The construction of deductible provisions

A policy deductible in a liability policy may apply to individual claims or it may apply to an aggregation of claims. A deductible of the former type is likely to operate as a means of excluding all small individual claims, whereas a deductible of the latter type allows recovery for small claims when they reach a given level. In Standard Life Assurance Ltd v Oak Dedicated Ltd [2008] EWHC 222 (Comm) there was a dispute as to whether the deductible in a liability policy, taken out by a life office guilty of endowment policy mis-selling, applied to each individual claim (in which case there was no cover whatsoever) or whether it applied to an aggregate of individual claims arising from a common source (in which case there was cover). A further question was whether brokers had been negligent in procuring wording which either did not meet the assured’s requirements or which was at best opaque.

Standard Life: the facts

The claimant, SLAC, was at the relevant time a mutual insurer, although in July 2006 it demutualised by an arrangement under which its assets were transferred to a new company, SLAL, under the provisions of Part VII of the Financial Services and Markets Act 2000. SLAC was one of a number of companies that had engaged in the selling of mortgage endowment policies in the latter part of the twentieth century. The policies were designed to provide funds on maturity sufficient to discharge the life assured’s mortgage, but many such policies did not realise sufficient funds and were found by financial services regulators to have been mis-sold and the payment of compensation was ordered. The consequence for SLAC was that it incurred liabilities of over £100m to some 97,000 investors. The average payment to any one investor was less than £10,000.