Insights / 31-01-2022 / London

The Court of Appeal has given judgment providing clear guidance on the interpretation of aggregation clause in policies of insurance.

The Claimant insured (“Spire”) ran private hospitals in which medical practitioners could carry on their private medical practices. One of the surgeons carrying on business in Spire’s hospitals, a Mr. Ian Paterson, was found to have been serially negligent and dishonest in his treatment of patients leading to in excess of 750 negligence claims against Spire.  He had carried out defective operations, and falsely reported pathology tests and then carried out unnecessary surgical procedures on female patients. He was ultimately sentenced to 20 years imprisonment.

The claims against Spire were categorised into two groups: Group 1 and Group 2, the distinction being whether or not mastectomy was clinically indicated.

Paterson was not under the direct control or supervision of Spire. He was an independent contractor who contracted directly with his patients. He was expected to have and did have his own insurance. Nevertheless, both Spire and the insurer accepted that Spire itself had been negligent in its failure to investigate and report on concerns about Paterson’s practice which had been brought to its attention. With respect to the injured Claimants there was a breach of the implied term that services offered by the hospital would be carried out with reasonable care and skill.

Spire’s total outlay in respect of the injury claims was £37 million. It claimed against its liability insurer, Royal and Sun Alliance (“RSA”).

There was no dispute that an indemnity was due under the policy. The issue at stake was how much was payable.

Aggregation Clause and Policy Limits

The policy contained the following clause:

“The total amount payable by (the Insurer) 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 originating cause irrespective of the number of persons entitled to indemnity having a claim under the policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity in the Schedule.” (emphasis added)

The Limit of Indemnity was £10 million.

The Policy also had an aggregate overall limit of £20 million.

The First Instance Decision

At first instance HHJ Pelling QC found that the injury claims fell into two groups:

• Group 1 patients - Where a mastectomy was clinically indicated and Paterson carried out mastectomy but failed to remove all breast tissue exposing the patient to the risk of recurrence or metastasis (sub – (“STM”) procedures)
   
• Group 2 patients – Where Paterson had falsified pathology test results and then carried out unnecessary surgical procedures.

Judge Pelling considered there were two causes: Paterson’s motivation for carrying out the STM procedures on Group 1 was entirely different to his motivations in respect of Group 2. He found that there was dishonesty regarding both Groups, but that it was “of entirely different nature.”

On this basis the full indemnity payable under the policy was held to be £10 million in respect of each group: £20 million in total.

RSA appealed.

The Court of Appeal

The Court considered that the wording of the aggregate clause was standard. Hence, it was to be construed in a balanced way and it would be appropriate to follow the construction given to it in earlier cases. Only if there was a clear contextual distinction to the case should the Court depart from the earlier cases.

In arguing that there were two causes of loss Spire sought to draw a distinction between conduct that was merely negligent and conduct which was also dishonest. However, it had been held as a matter of fact at first instance that all of Paterson’s conduct was dishonest.

The Court of Appeal held that there was no distinction between the terms “originating cause” and “original cause”. Nor between “source” and “original cause”.

In addition, while the “originating cause” need not be the sole or proximate cause of the loss there had to be a causative link between the two. Moreover, the cause could not be so far back in the causal chain as to be too remote or merely coincidental.

The question the Judge should have asked was whether there was a single unifying factor in the case in accordance with the analysis in Countrywide Assured Group PLC v Marshall (2002) EWHC 2082. Had he done so he would have concluded that there was a single rogue Consultant who was habitually in breach of his duty to his patients. Whilst the pattern of incompetence might manifest itself in different ways the problem could be traced to Paterson’s misconduct.

The Judge at first instance had been drawn into error in relying on the earlier judgment in Cox v Bankside (1995) 2 LLR 437. In that case identical negligent acts by different individuals had been held to be separate causes. In reliance on Cox the Judge reasoned that different acts of negligence by the same person might also be deemed to be different causes. The Court of Appeal considered that this was wrong; the Judge was drawn into considering Paterson’s motivations for what he did, but that these were irrelevant to Spire’s liability and the liability under the Policy.

Discussion

The case is a helpful clarification of the test to be applied to aggregation clauses. A single unifying factor is required but this need not be a “single effective cause”. The case clarifies that whilst the decision in Cox that separate individuals might be guilty of the same negligent act is still good, it does not follow that an individual might be responsible for different sources of negligence. In the case of an individual, who is consistently negligent in their conduct, they will be an “originating cause” or “source” for the purpose of the aggregation clause.

If however, a surgeon had carried out separate negligent acts, some time apart, there were distinct contextual explanations for that negligence, and they had otherwise performed their job well, then the single unifying factor – the surgeon themself – would appear to be merely coincidental. In that case, it is submitted that the aggregation clause in Spire would not have applied.