Facts
Standard Life claimed from its professional indemnity insurers
in respect of its liability to customers mis-sold mortgage
endowment policies. By the time of the judgment, Standard Life had
paid out over £100 million in compensation to over 97,000
investors. The individual claims, however, were relatively small,
averaging under £10,000.
The policy provided liability cover of £75 million in excess of
£25 million for claims made during the policy period (1998 to
2001). As is fairly typical, it allowed claims arising from "any
one originating cause or source" to be aggregated as one claim
which, in turn, would give rise to one indemnity limit.
Standard Life argued that there was a single originating cause –
a systematic failure on its own part (and generally within the
financial services industry) regarding the sale of mortgage
endowment policies.
The issue at this hearing was the excess. The policy stated that
in respect of each and every claim the insured would bear the
amount stated in the schedule at its own risk. The schedule
described the £25 million excess as applying "each and every claim
and/or claimant". The same "and/or claimant" wording also appeared
on the slip that preceded the policy wording.
Insurers argued that "and/or claimant" meant that a separate
excess of £25 million applied in respect of each one of the 97,000
claimants. Only if an individual claim exceeded £25 million would
the cover respond.
Standard Life sued the insurers. It also sued its brokers for
arranging cover that did not clearly meet its requirements.
Mass retail claims
The judge agreed that, if insurers were right, it was virtually
inconceivable that a claim by a single claimant would ever exceed
the excess. Since Standard Life's principal exposure was to mass
retail claims, the cover would be of very little use.
The insurance market had been alerted to the potential scope of
such claims by the pensions review, which continued until mid-1998.
In response, professional indemnity insurers began routinely to
exclude claims arising from pension transfers and/or opt outs from
occupational pension schemes.
But the judge found no evidence of a common market practice that
imposed a blanket per claimant excess. The soft market conditions
at the time would have made this very difficult to get away
with.
Nevertheless, had insurers wished to limit their liability for
endowment mis-selling, they could easily have included a specific
exclusion, as they did with pensions claims.
Wording
In the judge's view, neither party gave any real attention to
the phrase "and/or claimant" when it first appeared in the schedule
to the insured's 1996 policy, even though it was not a standard or
common wording.
During the 1998 placement, the phrase appeared on the slip
circulated to insurers. In the policy wording subsequently issued,
it appeared again, though relegated to the schedule.
Although it is generally assumed that, where a slip is followed
by a policy wording, the parties intend the policy to supersede the
slip, the slip can still form part of the surrounding circumstances
against which the policy wording is construed. In this case,
insurers subscribing to this risk would have had the slip, not the
policy wording, in front of them when they made their decision.
The judge also had to take account of the actual words used. The
"and/or claimant" wording had no recognised market meaning. The
only plausible purpose for it was to achieve a per claimant
excess.
He concluded that the policy did not allow related claims by
separate claimants to be aggregated. The excess applied per
claimant.
The claim against the brokers
Whatever his conclusion on the application of the excess, the
judge would have found the broker negligent in placing the cover on
these terms.
A broker has a duty to obtain insurance cover that clearly meets
his client's requirements. Coverage is clear if it leaves no
room for "significant debate".
The judge found that a reasonably competent broker would have
concluded that the words "each and every claim and/or claimant"
were insufficiently clear to avoid exposing the insured to an
unnecessary risk that insurers might argue the excess applied on a
per claimant basis.
The broker would also have appreciated how important it was in
this type of policy to be able to aggregate similar claims from
different claimants together for the purposes of the excess. There
would have been no difficulty finding equivalent cover where the
excess applied per claim.
Comment
The case shows how dangerous the copy and paste school of
drafting can be. The phrase – which it appears no-one really
understood – was first introduced in the schedule to the insured's
1996 PI policy and was simply reproduced on renewal.
The judgment is also a reminder of the broker's duty when
obtaining insurance cover to avoid exposing the insured to an
unnecessary risk of litigation. The judge saw this as a clear-cut
case of unclear wording giving rise to significant debate so did
not need to explore the limits of this duty.
