Ace European Group v Standard Life Assurance Ltd
| Jurisdiction | England & Wales |
| Judge | Longmore,Rimer,Tomlinson L JJ |
| Judgment Date | 18 December 2012 |
| Date | 18 December 2012 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Longmore, Rimer and Tomlinson L JJ.
Alistair Schaff QC and Andrew Wales QC (instructed by Mayer Brown International LLP) for the appellants.
George Leggatt QC and Simon Salzedo QC (instructed by Addleshaw Goddard LLP) for the respondent.
The following cases were referred to in the judgment:
Capel Cure Myers Capital Management Co Ltd v McCarthy[1995] LRLR 498.
Cunard Steamship Co Ltd v MartenELR[1902] 2 KB 624; [1903] 2 KB 511 (CA).
JJ Lloyd Instruments v Northern Star Insurance Co Ltd (The Miss Jay Jay)UNK[1987] 1 Ll Rep 32.
John Wyeth & Bros Ltd v Cigna Insurance Co of Europe SA[2001] CLC 970.
Joyce v KennardELR(1871) LR 7 QB 78.
Kuwait Airways Corp v Kuwait Insurance CoUNK[1996] 1 Ll Rep 664.
New Zealand Forest Products Ltd v New Zealand Insurance Co LtdWLR[1997] 1 WLR 1237.
Royal Boskalis Westminster NV v Mountain[1997] LRLR 523; [1997] CLC 816; [1999] QB 674 (CA).
Thornton Springer v NEM Insurance Co Ltd[2000] CLC 975.
Insurance Financial services Professional indemnity insurance Mitigation costs Apportionment Primary and excess policies afforded cover of 100m above self-insured deductible of 10m Indemnity in respect of assured's civil liability for any third party claims arising out of provision of financial services Assured also indemnified for mitigation costs incurred to avoid or reduce claims Assured faced multiple claims arising out of selling and operation of fund Assured made cash injection into fund and compensation payments totalling 101m Whether payments within definition of mitigation costs Payments made to avoid or reduce third party claims and also to avoid brand damage Assured entitled to recover full amount of injection without apportionment subject to deductible Apportionment unavailable as matter of construction of insuring clause No apportionment in liability insurance of mitigation costs by reference to respective insured and uninsured interests Concept of averaging or apportionment in marine property insurance not to be extended to liability insurance Marine Insurance Act 1906, s. 78.
This was an appeal by insurers from a decision ofEder JUNK([2012] EWHC 104 (Comm))that the respondent assured (SLAL) was entitled to recover a sum as mitigation costs under primary and excess policies of professional indemnity insurance.
The policies afforded cover in total of 100m above a self-insured deductible of 10m. The indemnity given was in respect of the assured's civil liability for any third party claims made against the assured during the policy period arising out of the provision of or failure to provide financial services by the assured.
The policy also indemnified the assured for mitigation costs which were 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 (notwithstanding any deductible amount).
In 2009 SLAL faced the prospect of multiple claims arising out of the manner in which it had sold and operated one of its funds. A new method of valuing the asset-backed securities in the fund had produced a one-day fall in value of units in the fund of around 4.8%. In order to avoid and to reduce actual and potential claims, and to avoid or reduce further damage to the Standard Life brand, SLAL made a lump sum payment or cash injection into the fund of 81,999,935 and made compensation payments of 19,862,113 to customers who had sold units after the fall in value. SLAL sought to recover those sums from the insurers as mitigation costs.
The judge found that the cash injection and compensation payments were within the definition of mitigation costs as reasonably and necessarily incurred by SLAL in taking action to avoid or reduce third party claims of a type which would have been covered under the policy, even if another intended objective of making the payments was to avoid brand damage.
The insurers argued that there should be an apportionment of the payments between the insured and uninsured interests at risk and sought to be preserved by the payments, and that the amount of the cash injection which should be regarded as properly referable to the avoidance of claims within the policy limit of 100m was 25%.
