STANDARD LIFE ASSURANCE LTD V ACE EUROPEAN GROUP

[2012] EWHC 104 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Eder, I February 2012

Insurance (professional indemnity) - Mitigation Costs - Assured establishing Fund and inviting claims by customers - Whether costs of establishing fund constituted Mitigation Costs - Whether mixed motive of assured in establishing fund justified apportionment - Whether losses could be aggregated

SLAL operated a Life Pension Sterling Fund, which included a substantial proportion of asset-backed securities. From 2007 ABS became increasingly illiquid. With effect from 14 January 2009 SLAL took the decision to switch to a different source of prices, and that led to a one-day fall of 4.8 per cent in value of units in the Fund. Following complaints by customers, SLAL concluded that some 64 per cent by value of customers (worth £124 million) would have mis-selling claims. SLAL decided that it would restore the 4.8 per cent fall and then invite claims, and it paid those sums into the Fund. SLAL sought to recover its payments from its liability insurers. The policy was for £100 million and covered Mitigation Costs defined as: "any payment of loss, costs or expenses reasonably and necessarily incurred by the Assured in taking action to avoid a third party claim or to reduce a third party claim (or to avoid or reduce a third party claim which may arise from a fact, circumstance or event) of a type which would have been covered under this Policy". There was a deductible of £10 million in respect of a single claim, defined as: "All claims 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, or the dishonesty of any one person or group of persons acting together". The assured claimed that its payment constituted Mitigation Costs. Eder J gave judgment for SLAL.