Standard Life Assurance Ltd v Oak Dedicated Ltd & Ors

The proper construction of an insurance policy is determined objectively from its language, read in its commercial and factual context. A prior slip may assist in construing a later policy, but cannot alter or contradict the policy wording. An excess described as applying to “each and every claim and/or claimant” operated by reference to each claimant, so related claims by different claimants could not be aggregated. An insurance broker must obtain cover that clearly meets the client’s requirements and must avoid wording that creates an unnecessary risk of significant coverage litigation. A Part VII transfer is not retrospective unless explicit language requires that result.

Standard Life sought indemnity from its professional indemnity underwriters for liabilities arising from mortgage endowment mis-selling. It also claimed against its broker, Aon, alleging that Aon had failed to arrange cover permitting aggregation of related claims by different customers. The proceedings were conjoined and tried in stages.

Stage 1 concerned the construction of the policy excess, Aon’s breach of duty, causation, contributory negligence, limitation, and whether a Part VII transfer had vested the relevant rights in Standard Life Assurance Ltd. The court also considered the effect of the policy schedule and the earlier insurance slip.

1. Construction. The policy had to be construed objectively, having regard to the language used, the relevant background, the nature of the insured’s business and the commercial purpose of the cover. The policy wording was the contractual instrument. The slip could nevertheless form part of the surrounding circumstances and assist construction where, as here, it gave prominence to wording appearing only in the schedule. It could not alter or contradict the policy.
2. Aggregation. The words “each and every claim and/or claimant” in the slip and schedule had substantive effect. Read with the definitions of “claim” and “loss”, they required the excess to be satisfied by reference both to the claim and to the claimant. Related claims made by separate claimants therefore could not be aggregated for the purpose of exceeding the excess. The policy was construed in favour of the insurers on that issue.
3. Aon’s duty. A broker must identify the client’s required cover, arrange insurance which clearly meets those requirements, and explain clearly any unavailable or limited cover. Cover is unclear where its wording leaves significant room for debate and exposes the insured to an unnecessary risk of coverage litigation. Aon knew that aggregation of mass claims was critical to Standard Life. The unusual wording did not clearly meet that requirement. Aon was therefore negligent. Comparable cover could have been obtained on a straightforward per-claim basis without materially different terms.
4. Other issues. Standard Life was not contributorily negligent. The contractual claim was not time-barred because the relevant breach occurred when the insurance contract was concluded. The Scottish orders transferring the policy and brokerage rights were not retrospective. Standard Life Assurance Ltd could therefore continue the proceedings and assert the transferred rights.