Mitigation and allocation

In Standard Life Assurance Ltd v ACE European Group and Ors [2012] EWHC 104 (Comm), Eder J has rejected insurers’ arguments that the action of Standard Life Assurance Ltd (‘SLAL’) in putting money into an investment fund (the value of which had fallen sharply after the collapse of Lehman Brothers) so as to head off claims by investors was not recoverable under the ‘Mitigation Costs’ clause of its professional indemnity insurance policy because the payment was also made to avoid damage to the SLAL brand. The case is discussed by Jeremy Stuart-Smith QC and Clare Dixon of 4 New Square.

Standard Life Assurance Ltd: the facts

Standard Life Assurance Ltd operated a fund called the Standard Life Pension Sterling Fund (‘the Fund’). The Fund was marketed to customers and IFAs as a temporary home for short-term funds with deposits being held in low-risk investments equivalent to putting money on deposit. In fact, by 2007 the Fund’s assets included a substantial proportion of asset backed securities (‘ABS’). When the credit crunch bit, trading in ABSs fell which meant that the pricing information available to SLAL became stale because it was based on fewer and fewer trades in the market. Consequently, valuing the Fund became increasingly difficult.