England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(His Honour Judge Waksman QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		2.3.2018

Lord Justice Simon:

Introduction

1. This appeal raises a short point of construction in relation to the provisions of a combined liability insurance policy ('the policy') issued by Royal & Sun Alliance Insurance Plc ('the insurer') to the appellant ('Spire') in respect of a period of insurance from 31 August 2011 to 30 August 2012. The issue turns primarily on the wording of two parts of the policy: the limits of liability set out in the schedule (section 4 dealing with medical negligence) and the general provisions dealing with medical negligence (section 4) and, in particular, proviso 5.
2. The material part of the schedule provided, in relation to medical negligence:

£10,000,000

Limit of Indemnity

Any one claim and £20,000,000 in respect of all damages costs and expenses arising out of all claims during the period of insurance.

3. The material part of proviso 5 provided:

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 (costs and expense) 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 letters A and B do not appear in proviso 5, but have been added for convenience so as to identify two of the three parts of the clause. The words in parenthesis in proviso 5B are not in the original but are agreed between the parties to be added. These and some of the other provisions of the policy, which were referred to by the parties in the course of argument, are set out as an appendix to this judgment.

4. Spire contended on this appeal, as it did in the court below, that the limits of the indemnity were set out in the schedule and that proviso 5A did not qualify the limit of £10 million for any one claim in respect of damages costs and expenses arising during the insurance period. The insurer repeated the submission that found favour with HH Judge Waksman QC ('the Judge') that, where there were a number of claims consequent on or attributable to one source or original cause, proviso 5A fixed the level of indemnity at £10 million in respect of all such claims.
5. The significance of this dispute lay in the background to Spire's claim under the policy.
6. Spire operated a number of private hospitals where Mr Ian Paterson, a Consultant Breast Surgeon, carried out his private practice between 2004 and the end of August 2011. Over 700 of his former patients brought claims alleging that Mr Paterson carried out operations which were unnecessary, inappropriate and negligent. Those claims have been settled by an agreement to set up a £37 million settlement fund for distribution among the claimants, with Spire agreeing to pay £26,950,000 into this fund. The settlement was approved by the High Court on 27 September 2017. The question of the level of the indemnity in the case of multiple claims attributable to one source or original cause is therefore highly material to Spire's ability to recover under the policy.
7. In his judgment reported at [2016] EWHC 3278 (Comm) the Judge concluded that the language of proviso 5A was clear. Its effect was to aggregate linked claims. His reasons, set out at [20] of the judgment, can be summarised. He identified three types of claim: (i) a single claim, (ii) a number of linked claims, (iii) a number of unlinked claims. He acknowledged that proviso 5A did not expressly state that linked claims were to be treated as a single claim but he found that this was the effect of an aggregating clause. Nor was there any difficulty in identifying which financial limit applied. It was the lower one that would otherwise apply: £10 million which was referenced to 'one claim.' Since there was no ambiguity about the effect of proviso 5A, the question of applying the contra proferentem rule did not arise.

The argument

8. Mr Harvey QC submitted that the starting point for construing the policy was section 4 of the General Provisions - medical negligence. The insurance was on a claims-made basis. Proviso 1 made clear that the amount payable was not to exceed the amount stated in the schedule. The schedule itself gave two limits to the indemnity: £10 million in respect of any one claim and an overall limit of £20 million in respect of all claims during the period of the cover. The limit to the indemnity in respect of medical negligence was in the same clearly expressed form as was, for example, the limits to the indemnity in respect of employers' liability (section 1).
9. He submitted that the Judge was wrong to construe proviso 5A inconsistently with the express words of the schedule and to give it distinct effect.
10. First, he drew attention to the well-known observations of Lord Neuberger of Abbotsbury PSC in Arnold v. Britton [2015] AC 1619 at [15] and [17]:

15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to 'what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean', … And it does so by focussing on the meaning of the relevant words, … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions …

