Spire v RSA: an ‘aggregate win’ for RSA

In Spire Healthcare Ltd v Royal & Sun Alliance Insurance plc [11.01.22], the Court of Appeal overturned a decision not to aggregate two sets of medical negligence claims.

The court concluded that the first instance Judge incorrectly focussed on differences between the two and should, instead, have searched for a factor which unified them. This finding will be of considerable interest to insurers.

Facts

Spire Healthcare Limited (Spire) operates a number of private hospitals. Royal & Sun Alliance Insurance Ltd (RSA), provided Spire with a liability insurance policy which was the subject of an ‘each and every claim’ limit of indemnity of £10m and an aggregate limit of £20m.

The policy contained the following aggregation wording:

“The total amount payable by [RSA] 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 this Policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity stated in the Schedule…”

The claims arose from the misconduct of Mr Paterson, a consultant breast surgeon who carried out surgical procedures at two of Spire’s private hospitals over a period of 14 years. The impugned procedures gave rise to two categories of claim:

  • The performance of surgery which he described as “cleavage sparing mastectomies”, which were an unrecognised form of sub-total mastectomy, on patients who required a ‘full’ mastectomy (a ‘full’ mastectomy removes all breast tissue to eliminate or reduce the risk of a reoccurrence of cancer). This process, which left breast tissue in situ, was negligent (the PM Claims).
  • The carrying out of surgery on patients after falsely representing to them that they had a cancerous or pre-cancerous condition, when this was not the case. Further, advising them that they required surgery (when they did not). Mr Paterson’s motivation in this conduct appears to have been financial gain (the FR Claims).

Not surprisingly this resulted in litigation which was settled by Spire, who sought an indemnity from RSA. RSA argued that all the claims were attributable to one source or original cause and, therefore, aggregated with a limit of £10m. Proceedings followed between Spire and RSA in which Mr Paterson’s conduct was accepted by both as being negligent and dishonest.

First instance decision

HHJ Pelling found that there were clear differences between the two groups of cases. In the PM Claims, the surgery exposed patients to the risk of recurrence of breast cancer and there was no evidence of any financial gain to Mr Paterson. In the FR Claims, the surgery was carried out largely for financial gain (although it did not increase the patients’ risk of cancer). Mr Paterson’s motivation in relation to the two sets of claims was, therefore, found to be different and the dishonesty demonstrated was of a different character. The judge also held that Spire’s management failings (which were part of the case and which facilitated the two strands of conduct) were, likewise, different in nature.

The Judge further found that the two groups of claims were consequent on or attributable to two distinct sources or original causes. He rejected RSA’s argument that the claims should aggregate on the basis of “Mr Paterson and his conduct” because he operated under two separate mis-appreciations or motivations, each resulting in multiple claims, such that there were distinct originating causes.

Court of Appeal decision

Overturning the first instance decision, the Court of Appeal noted that the aggregation wording - “consequent on or attributable to one source or original cause” - was very widely drawn. When addressing previous cases of relevance, it reminded itself that:

  • Such clauses are to be construed in a balanced fashion without a predisposition towards a narrow or broad interpretation.
  • There is no distinction between aggregation wordings referring to an “originating cause” and those which refer to an “original cause”.
  • Neither is there a distinction between the terms “cause” and “source”.
  • “Original cause”, in context of the Policy’s aggregation wording, did not mean “proximate cause” and permitted a considerably looser causal connection.
  • The “original cause” need not be the sole cause of Spire’s liability. However, it was still necessary for there to be some causal link between the originating cause and the loss.
  • When identifying the relevant unifying factor, one must not, though, consider remote or coincidental causes, which provide no meaningful explanation for what has happened.

Adopting these principles, the Court of Appeal held that all the claims within both sets were consequent on or attributable to one source or original cause; namely, Mr Paterson, his dishonesty, his practice of operating on patients without their informed consent and his disregard for his patients’ welfare.

In support of its conclusion, the Court of Appeal gave an example of an orthopaedic surgeon who negligently fails to diagnose an incomplete fracture in Patient A, then negligently performs an operation on Patient B, and finally gives the wrong aftercare instructions to the physiotherapist in respect of Patient C. In all three cases the reason why the operator of the private hospital would be liable to those patients is because it engaged (or failed to take adequate steps to supervise or manage) an incompetent orthopaedic surgeon, notwithstanding that their incompetence manifested itself in different ways.

HHJ Pelling, it was held, had failed to conduct the wide search for a unifying factor in the history of the claims that was required. Instead, having noted the factors that were common to all the claims, he then disregarded them, in the course of searching for what he termed a “single effective cause”. This was not, the Court of Appeal said, the correct test.

As a result, both sets of claims aggregated and Spire was entitled to only a single £10m limit of indemnity.

Comment

Whilst it does not make new law, the Court of Appeal’s decision gives a welcome re-statement of the correct approach to the application of aggregation clauses in insurance contracts and discourages the introduction of unnecessary complication to the exercise. It provides further clarity on the appropriate approach to the interpretation and operation of ‘originating cause’ aggregation wordings.

No general rule concerning claims arising from one individual’s conduct was established by this case. However, applying the Court of Appeal approach is likely to lead to a similar outcome in cases involving the conduct of a specific individual when the aggregation clause provides for an ‘originating cause’.

The decision emphasises the importance of the aggregation wording chosen. Had this aggregation provision been the subject of the Court of Appeal’s deliberations in Baines v Dixon Coles & Gill [2021], it is far more likely that the appellant insurer would have succeeded in aggregating all of the claims arising from Ms Gill’s thefts – on the basis that her dishonestly was the ‘originating cause’ of the subsequent claims against the firm. However, the insurer was constrained by the operation of the SRA Minimum Terms, which contains narrower aggregation provisions.

Where not bound by an approved wording (such as the SRA Minimum Terms), insurers would be well advised to consider carefully the types and values of multiple claims which might be made against their insured to see what type of aggregation might best serve them. While negotiating different wordings with each insured is perhaps unrealistic, the exercise is certainly worthy of consideration across the range of individual professions in respect of which they offer cover.

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