Standard Life Assurance Ltd v Ace European Group  EWHC 104
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 2009, Standard Life took the decision
to switch to a different source of prices. This led to a one-day
fall of 4.8 per cent in value of units in the fund. Following
complaints by customers, Standard Life concluded that some 64 per
cent (by value) of customers (worth £124 million) would have
mis-selling claims. Standard Life decided that it would restore the
4.8 per cent fall and then invite claims, and it paid those sums
into the fund.
Standard Life sought to recover the payments from its liability
insurers. The policy was for £100 million and covered
Mitigation Costs 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". There was a deductible
of £10 million in respect of a single claim, defined as
"All claims or series of claims (whether by one or more than
one claimant) arising from or in connection with or attributable to
any one act, error, omission or originating cause or source, or the
dishonesty of any one person or group of persons acting
together". The assured claimed that its payment constituted
Mitigation Costs. Eder J gave judgment for Standard Life.
The payments were a "cost" and/or a "payment of
loss". The Clause did not import the concept of
"purpose" but was concerned only with whether the
intended effect or result was to reduce the number of claims. It
would suffice that the payment was reasonably and necessarily
incurred in taking action to avoid or to reduce one or more third
party claims otherwise covered by the policy.
On the evidence, the payments were made in order to avoid or to
reduce third party claims of a type which would have been covered
under the Policy within the meaning of "Mitigation
The sum recoverable was not to be apportioned by the
consideration that Standard Life may have had the mixed motive of
reducing claims (insured) and protecting its own reputation
(uninsured). The argument for apportionment was novel outside the
field of marine insurance and, in particular, in the context of
liability insurance, and was largely derived from the principle of
average which applied to under-insurance
All of the actual and potential claims could be aggregated so
that Standard Life had to bear only one deductible. All of the
claims that Standard Life faced arose out of the (actual or
alleged) misrepresentation of the nature and risk profile of the
fund and that was a "unifying factor" justifying
aggregation. Clause 2 was very widely worded and it was difficult
to envisage a more widely drawn form of aggregation clause. The
phrase "in connection with" was extremely broad and
indicated that it was not even necessary to show a direct causal
relationship between the claims and the state of affairs identified
as their "originating cause or source", and that some
form of connection between the claims and the unifying factor was
all that was required.
The liability insurers have been given leave to appeal. However,
the case is unlikely to be heard until autumn.
Financial institutions in Australia are regularly faced with a
similar dilemma – where they become aware of
circumstances and a claim has not materialised so the Insuring
Clause is not yet triggered. Given the role of regulators in
Australia and the breach reporting legislation, having to settle
matters without actual complaints or claims by customers is more
than a choice for many insureds subject to regulatory
The broad interpretation of the Mitigation Costs Clause in this
case would give the financial institutions some comfort should a
similar clause be found in the policy. Justice Eder in giving the
clause a broad construction favoured the insured, however, each
case will of course turn on the particular clause in question and
the relevant facts. We await the outcome of the appeal.
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Whereas most insurance policies exclude liability arising under contract, insurers can
positively benefit where an insured has limited or excluded its liability under contract.
This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.