…

17. … The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

11. He submitted that the reasonable reader of the policy would focus on the schedule with its provision for 'Limits of Liability' and a 'Limit of Indemnity.' The significance and importance of the 'Limit of Indemnity' was emphasised throughout the policy with repeated reference to it, for example provisos 1, 3 and 4. The Limit of Indemnity was clear in its terms: the indemnity was £10 million any one claim with an overall limit of £20 million. In these circumstances the reasonable reader of the policy should not be expected to search through 69 pages of wording in the policy, much of it containing wording that was ambiguous or superfluous, in order to see if there might be a qualification to the clear wording as to the limit of the indemnity in respect of single claims.
12. Second, Mr Harvey submitted that, although the Judge had rightly acknowledged that proviso 5A did not expressly say that linked claims were to be treated as a single claim, he was wrong to assume that the consequence of an aggregating clause was to treat linked claims in such a way. The Judge should have proceeded on the basis that each claim within a group of linked claims remained a separate claim with its own limit of indemnity: £10 million.
13. Third, since no financial limit was referred to in proviso 5A, there was no good reason to apply the limit of £10 million which applied to 'any one claim.' In short, there was no proper basis for treating the aggregate limit as the limit for a single claim.
14. Fourth, since proviso 5A had not been linked to the schedule so as to provide for aggregation, it was either a standard provision which had the potential to be implemented, but which in the light of the actual drafting of the schedule served no useful purpose, or it was simply one of a number of superfluous provisions, of which Mr Harvey was able to give a number of examples.
15. Fifth, the effect of the Judge's decision was to imply an aggregation clause into section 4 where there was otherwise no expressed provision for aggregation. This was, Mr Harvey submitted, contrary to well-established principle.
16. In addition, Mr Harvey pointed out that the policy defined 'event', with express words of aggregation: 'all occurrences of a series consequent on or attributable to one source or original cause' for the purposes of section 1 (employers' liability) and section 2 (public/products liability). However, there was no definition of 'claim' in respect of the claims-made cover (such as section 4).
17. Finally, Mr Harvey submitted that, if there were real doubts about the meaning and effect of proviso 5A and its interaction with section 4 of the schedule, since this was a form of wording produced by the insurer, such doubts should have been resolved in favour of the assured. He relied in this context on the short statement of Stuart-Smith LJ in Yorkshire Water Services Ltd v. Sun Alliance & London Insurance Plc and others [1997] 2 Lloyd's Rep p.21 at p.28:

In the case of ambiguity, the construction which is more favourable to the insured should be adopted; this is the contra proferentem rule.

18. For the insurer, Mr Eklund QC submitted that, although proviso 5A did not expressly say that all claims within the category covered by the clause were to be treated as one claim, this was the intended effect of the wording when read with section 4 of the schedule. Proviso 5A uses the language of aggregation and the effect of aggregation is to treat a number of claims as a single claim. This is to the potential benefit of both parties, since although it may provide lower limits of indemnity it may have the effect of reducing the financial impact of the excess provisions.

Discussion

19. The starting point in my view is to consider the combined effect of the relevant provisions without giving greater weight to the words of either the schedule or proviso 5A. If authority were needed for this proposition it is to be found in a case relied on by Spire: Standard Life Assurance Ltd v. Oak Dedicated Ltd and ors [2008] Lloyd's Law Rep 552, Tomlinson J at [91]:

The words in the schedule must be read with those in the main body of the policy wording which they may qualify.

20. In approaching the issue of construction, the Court assumes 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.
21. In construing a contract of insurance, the Court seeks to give effect to all the words of the policy that bear on the issue. Doubtless clearer words in proviso 5A would have put the question of whether it was an aggregation clause beyond doubt; but the Court construes the contract as it is and not as it might have been drafted. In almost any dispute over contractual terms a party can argue that a contentious term could have been better expressed to achieve the effect that the other party avows.
22. Depending on the circumstances, aggregation clauses may operate in favour of either the assured or the insurer. Consequently, the Court does not approach the issue of construction with a predisposition either to confine or broaden their effect. In AIG Europe Ltd v. Woodman and others [2017] 1 WLR 1168, Lord Toulson expressed this point at [14]:

Aggregation clauses have been a long-standing feature of professional indemnity policies, and there have been many variants. Because such clauses have the capacity in some cases to operate in favour of the insurer (by capping the total sum insured), and in other cases to operate in favour of the insured (by capping the amount of the deductible per claim), they are not to be approached with a predisposition towards either a broad or a narrow interpretation.

23. In Lloyds TSB General Insurance Holdings Ltd and ors v. Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48, Lord Hoffmann at [15] approved the description given by Moore-Bick J as to the purpose of aggregation clauses, as:

… 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.

