Spire Healthcare Ltd v Royal & Sun Alliance Insurance Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Andrews,Lord Justice Underhill,Lord Justice Bean |
| Judgment Date | 11 January 2022 |
| Neutral Citation | [2022] EWCA Civ 17 |
| Docket Number | Case No: A4/2021/0133 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 17
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
COMMERCIAL COURT
His Honour Judge Pelling QC
(sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Underhill
Vice-President of the Court of Appeal (Civil Division)
Lord Justice Bean
and
Lady Justice Andrews
Case No: A4/2021/0133
Ben Elkington QC and Ben Smiley (instructed by DWF Law LLP) for the Appellant
Daniel Shapiro QC and David Myhill (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Respondent
Hearing date: 9 December 2021
Approved Judgment This judgment was handed down remotely at 10.30 on 14 th January 2022 by circulation to the parties or their representatives by email and by release to BAILII and the National Archives
INTRODUCTION
This appeal concerns the interpretation and application of an aggregation clause in a combined liability insurance policy, number YMM830842 (“the Policy”), underwritten by the Appellant, Royal & Sun Alliance Insurance Ltd (“the Insurers”), in favour of the Respondent insured, Spire Healthcare Ltd (“Spire”). The Policy was subject to an aggregate overall limit of £20 million.
Spire belongs to a substantial group, and is responsible for the operation of a number of private hospitals. Section 4 of the Policy provided cover in respect of Spire's legal liability for accidental injuries arising out of medical negligence at those hospitals. Clause 5(a) of that section (“the aggregation clause”) provides that:
“The total amount payable by [the Insurer] in respect of all damages costs and expenses arising out of all claims during any Period of Insurance consequent on or attributable to one source or original cause irrespective of the number of Persons Entitled to Indemnity having a claim under the Policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity stated in the Schedule.” (Emphasis supplied).
The Limit of Indemnity stated in the Schedule was £10 million.
The underlying claims for personal injuries which gave rise to Spire's claim for an indemnity under the Policy arose out of the serial misconduct over many years of a Mr Ian Paterson, a consultant breast surgeon employed by the Heart of England NHS Foundation Trust (“HEFT”). Mr Paterson carried out surgical procedures at two private hospitals near Birmingham operated by Spire. In 2011 he was suspended from practice by the General Medical Council (“GMC”).
It transpired that over a period of around 14 years, Mr Paterson had performed operations on patients, the vast majority of whom were female, without their informed consent. His conduct was both negligent (i.e. a breach of the duty of care he owed to his patients) and dishonest. That conduct is described in greater detail in the judgment of HH Judge Pelling QC (“the Judge”) [2020] EWHC 1299 (Comm), but for present purposes the following summary will suffice.
In patients where a mastectomy was clinically indicated, Mr Paterson failed to remove all breast tissue, thereby exposing the patient to an unnecessary risk of recurrence and/or metastasis. This practice was referred to as performing “sub-total mastectomies” or “STMs,” and the Judge found that the reason for it was never adequately explained. Officials at HEFT first found out about this practice in 2007. They sought and received an assurance from Mr Paterson that he would stop performing STMs. However, by 2011 it became apparent that he had not done so, and it was this discovery that led to his suspension by the GMC. The patients who underwent STMs are referred to as “Group 1” patients. They were both NHS and private patients.
After his suspension, it was discovered that Mr Paterson had also falsely reported pathology test results as indicative of the presence (or risk of the presence) of cancer, and then carried out unnecessary surgical procedures on the patients concerned, including mastectomies. The motivation behind this behaviour appears to have been financial gain, as he collected fees from the patients or their insurers for carrying out the procedures and follow-up consultations. Most of the affected individuals were private patients. They are referred to as “Group 2” patients. There are some unfortunate examples of patients falling into both groups, but by and large Groups 1 and 2 had different constituents.
Around 750 former patients of Mr Paterson made claims against Mr Paterson, Spire and HEFT. Master Particulars of Claim, addressing 7 lead cases in the ensuing group litigation, were served on 4 December 2015.
