STANDARD LIFE ASSURANCE LTD V OAK DEDICATED LTD

[2008] EWHC 222 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Tomlinson, 13 February 2008

Insurance (liability) – Aggregation – Mis-selling of endowment policies – Whether policy providing for per claimant deductible or aggregate deductible – Whether brokers liable for breach of duty – Causation – Contributory negligence – Limitation – Effect of transfer of insurance business by demutualisation – Financial Services and Markets Act 2000, section 112

The claimant, a life insurance company, sold endowment policies to a number of clients. It was subsequently found to be guilty of mis-selling, and incurred aggregate liabilities of over £100 million to some 97,000 investors. No one claim exceeded £10,000. The claimant’s liability policy, written on a claims made basis and running from 1998 onwards, provided cover of £75 million, subject to a deductible of £25 million. The deductible was expressed to be “In respect of each and every Claim and/or Loss …” The word “claim was defined in the body of the policy as meaning “each Claim or series of claims (whether by one or more than one Claimant) arising from or in connection with or attributable to any one act, error, omission or originating cause or source of dishonesty or any one person or group of persons acting together and any such series of Claims shall be deemed to be one Claim for all purposes under this Policy.”  The deductible itself was defined in the schedule as “£25 million each and every claim and/or claimant including costs and expenses.”     Tomlinson J held that the deductible applied to each claim or to related claims from a single claimant, rather than to the aggregate of related claims. This was so even though the policy was largely worthless when so construed. The court held as follows. (1) The words in the schedule were to be treated as a part of the policy itself, in that the 1997 policy which had been renewed in 1998 contained the same words, and the slip for the 1998 renewal stated “the wording as expiring”. The slip was to be treated as an aid to construction of the 1998 renewal policy, with the effect that the scheduled wording had been intended to have full effect. (2) It was common ground that the phrase “each and every claim and claimant” would have given rise to a per claimant deductible, and the addition of the words “/or” did not affect that position and did not allow aggregation of a series of related claims by more than one claimant or of a series of unrelated claims by a single claimant. (3) Had there been an intention to have an aggregate deductible, there were forms of wording which could have made that clear, rather than by modification to what was clearly a per claimant deductible.      Tomlinson J further held that the placing brokers were liable to the assured for breach of duty. It had been the duty of the brokers: (1) to identify and advise the client about the type and scope of cover which the client needed and to match as precisely as possible the identified risk exposures with the coverage available; (2) to arrange insurance cover which clearly met those requirements; (3) if cover was unavailable, to explain to the client what was and what was not covered; (4) in preparing policy wording, to ensure that the policy language clearly encompassed the needs of the client; and (5) to maintain the above duties on renewal. It formed a part of those duties to ensure that the cover did not give room for significant debate, so that if the wording was unclear and the client is exposed to a significant risk of litigation there was a breach of duty even if the wording ultimately proved to be adequate (which in the present case it did not). There were no available defences to the claim: the evidence showed that an aggregate deductible could have been obtained, so the breach of duty caused the loss; the assured had not been contributorily negligent by agreeing the wording, because it had relied on the expert advice of the brokers; and the claim was not time-barred.      Finally, Tomlinson J held that the effect of the demutualisation of the assured, by means of a transfer of assets from the assured to a company under Part VII of the Financial Services and Markets Act 2000, did not have the effect of transferring the liability policy to the company from the outset, so that the assured had never been covered by it. The effect of the transfer order under s 112 was to transfer to the company the same rights as had been possessed by the assured as a mutual.