Abstract

For the purpose of aggregation of claims, subject to the terms of the policy, the claims undeer a class action are discrete and are not to be aggregated.

Article

The issue in Bank of Queensland Ltd v AIG Australia Ltd  [2018] NSWSC 1689 was the amount of self-insured retention for which the insured bank was responsible as the result of an aggregation clause in the policy.

 

Under the insuring clause the insurer promised to indemnify the insured for all loss and defence costs resulting from any claim for any wrongful act. Claim was defined to mean, inter alia, any suit or proceeding, including any civil proceeding, third party proceeding counter-claim or arbitration proceeding, brought by any person against the insured. A wrongful act was defined to mean any act or error or breach of duty or omission or conduct committed by the Insured or by or on behalf of another person for which the Insured is legally liable in the provision of or failure to provide professional services.

A self-insured retention clause provided that the Insurer should be liable only for the amount of loss and defence costs arising from a claim which were in excess of the greater of the retention specified in the schedule, which was to be be borne by the insured and remain uninsured with regard to all loss and defence costs for which it should be liable. It applied if multiple claims were made against the insured. It was introduced with words of causation - “Claims arising out of, based upon or attributable to one or a series of related Wrongful Acts.” The item specified for “Retention” in the policy schedule was $2,000,000 each and every Claim.

The aggregation clause provided that all claims arising out of, based upon or attributable to one or a series of related wrongful acts should be considered to be a single claim. Conversely, by way of disaggregation, it also provided that where a claim involved more than one unrelated wrongful act, each should constitute a separate claim. Consequently, it consisted of both an aggregation and a disaggregation clause: SMA Solar Technology AG v Beyond Building Systems Pty Ltd (No 5) [2012] FCA 1483 at [79]). The provision for disaggregation seems unnecessary, since if its premises are met the aggregation provision could not apply, As there would be no ground for aggregation, each claim would be treated separately for both cover and self-insured retention, even in the absence of the disaggregation clause.

The class claim arose out of loss suffered by contributors to a financial scheme as the result of a fund manager’s fraudulent manipulation of funds held by the insured bank under the scheme. That action was settled by, inter alia, payment of $6m by the bank, as to which which it sought indemnity in this action. The issue then arose as to the amount of the self-insured retention, which depended upon the terms of the aggregation clause.

The claim against the bank alleged that it was an express term of the contract between it and contributors to the scheme that the Bank was not permitted to act on instructions from an account holder or from an Authorised Signatory received by email. In reliance on the matters set forth in the Product Disclosure Statements, it was also alleged that it was a term of the contract that the Bank was required to question and not to act on a valid or purportedly valid withdrawal instruction in circumstances which raised a serious or real possibility of fraud in respect of the scheme.

The purpose of aggregation is to enable separate covered losses to be treated as a single loss for various purposes when they are linked by a unifying factor of some kind: Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2001] 1 All ER (Comm) 13; Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43; [2003] UKHL 48 at [15]. It is necessary to consider the words used in the particular aggregation clause in order to determine its level: Ritchie v Woodward (Executor of the Estate of the late Brian Patrick Woodward) [2016] NSWSC 1715.

In this case, the unifying factor for aggregation was a wrongful act rather than, for example, loss or a source or cause of loss, and the number of claims made requires consideration of, in substance, the definition of “claim” for the purpose of the policy.

The issue turned on whether the group members of the class action brought the representative proceedings, and whether it constituted multiple claims in the form of the sum of their collected claims. There was only one suit, brought by the representative applicant on its own behalf and that of the group members, whom it represented, and though a group member is not a party, his claim is treated as having been made and brought on his behalf by the representative applicant when the proceedings were commenced: Wileypark Pty Ltd v AMP Ltd [2018] FCAFC 143.

It is of the nature of class actions that unnamed represented parties as well as the named represented party bring the claims made in them. There are multiple claims before the court. The character of each is not changed by the form of the proceedings, which are designed simply to facilitate an efficient and cost-effective way to resolve multiple individual claims. So, if one limb of the definition of claim refers to civil proceedings which are brought by a third party for recovery of compensation or damages, and if in a representative proceeding a person sues on behalf of another, even one who is not named, that other has brought proceedings: Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970. This reasoning applies to time limitation issues also: Cameron v National Mutual Life Association of Australasia Ltd (No 2) [1992] 1 Qd R 133.

This does not mean that the suit constituted by the representative proceedings constituted more than one claim for the purposes of the definition of that term. It meant any suit brought by any person, which may include a suit brought by more than one person. The definition of claim did not refer to the number of claims made in the suit but to to the suit or proceeding.

Each class member registration form completed by group members constituted a separate claim under that definition. Although it did not expressly assert an intention to hold the Bank responsible for the results of a wrongful act, it was a step in the representative proceedings for the purposes of participating in any settlement of them. Each was described as the claimant and the form contained other derivatives of ‘claim’ and details of the particular claim.

That aside, even if there were but one claim, the operation of the disaggregation clause was to constitute the representative proceedings multiple separate claims because of the nature of and relationship between, the wrongful acts. It was the bank’s breach of its duty in respect of each fraudulent withdrawal by the fund manager that was alleged in the claim to be a wrongful act, and the Bank’s continued breach each constituted several of them.

For events to be in a series within the meaning of the aggregation clause, they must in a sufficient degree be similar in nature: Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd [1974] HCA 3; (1974) 130 CLR 1 at 21. They must have more than contiguity of time or place and must share an integral relationship: Attorney General v Cohen [1937] 1 KB 478; [1973] 1 All ER 27 at 490. They must be in temporal succession and be one of a kind or have some characteristics in common: Ritchie v Woodward (supra). And they must be a series of related wrongful acts which together resulted in all the relevant claims: Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2001] 1 All ER (Comm) 13. The unifying factor or common cause must be no more remote than an act or omission that actually constituted the cause of action: D K Derrington and R S Ashton, The Law of Liability Insurance (3rd ed, 2013 8.486 – 8.488.

As is always the case, the words of the policy control the result. In AIG Europe Ltd v Woodman [2017] UKSC 18; (2017) Lloyd’s Rep IR 209, the passage under construction referred to similar acts or omissions in a series of related matters or transactions.  ‘Related’ there did not have the same connotation as in Lloyds TSB General Insurance Holdings. It was said that there must be some interconnection between the factors: they must in some way fit together.

In Bank of Queensland Ltd v AIG Australia Ltd, each of the bank’s negligent acts which enabled the fund manager to withdraw funds fraudulently was found to be outside the aggregation clause. To some extent, each was similar in nature and had some characteristics in common. But each was a separate act, made on a different occasion, from a different fund, causing loss to different parties and in response to different and separate purported instructions.

Some withdrawals were related because they were interconnected, and they fitted together because they were implemented from the same email instruction and had some commonality in time and method. But not all of them shared such a logical or causal relationship. They also shared a common factor in that they occurred within the broader fraudulent scheme perpetuated by th fund manager, but this was a factor more remote than the wrongful act required by the aggregation clause. The overarching fraudulent practice was not at the level at which the unifying factor is to be determined.

In the result, the several distinct claims each attracted a self-insured retention to the extent that there was no surplus which supported any indemnity under the policy.