Standard Life Assurance Ltd v Oak Dedicated Ltd & Ors

The judge determined key Stage 1 issues in two consolidated actions: (i) whether the Part VII transfer under the Financial Services and Markets Act 2000 had vested SLAC’s rights in SLAL; (ii) the proper construction of a professional indemnity policy providing cover of 75 million excess 25 million; and (iii) whether the placing broker Aon was negligent.

On construction the court held that the policy, read as a whole and with regard to the contractual slip and surrounding market background, did not permit aggregation of separate claimants27 claims into a single claim for the purpose of satisfying the 25 million excess. The words "each and every claim and/or claimant" were construed as not achieving an across-the-board per-claimant deductible that would prevent aggregation of related claims by different claimants.

The court held that the Part VII transfer did not have the retrospective effect contended for by underwriters and that SLAL obtained the transferred rights; the wording of the transfer orders did not divest SLAC (or SLAL) of existing rights to pursue indemnity. The court also held that Aon was negligent in placing wording which left material ambiguity about whether the insured27s requirements (per-claim aggregation cover) had been secured, and that Aon could, on the evidence, have placed cover responding on a per-claim basis on similar terms and at no materially different premium.

The claimant (formerly The Standard Life Assurance Company, now Standard Life Assurance Limited after a Part VII transfer) sought indemnity under a professional indemnity and "crime" policy covering the period 15 May 1998 to 14 May 2001. SLAC had paid large sums in relation to alleged mis-selling of mortgage endowment policies and contended that tens of thousands of small claims derived from a single originating cause and accordingly aggregated to exceed the policy excess so as to engage the 75 million excess cover.

Parties and procedural posture: SLAL sued its underwriters for indemnity and sued its former broker Aon for shortfall recoveries; Aon in turn asserted a Part 20 claim against Reynolds Porter Chamberlain. The court directed a two-stage trial; the judgment concerns Stage 1 issues: (i) the Part VII transfer point; (ii) policy construction (aggregation and the operation of the Schedule wording "each and every claim and/or claimant"); and (iii) the broker27s duties and alleged negligence.

Issues framed:

• Whether the Part VII transfer vested SLAC27s causes of action in SLAL.
• Whether the policy permitted the aggregation of claims made by different claimants arising from a single originating cause for the purpose of satisfying the policy excess.
• Whether Aon breached its contractual and tortious duties in placing wording which left the insured exposed to a significant dispute about aggregation and whether Aon could have placed per-claim aggregation cover on acceptable terms.

Court27s reasoning: The court applied the established principles for construing commercial contracts including the approach in Investors Compensation Scheme v West Bromwich (the background or "matrix"), and allowed consideration of the prior slip as part of the surrounding circumstances. The slip27s prominent use of the words "and/or claimant" (also incorporated into the Schedule) was examined against the main body wording, the definitions of "Claim" and "Loss", market practice, the negotiation history and the commercial purpose of obtaining catastrophe-level cover for mass retail exposures.

The court concluded that a straight per-claim interpretation of the main wording would permit aggregation of related claims by different claimants and that an across-the-board per-claimant excess (which would preclude such aggregation) was not the natural or commercially sensible effect of the Schedule wording. Although the appearance of "and/or claimant" suggested an attempt to achieve a per-claimant deductible, the judge held the language did not successfully effect that result.

On the transfer issue the court construed the Part VII orders and scheme in context, rejecting underwriters' contention that the orders had the unintended retrospective effect of depriving SLAC/SLAL of accrued causes of action; the court held the transfer did not produce that result.

On brokers27 liability the court summarised the broker27s duties (identify needs, procure cover that clearly meets the client27s requirements, explain limitations if necessary), found that Aon should have obtained unambiguous per-claim aggregation cover or else made expressly clear any shortcomings, and held Aon negligent. The court accepted that per-claim aggregation cover could have been obtained on comparable terms and premium.

The court also addressed contributory negligence (rejected) and limitation (claim in contract not time-barred on the facts). The judge left quantification and remaining issues for Stage 2.

Stage 1 determination: (1) The Part VII transfer under the Financial Services and Markets Act 2000 did not have the retrospective or extinguishing effect contended for by underwriters; SLAL holds the transferred rights for the purposes specified and underwriters are entitled to assert against SLAL the same defences they could have asserted against SLAC. (2) On construction, the policy does not permit aggregation of related claims made by different claimants so as to satisfy the 25 million excess; the Schedule wording "each and every claim and/or claimant" does not successfully create an across-the-board per-claimant deductible. (3) Aon was negligent in placing wording that left the insured exposed to material ambiguity about aggregation; Aon could have placed per-claim aggregation cover on substantially the same terms and premium. (4) SLAL was not contributorily negligent and limitation did not bar the claim as pleaded. Remaining issues (quantification and Stage 2 matters) were remitted for further trial or determination.