JUDGMENT BELOW
The dispute was considered at first instance by His Honour Judge Waksman QC (sitting as a judge of the Commercial Court). Two issues arose.
First, Spire contended that there was no aggregation on the limit of cover. If that argument succeeded, the limit on cover would be £20 million, whereas if it failed, the limit would be £10 million. Second, (if it was wrong on the first argument) Spire contended that there was aggregation of the excess payable by it under the policy, so that its contribution of £25,000 would be payable for a group of aggregated claims.
The judge determined both issues in favour of RSA. On the first issue he noted that Proviso 5(a) was plainly providing for the aggregation of linked claims so as to fall within the lower of the financial limits within the Schedule, since the purpose of aggregating clause is to reduce cover for linked claims. This author’s commentary on that decision (available here) noted that it was “a straightforward example of the Court robustly upholding the natural wording of a policy.”
THE COURT OF APPEAL
Only the first of the two issues was considered by the Court of Appeal.
The Court upheld the judge’s decision that Proviso 5(a) in Section 4 constituted an aggregation clause, to which the limit of indemnity of £10,000,000 applied. Simon LJ gave the leading judgment. His reasoning was, in brief summary, as follows:
- The starting point was “to consider the combined effect of the relevant provisions without giving greater weight to the words of either the schedule or proviso 5A”, applying the approach of Tomlinson J in Standard Life Assurance Ltd v. Oak Dedicated Ltd and ors  Lloyd’s Law Rep 552.
- The assumption of the Court when construing the policy is that: “the reasonable reader of this policy has the characteristic of a sophisticated assured who is assisted by professional advice; and does not confine his or her reading of the policy to the Limits of Indemnity contained in the schedule.”
- “In construing a contract of insurance, the Court seeks to give effect to all the words of the policy that bear on the issue.” Although the words in proviso 5(a) could have put the position beyond doubt, “the Court construes the contract as it is and not as it might have been drafted”.
- The Court should not be predisposed to construe aggregation clauses either broadly or narrowly, as they may operate in favour of either insurer or insured (applying Lord Toulson’s dictum to that effect in AIG Europe Ltd v. Woodman and others  1 WLR 1168 at ).
- The purpose of aggregation clauses is “to enable two or more separate losses covered by the policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind” (per Moore-Bick J, approved by Lord Hoffmann in Lloyds TSB General Insurance Holdings Ltd and ors v. Lloyds Bank Group Insurance Co Ltd  UKHL 48 at ).
- Drawing on the description of how aggregation clauses may be drafted by Longmore LJ in AIG v The Law Society  Lloyd’s Rep IR 289 at , the Court concluded that the words in proviso 5(a) were “plainly words of aggregation.”
- It was accepted that the limit of indemnity was not expressly referred to in proviso 5(a), but reading provisos 5(a) and (b) for with the schedule was said to “create a coherent scheme for the total amounts payable in respect of three categories of claim, with three limits of indemnity or total amount payable.”
- The judge at first instance had accepted that defining a “Claim” (in the same way that “Event” was defined for another aggregating clause in the policy) would have been “a much neater and more elegant” way of drafting the policy, but noted that “in frequently used, modified and revised policies of insurance, neatness and elegance are often lost. And one returns to the point that the actual aggregating language of Proviso 5 (a) is the same as that employed in the definition of ‘Event’.” Simon LJ held that the judge was right in that regard.
- In the absence of ambiguity, the contra proferentem rule did not apply (applying the approach set out by Lord Hodge in Impact Funding Solutions Ltd v. Barrington Services Ltd  AC 73 at ).
The Court of Appeal’s decision in Spire Healthcare is (again) a straightforward example of the Court robustly upholding the natural wording of a policy. Here, the language used in respect of the limit of cover was that of aggregation, which made sense as construed by the judge at first instance and by the Court of Appeal. The ultimate conclusion was not surprising. It provides a salutary reminder that a fixation on particular infelicities in language within a contract (and possible ways in which it could be better drafted) is unlikely to bear fruit when the meaning of the contract as a whole is tolerably clear.