The judge held that no apportionment was required and that SLAL was entitled to recover the full amount of the payments, subject only to the deductible. The insurers appealed.
Held, dismissing the appeal:
1. The insurers' argument failed as a matter of construction of the policy. Under the policy the insurers undertook to indemnify the assured for mitigation costs. The judge had found that the cash injection satisfied the criteria to come within the definition of mitigation costs in the policy. Any apportionment would involve the insurers failing to honour their promise to indemnify the assured for mitigation costs. The promise was to pay all costs which were mitigation costs, subject to any relevant policy exclusions and limits. The whole payment was incurred for the relevant purpose and it could not be said, consistently with the plain words of the insuring clause, that because the payment also achieved another incidental objective it was in some part irrecoverable as mitigation costs. The argument for apportionment was manifestly unfounded given that the cash injection was one indivisible sum which had to be paid in full in order to restore the value of the fund.
2. The court rejected the argument that apportionment was appropriate because the provision for recovering mitigation costs was analogous to a sue and labour provision traditionally found in marine policies on ship and goods. The approach in the field of marine property insurance derived from the practice of adjusting marine losses of ship or cargo on the assumption that the subject matter assured was fully covered by insurance. That assumption was inapposite and in any event unworkable in the field of liability insurance to which the principle could not therefore be transferred. It was clear from the authorities that the rationale underlying the principle of apportionment had no place in liability insurance, and also that it would in fact be irrational and unprincipled to attempt to introduce it. In liability insurance the assured recovered his loss up to the policy limit. If under a liability insurance the loss if it eventuated would not fall to be apportioned, then neither should there be apportionment of the costs incurred in order to avoid or minimise such liability. The concept of underinsurance made no sense in the context of liability insurance where the extent of the liabilities to be incurred was unknown when the policy was agreed and the liability sought to be avoided would very often if not usually be difficult if not impossible to quantify.
Tomlinson LJ:
1. The appellants, whom I will call the Insurers, were for the policy year 2008/2009 the professional indemnity insurers of the respondents, Standard Life Assurance Limited, to whom I shall refer as either SLAL or the Assured. The policy, or strictly a primary policy and three excess policies, afforded cover in total of 100m above a self-insured deductible of 10m. The indemnity given was in respect of the Assured's civil liability for any third party claims made against the Assured during the policy period arising out of the provision of or failure to provide financial services by the Assured. Both civil liability and financial services are defined terms. Civil liability is defined to mean:
(a) a legally enforceable obligation to a third party for compensatory damages in accordance with an award of a court or tribunal by whose jurisdiction the Assured is bound; or
(b) a legally enforceable obligation to a third party for compensatory damages acknowledged by an agreement made, with the consent of the Underwriters, such consent shall not be unreasonably withheld or delayed, between the Assured and third party in settlement of a claim; or
(c) any compensatory damages pursuant to any award, directive, order, recommendation or similar act of a regulatory authority, self regulatory organisation or ombudsman or following arbitration or other alternative dispute resolution processes whose findings are binding upon the Assured.
Compensatory damages shall include civil compensation or damages, compensatory restitution, any other compensatory payment of money or delivery of property of any kind and any settlement agreed by the Underwriters.
2. The indemnity provided by the insuring clause includes the Assured's defence costs and expenses, claimant costs and (if the Assured is liable therefor) co-defendant costs. The insuring clause also provided:
This Policy shall also indemnify the Assured for Mitigation Costs.
Mitigation Costs is also a defined term. Mitigation Costs are defined as:
Mitigation Costs shall mean 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 (notwithstanding any Deductible amount).
3. In 2009 SLAL faced the prospect of multiple claims arising out of its provision of financial services, namely, the manner in which it had sold and operated its Standard Life Pension Sterling Fund, hereafter the Fund. Between 14 January and 10 February 2009 SLAL faced mounting and damaging criticism of its conduct in this regard. The immediate catalyst for that criticism was that with effect from 14 January 2009 SLAL adopted a new method of valuing the asset backed securities in the Fund, different from that which...
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