24. In AIG v. The Law Society [2016] Lloyd's Rep IR 289 at [21], Longmore LJ set out how aggregation clauses may be drafted:

The traditional and well-known way in which to formulate an extremely wide aggregation clause is to use the words such as 'any claim or claims arising out of all occurrences … consequent on or attributable to one source or original cause' or 'arising from one originating cause or series of events or occurrences attributable to one originating cause (or related causes)'.

25. Turning to the words of proviso 5A: 'the 'total amount payable … in respect of all damages costs and expenses arising out of all claims … consequent on or attributable to one source or original cause …' and, '… shall not exceed the Limit of Indemnity stated in the Schedule' are plainly words of aggregation. The 'unifying factor' is identified and it links the claims. The limit of indemnity in respect of such linked claims is not to exceed the Limit of Indemnity.
26. It is true that the limit of indemnity is not expressly referred to; but provisos 5A and 5B read with the schedule 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. First, a limit of indemnity or total amount payable for a single claim: £10 million as set out in the schedule, unaffected by proviso 5. Second, a limit of indemnity or total amount payable for a category of claims which are 'consequent on or attributable to one source or original cause' (linked claims): £10 million, which is the 'the Limit of Indemnity stated in the Schedule' (see the schedule and proviso 5A). Third, a limit of indemnity or total amount payable for all claims irrespective of their sources or original cause: £20 million in respect of all damages within the period of insurances, in other words 'the appropriate Limit of Indemnity' (as set out in the schedule and proviso 5B).
27. At [41] of the judgment, the Judge addressed the argument that, if this was the contractual intent, it could have been expressed by defining linked claims as constituting a single claim in a similar way to the definition of 'event':

I accept that it would have been much neater and more elegant if linked claims were defined to constitute one single claim by an appropriate definition of 'Claim' as was done with 'Event'. But 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'.

It seems to me that this was right.

28. Finally, it is necessary to address the argument on ambiguity and the contra proferentem rule. In Impact Funding Solutions Ltd v. Barrington Services Ltd [2017] AC 73 at [6] Lord Hodge set out the correct approach:

As I see no ambiguity in the way that the Policy defined its cover and as the exclusion clause reflected what The Law Society of England and Wales as the regulator of the solicitors' profession had authorised as a limitation of professional indemnity cover, I see no role in this case for the doctrine of interpretation contra proferentem. As Lindley LJ stated in Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453, 456:

… in a case of real doubt, the policy ought to be construed most strongly against the insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty.

29. In my view there is no real doubt or uncertainty in the operation of section 4 of the schedule and proviso 5A.
30. Accordingly, I would dismiss the appeal.

Sir Geoffrey Vos, Chancellor of the High Court

31. I agree.

Annexe to the judgment of Simon LJ

Schedule – Limits of Liability

…

Section 4 Medical Negligence

£10,000,000

Limit of Indemnity

Any one claim and £20,000,000 in respect of all damages costs and expenses arising out of all claims during the period of insurance.

Event

Event shall mean one occurrence or all occurrences of a series consequent on or attributable to one source or original cause.

General Provisions

Section 4 Medical Negligence

The Insurance provided by Section 4 is on a claims made basis with the costs and expenses of the claimant and the costs and expenses (incurred with the Company's written consent) of any Person Entitled to Indemnity included within the Limit of indemnity stated in the Schedule

The Company will provide indemnity to any Person Entitled to Indemnity

1. against legal liability for damages

A) in respect of accidental Injury of any person arising out of Medical Negligence

and …

…

Provided that

1. the total amount payable under this Section (including all Extensions and Memoranda) shall not exceed the Limit of Indemnity stated in the Schedule

…

3. the Company made at any time pay the Limit of Indemnity (less any sums already paid or incurred) or any less amount for which at the absolute discretion of the Company the claim or claims can be settled The Company will then relinquish control of such claim or claims and be under no further liability in respect thereof

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

C for the purposes of the Limit of Indemnity all of the Persons Entitled to Indemnity under this Policy shall be treated as one party or legal entity so that there will be only two parties to the contract of Insurance namely the Company and the Insured both as defined herein

…

7 all claims consequent on or attributable to one source or original cause shall be deemed to be made on the date when the first claim or notification of any circumstance is first made in writing to the Insured and notified to the Company