In April 2017, in Nottingham Crown Court, Mr Paterson was convicted of 17 offences under section 18 of the Offences Against the Person Act 1861, and 3 counts under section 20 of that Act, though those offences only related to a small sample of the patients affected by his malpractice (9 women and one man). He is currently serving a sentence of 20 years' imprisonment.
The group litigation was settled in October 2017, six months after Mr Paterson's conviction, by the setting up of a substantial compensation fund for the victims. Spire contributed around £27 million to the fund. Its overall outlay (including on its own defence costs) was a little over £37 million. On any view, therefore, the aggregate Policy limit of £20 million was exceeded.
The evidence at trial established that Spire's outlay in respect of Group 2 claims alone exceeded £10 million.
The Insurers accept that they are liable to indemnify Spire under Section 4 of the Policy; the sole issue on appeal is whether that liability is capped at £10 million, as the Insurers contend, or £20 million, as the Judge held.
For the reasons that follow, I consider that the Judge fell into error. On the correct application of the aggregation clause, the claims all arose out of the same source or original cause, namely, Mr Paterson's conduct in disregarding the welfare of his patients and performing operations on them without their informed consent. It is immaterial that for the Group 1 patients a mastectomy was clinically indicated, whereas for the Group 2 patients it was not.
SPIRE'S RIGHT TO AN INDEMNITY UNDER THE POLICY
Section 4 of the Policy provides that the Insurers will indemnify “any Person Entitled to an Indemnity” against their legal liability for damages in respect of accidental injury of any person arising out of Medical Negligence, where the claims are made against them and notified to the Insurers in the prescribed manner during, or within 30 days after the relevant period of insurance. There is no issue about timely notification in this case.
Although at an earlier stage of the litigation there was a dispute about this, it was common ground before us that the phrase “accidental injury of any person arising out of Medical Negligence” must be judged from the perspective of Spire, as the assured, and so it would not affect cover if the injuries were inflicted deliberately by Mr Paterson: see Hawley v Luminar Leisure [2006] EWCA Civ 18, [2006] Lloyd's Rep IR 307.
“Medical Negligence” is defined in the general definition section of the Policy as an “actual or alleged negligent act, negligent error or negligent omission committed by any Person Entitled to an Indemnity which arises from the conduct of the Insured's Business as defined in the Schedule.” (Emphasis added). “Person Entitled to an Indemnity” is defined as including, so far as is relevant, the Insured and any “Person Employed” by the Insured. That expression is in turn defined as meaning an employee or a “self-employed individual (not being in partnership with the Insured) while under the direct control or supervision of the Insured.”
Mr Paterson was an independent contractor, who contracted directly with his private patients. He was not under the direct control or supervision of Spire. In any event, even if he had been, a “General Memorandum” at the start of Section 4 makes it plain that the indemnity provided to any person employed by Spire “will not apply to any doctor, surgeon [or] consultant…” Medical professionals are expected to, and usually do, take out their own professional liability insurance. Therefore, in order to make good the claim against the Insurers under the Policy, Spire had to demonstrate that it was legally liable for damages in respect of accidental injury to patients operated on at the two hospitals concerned, arising out of its own negligence, or the negligence of persons other than Mr Paterson falling within the definition of “Persons Employed”.
Spire asserted in Para 67 of its Particulars of Claim in the proceedings against the Insurers that it was liable to the patients on 4 separate bases, namely:
i) It was liable for the acts and omissions of a named employee who facilitated Mr Paterson's course of conduct and who failed to report his behaviour when she should have done;
ii) It was liable for the failure of management at the hospitals to carry out adequate investigations into Mr Paterson's conduct and take appropriate action;
iii) It was liable for breach of an implied term that the services the patients would receive at the hospitals would be carried out with reasonable skill and care; and
iv) There was a risk that the principles of vicarious liability would be developed in such a way as to make Spire liable for Mr Paterson's conduct despite the fact that he was employed by HEFT.
In the event, it was accepted by the Insurers that they were liable in principle to indemnify Spire on the basis of (i) to (iii), and so the (somewhat ambitious) vicarious liability argument became moot by the time of...
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