LLOYDS TSB GENERAL INSURANCE HOLDINGS v LLOYDS BANK GROUP INSURANCE CO LTD ABBEY NATIONAL PLC v LEE

In an insurance aggregation clause, result from imports ordinary proximate causation, applied with good sense and regard to the parties’ contractual intention. A single act or omission means the act or omission giving rise to the insured liability and loss, rather than an antecedent state of affairs explaining why it occurred.

However, a related series of acts or omissions may be connected by a single underlying cause or common origin. Repeated failures to give required advice were therefore sufficiently related where they arose from a common systemic failure in training, supervision and monitoring.

The appeals arose from two actions concerning professional indemnity policies issued to companies involved in selling personal pension plans. Large numbers of investors alleged that company representatives had failed to give the required Best Advice when advising them whether to transfer from occupational pension schemes.

The policies imposed a deductible on each third-party claim, but permitted claims resulting from a single act or omission, or a related series of acts or omissions, to be treated as one claim. Moore-Bick J, deciding preliminary issues on assumed facts, held that the claims could be aggregated because they resulted from management failures to train and supervise representatives. The insurers appealed.

The central issue was whether the claims resulted from a single act or omission, or from a related series of acts or omissions, within the aggregation clauses.

1. The appeals were dismissed. The claims were to be treated as a single third-party claim subject to a single deductible.
2. Per Potter LJ, with whom Hale LJ and Longmore LJ agreed on the result, the words result from import causation in the insurance-law sense of proximate cause. The expression must be applied with good sense so as to give effect to, rather than defeat, the parties’ intention. The wording does not avoid the need to identify the operative cause merely because the policy uses different causal language.
3. The defined expression act or omission was co-extensive with the conduct giving rise to the insured’s liability under the insuring clause. The relevant omissions were the individual failures by representatives to give Best Advice. The systemic management failure was an important underlying cause, but did not itself constitute the relevant act or omission for the single-act limb.
4. The alternative limb had a wider function. Acts or omissions may be related because they share a single underlying cause or common origin. The repeated failures to give Best Advice were sufficiently related because they were identical or substantially similar omissions arising from a common failure to establish proper training, supervision and monitoring arrangements.
5. Potter LJ regarded the reasoning in BF Caudle v Alec Sharp as a useful analogy: an underlying state of affairs did not itself amount to the operative event, but could explain the relationship between the operative acts. Longmore LJ added that liability for failure to give Best Advice was personal to the companies and arose automatically once the relevant failure was established.
6. The preliminary issue in the Lloyds TSB action was answered on the basis that the claims resulted from a related series of acts or omissions. The Abbey National issue was answered in equivalent terms by reference to acts, errors, omissions and breaches of duty under the Financial Services Act 1986 and Lautro rules. Costs followed the event, and permission to appeal was refused.

• Court of Appeal (Civil Division): appeals from the decision of Moore-Bick J on preliminary issues were dismissed. The claims fell within the aggregation clauses and were subject to a single deductible.
• Queen’s Bench Division, Commercial Court: held on assumed facts that the claims could be aggregated because they resulted from management failures to train and supervise the sales representatives.