Standard Life Assurance Ltd v Ace European Group and Others

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
JudgeMr Justice Eder
Judgment Date01 February 2012
Neutral Citation[2012] EWHC 104 (Comm)
Docket NumberCase No: 2010 FOLIO 421
Date01 February 2012

[2012] EWHC 104 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Eder

Case No: 2010 FOLIO 421

Between:
Standard Life Assurance Limited
Claimant
and
(1) Ace European Group
(2) Liberty Mutual Insurance Europe Limited trading as Liberty International Underwriters
(3) Catlin Insurance Company (UK) Limited
(4) Chartis Insurance UK Limited (formerly Aig UK Limited)
(5) Timothy Joseph Carroll, on his own behalf and on behalf of the underwriting members of syndicate 4444 for the 2008 year of account
(6) John David Neal, on his own behalf and on behalf of the underwriting members of syndicate 1886 for the 2008 year of account
(7) Aspen Insurance UK Limited
(8) Axis Speciality Europe Limited trading as Axis Specialty London
(9) Houston Casualty Company Europe Seguros Y Reaseguros, S.A.
(10) Philip Thomas Foley, on his own behalf and on behalf of the underwriting members of syndicate 1218 for the 2008 year of account
(11) Arch Insurance Company (Europe) Limited
Defendants

George Leggatt QC and Simon Salzedo QC (instructed by Addleshaw Goddard) for the Claimant

Alistair Schaff QC, Andrew WalesandJosephine Higgs (instructed by Mayer Brown International LLP) for the Defendants

Hearing dates: 11, 12, 13, 17, 18, 24, October 1, 2 November 2011

Mr Justice Eder

A. Introduction

1

This is an insurance claim by Standard Life Assurance Limited ("SLAL") which is a wholly-owned subsidiary of Standard Life Plc ("SL") and part of the Standard Life group of companies. The claim is brought against the defendants, SLAL's 2008/2009 professional indemnity insurers (the "Insurers"). It arises out of the operation of SLAL's Standard Life Pension Sterling Fund (the "Fund") which had been marketed as a temporary home for short term funds, with some literature referring to it as being invested in "cash" and even as being the equivalent of putting money on deposit. However, by 2007 the Fund's assets included a substantial proportion of asset backed securities ("ABS"). From 2007, as the credit crunch took hold, and especially after the collapse of Lehman Brothers in September 2008, ABS became increasingly illiquid making their valuation more and more subjective. The pricing sources upon which SLAL relied to value the ABS in the Fund became "stale" in the sense that there were no recent trades in particular securities upon which to base up to date prices. At this time, the total value of the Fund was in excess of £2 billion.

2

With effect from 14 January 2009, SLAL took the decision to switch to a different source of prices. The result was a one-off one-day fall in value of units in the Fund of around 4.8%. This generated a mass of complaints and claims from customers and independent financial advisers ("IFAs") and severe pressure from the Financial Services Authority ("FSA") and the media. It is important to note that although the one-day fall on 14 January 2009 was about 4.8% of the value of the Fund (equivalent to approximately £100 million), the overall fall over the entire period of the Fund was about 9.8% of the value of the Fund (equivalent to about £190m).

3

Between 14 January 2009 and 10 February 2009, SLAL intensively considered how best to respond to the issues raised both by customers and by the FSA. SLAL's research indicated that some 65% — subsequently reduced to 64% — (by value) of customers would have valid claims for compensation for such overall fall (essentially for "mis-selling" based on the literature – identified and referred to as B/C literature — produced by SLAL which misdescribed the Fund) equivalent to some £124m although importantly this assumed what was referred to as a "claim rate" or a "response rate" of 100% ie that 100% of such customers would in fact make a claim. (The figure of £124m is slightly confusing. It was originally arrived at by taking an estimated figure of 65% (not 64%) of £190m = £123.5m and rounding it up to £124m. Nevertheless, for present purposes and notwithstanding possible objections from mathematical purists, it was, as I understood, common ground that the figure of £124m was, in effect, to be treated as being based on the 64% figure. In this judgment, unless otherwise stated, I proceed on that basis.)

4

Specifically, during this period, SLAL was considering two main options viz either set up a complaints process and invite claims ("Option 1") or restore the one-day 4.8% fall in the Fund and again set up a complaints process and invite claims ("Option 2"). Importantly, it was recognised at the time at least by some individuals that Option 2 would, in effect, provide a "windfall" to those customers (ie the remaining 36% by value) who were thought not to have any valid claim ie of the sum of approximately £100m which would be injected under Option 2, some £36m would be paid into the Fund for the benefit of customers who were thought (at least by some) not to have any valid claim. In the event, SLAL decided to adopt Option 2. The reasons for so doing lie at the heart of this dispute.

