Aggregation, Dishonesty and the “Original Cause”: The Correct Approach
In a nine-page judgment handed down last Friday, Lady Justice Andrews confirmed the Court of Appeal’s unanimous decision to allow RSA’s appeal of the High Court’s decision in Spire Healthcare Ltd v Royal & Sun Alliance Insurance Plc  EWHC 3299 (Comm).
The High Court case arose from the serial misconduct of Mr Ian Paterson, a consultant breast surgeon, who was employed by the Heart of England NHS Foundation Trust (the “Trust”) and carried out surgical procedures at two private hospitals operated by Spire Healthcare Limited (“Spire”). Over a period of 14 years, Mr Paterson performed hundreds of negligent surgeries on both NHS and private patients.
For many of his patients, where a mastectomy was clinically required, he had failed to remove all breast tissue, exposing these patients to an unnecessary risk of recurrence of cancer (the “Group 1” patients). He also carried out surgical procedures, including mastectomies, on many other patients who did not require such procedures (the “Group 2” patients).
Approximately 750 former patients brought claims against Mr Paterson, the Trust, and Spire, and proceedings were served on 4 December 2015. The litigation was settled in October 2017 by the setting up of a substantial compensation fund for the victims. Spire contributed £27 million to this fund and its overall outlay, including its defence costs, was around £37 million.
Spire held a combined liability insurance policy with RSA (the “Policy”). The limit of indemnity stated in the schedule was £10 million, and the Policy was subject to an aggregate limit of indemnity of £20 million.
RSA accepted that it was liable to provide an indemnity to Spire under the Policy, but sought to rely on the aggregation clause in the Policy to cap its liability at £10 million in respect of all claims against Spire on the basis that they all arose from “one source or original cause” - either “Mr Paterson” or “Mr Paterson and his conduct”.
Spire, on the other hand, maintained that it was entitled to an indemnity of £20 million because there were two distinct groups of claims, each of which was attributable to a distinct source or original cause - the claims from the Group 1 patients and the claims from the Group 2 patients.
High Court Decision
The issue for the High Court was, therefore, whether the claims against Spire were attributable to “one source or original cause”.
HH Justice Pelling QC found that a distinction could indeed be drawn between the claims of the Group 1 and Group 2 patients. Although Mr Paterson was a single individual, the motivation behind his conduct towards each group of patients had been different, and so there were two separate and distinct original causes of the claims. As such, the aggregation clause applied within the two groups, but not between them, and Spire was entitled to an indemnity of £20 million under the Policy.
Court of Appeal Decision
However, allowing RSA’s appeal of the High Court’s decision, all three Court of Appeal judges found that all the claims against Spire, irrespective of whether the patients concerned fell within Group 1 or Group 2, were attributable to one source: “any or all of (i) Mr Paterson, (ii) his dishonesty, (iii) his practice of operating on patients without their informed consent, and (iv) his disregard for his patients’ welfare”. As a result, the aggregation clause applied to all claims against Spire and the correct limit of indemnity under the Policy was £10 million.
In reaching her decision, Lady Justice Andrews confirmed that the correct approach to apply when considering aggregation clauses such as this one, which refer to claims or occurrences “consequent on or attributable to one source or original cause”, is to identify the widest possible unifying factor amongst the claims. This does not mean going back so far in the causal chain so as to land upon a remote cause which provides no meaningful explanation for what has happened. One must not strain to identify differences in the claims in order to rule out an obvious and natural unifying factor.
All the claims against Spire were based upon a pattern of deliberate and dishonest behaviour by one individual. The fact that Mr Paterson’s incompetence manifested itself in different ways did not alter the fact that the problem could be traced back to Mr Paterson, who had failed to treat his patients with adequate skill and care.
The Court of Appeal held that the approach adopted by HH Justice Pelling QC had introduced an unnecessary complication into what should have been a relatively simple and straightforward exercise. Instead of looking for a unifying factor, he had sought to identify the differences between the claims of the Group 1 and Group 2 patients, thus embarking upon an unnecessary analysis of Mr Paterson’s motivation for his conduct. Lady Justice Andrews noted that there may be cases where, on the facts, the behaviour of one individual will be too remote or too vague a concept to provide a meaningful explanation for the claims, but this case was not one of them.
The judgment, which can be found here, provides a welcome reinstatement of the principles of aggregation insofar as they apply to language requiring a common “originating cause” or “source”. Of course, here, those principles worked against the policyholder. However, there are many situations where a policyholder will wish to argue precisely the same position advanced by RSA in this case in order to reduce the number of “per claim” excesses applicable to matters involving multiple, related, claims.
This case serves as a helpful reminder to both policyholders and insurers that, when considering such language, a Court will be permitted to identify the widest possible aggregating feature amongst multiple claims so as to aggregate them and, where such a unifying factor genuinely exists, however wide it might be, an over-complicated search for distinction should be avoided.
20 January 2022