In a short and unanimous judgment on Friday, the Court of Appeal in Spire Healthcare v RSA Insurance (2018) dismissed an appeal concerning the construction of a policy provision in a combined liability insurance policy, construing the provision as an aggregation clause and finding for RSA.
Spire had operated a number of private hospitals where a particular consultant carried out operations. Following allegations of negligence against this consultant by over 700 former patients, Spire paid almost £27 million into a settlement fund. It then sought an indemnity under its combined liability insurance policy taken out with RSA. A dispute arose between the parties as to whether a clause in the policy was an aggregation clause, whether the clause was ambiguous and, accordingly, whether a £10 million or £20 million limit applied to the settlement payment.
The schedule to the policy provided for a £10 million limit of indemnity any one claim and a £20 million limit for all claims during the policy period. The clause in dispute appeared in the general provisions dealing with medical negligence and provided that "The total amount payable by [RSA]...arising out of all claims during any Period of Insurance consequent on or attributable to one source or original cause...shall not exceed the Limit of Indemnity stated in the Schedule".
At first instance, it was held that this was an aggregation clause, so that the claims against the consultant fell to be aggregated and, as linked claims, were subject to the limit of £10 million, rather than £20 million.
In upholding this construction, the Court of Appeal held that the words used in the clause were plainly words of aggregation, with an identified "unifying factor" linking the claims. Although the limit of indemnity was not expressly referred to in the aggregating provision, once it was established that the claims aggregated the court held that, when read with the schedule, a coherent scheme as to the applicable financial limit was provided: a £10 million limit for either a single claim or for several claims linked together by one source or original cause, and a £20 million overall policy limit.
In reaching this decision, the Court of Appeal made several general observations that operate as a useful reminder of the principles on construing a policy term:
- When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, ... (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions." Arnold v. Britton [2015]. Here, the Court said that in approaching the issue of construction, the court assumes that "the reasonable reader of this policy has the characteristic of a sophisticated assured who is assisted by professional advice; and does not confine his or her reading of the policy to the Limits of Indemnity contained in the schedule";
- Greater weight does not have to be given to the policy schedule: the court will consider the combined effect of all the relevant provisions in the policy and will "give effect to all the words of the policy that bear on the issue" (Standard Life Assurance Ltd v Oak Dedicated Ltd & Ors (2008));
- Aggregation clauses may operate in favour of either the insured or the insurer, so the court does not approach construction with a predisposition to either confine or broaden their effect (AIG Europe Ltd v Woodman (2017));
- Where there is no ambiguity, there is no requirement to apply the "contra proferentem" rule (which provides that the construction which is more favourable to the insured should be adopted) as confirmed by the Supreme Court in Impact Funding Solutions Ltd v Barrington Services Ltd (2017).
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