5

Pursuant to that decision on 11 February 2009, SLAL announced that it would pay into the Fund and to customers who had left the Fund since the price reduction sufficient money to compensate customers in full for the 4.8% price fall. The amount paid into the Fund on 11 February 2009 was £81,999,935 and the amount paid to customers in respect of units sold between 14 January and 11 February 2009 was £19,862,113 making a total of £101,862,048 (the "Cash Injection"). Further payments have been made to customers who have pursued complaints for losses exceeding the 4.8% fall which totalled £4,785,256.89 as at 3 October 2011. I shall refer to all these payments, including the Cash Injection as the "Remediation Payments". SLAL now seeks to recover these Remediation Payments in whole or in part from the defendants, less its deductible and for such further payments as may be made arising from these events.

6

There is no dispute as to the validity of the policy but only as to coverage. In summary, SLAL says that all or some of these Remediation Payments in excess of the deductible are covered under Section 1 of the Policy as "Mitigation Costs". This is denied by the Insurers. In addition, the Insurers say that any claim is in any event excluded by Clause 18(iii) or otherwise falls within the deductible.

B. The Policy

7

"The Policy" consists of (i) a primary policy covering up to £25 million ("any one claim and in the aggregate, including costs and expenses") above a self insured deductible of £10 million ("each and every claim/loss including costs and expenses") and (ii) 3 excess policies for a total of a further £75 million. The excess policies adopt the wording of the primary policy. The Policy covers SL and all its subsidiaries (together, or where specificity is not required, "Standard Life") including SLAL.

8

The Policy contains a Schedule and three main sections. Section 1 is entitled "Professional Indemnity". The opening words state: "The indemnity provided by this Section of the Policy applies to the Assured's legal liability to third parties, all as more fully provided for herein." The Insuring Clause of Section 1 of the Policy states:

"This Policy provides an indemnity to the Assured in respect of the Assured's Civil Liability for any third party claims made against an Assured during the Policy Period, provided such claims arise out of the provision of (or failure to provide) Financial Services by the Assured …

This Policy shall also indemnify the Assured for Mitigation Costs."

The term " 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."

At the commencement of the trial, SLAL relied upon subparagraph (c). In particular, SLAL contended originally that the Remediation Payments were "compensatory damages" made pursuant to a "recommendation" of the FSA within the meaning of sub-paragraph (c) and recoverable on that basis. However, SLAL abandoned that part of its case after the close of the oral evidence and before closing submissions. In the event, SLAL advances its case simply on the basis that all or some of the Remediation Payments constituted "Mitigation Costs" which are defined in Clause 9 as follows:

"…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)."

Condition 6 of the Policy in effect required SLAL to seek the Insurers' consent to any proposed payments. It provides in material part as follows:

"The Assured must seek the consent of the Underwriters as soon as practicable if any proposed payment of Mitigation Costs exceeds the Deductible...

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4 cases
  • Ace European Group and Others v Standard Life Assurance Ltd
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 18 December 2012
    ...COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION, COMMERCIAL COURT Mr Justice Eder [2012] EWHC 104 (Comm) Royal Courts of Justice Strand, London, WC2A 2LL Lord Justice Longmore Lord Justice Rimer and Lord Justice Tomlinson Case No: A3/2012/042......
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    ...was of an oil rig whose leg was broken by a wave during transportation. Again in ACE European Group v Standard Life Assurance Ltd [2012] EWHC 104 (Comm) and [2012] EWCA Civ 1713, which referred to The Miss Jay Jay by way of analogy, there was a single set of mitigation costs which the cou......
  • Spire Healthcare Ltd v Royal & Sun Alliance Insurance Ltd
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    • Court of Appeal (Civil Division)
    • 11 January 2022
    ...hand and “original cause” on the other. That is not so; as Eder J pointed out in Standard Life Assurance Ltd v ACE European Group [2012] Lloyd's Rep IR 655, at [259], the word “source”, when added as an alternative to “original cause” simply serves to emphasise the intention that the doctr......
  • Ace European Group v Standard Life Assurance Ltd
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    • Court of Appeal (Civil Division)
    • 18 December 2012
    ...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 in......
2 firm's commentaries
  • (Re)Insurance End Of Year Review 2012
    • United Kingdom
    • Mondaq United Kingdom
    • 4 January 2013
    ...It remains to be seen whether the decision will be appealed to the Supreme Court. Standard Life v Ace European Group & Ors [2012] EWHC (Comm) 104 and [2012] EWCA Civ 1713 Conditions precedent Fraudulent claim and joint/composite policy/ breach of condition precedent It was undisputed th......
  • FI: UK decision provides guidance for FIs with Mitigation Costs clauses
    • Australia
    • Mondaq Australia
    • 16 June 2012
    ...Life Assurance Ltd v Ace European Group [2012] EWHC 104 (Comm) Decision Standard Life operated a Life Pension Sterling Fund, which included a substantial proportion of asset backed securities. From 2007, asset backed securities became increasingly illiquid and, with effect from 14 January 2......

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