Man writing

It is common in product liability claims for multiple incidents and claims to arise from a common product defect. For example, a design defect in a fleet of vehicles might result in multiple RTAs. Or a single faulty batch of a product may be distributed widely resulting in a series of distinct claims by multiple customers. In these circumstances, insurers may need to consider aggregation clauses. These clauses are intended to bundle claims together as a single loss for the purposes of the policy, in circumstances where the claims or occurrences are attributable to one source or original cause. Depending on the policy wording, such clauses may influence whether a deductible can be applied to each claim and/or whether the limit of indemnity has been exceeded.

In the recent case of Spire Healthcare Ltd v Royal & Sun Alliance Insurance Ltd [2022] EWCA Civ 17 the Court of Appeal (allowing an appeal by RSA) provided useful guidance on interpreting aggregation clauses when multiple claims are made against an insured.

The facts

Over a period of around 14 years, a consultant breast surgeon, Ian Paterson, carried out surgical procedures out of hospitals operated by Spire without his patients’ informed consent. As a result, Mr Paterson was suspended from practice in 2011 and convicted of various offences in 2017 (and sentenced to 20 years in prison).

Around 750 of Mr Paterson’s former patients made claims against various defendants, including Spire; and ultimately Spire agreed to contribute around £27million to a compensation fund. Its outlay (including defence costs) was over £37million.

Spire’s policy with RSA had a limit of indemnity of £10million but Spire contended that it was entitled to up to £20million because the patients had been separated into 2 groups:

  1. Those who underwent sub-total mastectomies without adequate explanation (“Group 1”); and
  2. Those who underwent other unnecessary surgical procedures (“Group 2”).

At first instance, the judge agreed; and RSA appealed the judge’s decision.

The appeal and the correct approach to the construction of aggregation clauses

In a concise judgment, the Court of Appeal summarised the correct approach to the construction of aggregation clauses. It said that clauses which refer to an “originating” or “original” cause are less restrictive than an ‘event’ (which happens at a particular place and time) and can be a continuing state of affairs. When considering whether a series of claims has an “original” cause, there should be a wide search for a unifying factor. The “original” cause need not be the sole cause of the insured’s liability, but there must be some causative link and there is of course a limit to the degree of remoteness.

In the present claim, the Court of Appeal found that the claims in both Group 1 and Group 2 aggregated with one another (so that the £10million limit of indemnity applied to both groups together) on the basis of the following:

  1. All of the claims (whether in Group 1 or Group 2) were based on Mr Paterson’s improper and dishonest conduct in operating on patients without their informed consent;
  2. Whilst there was a distinction between Mr Paterson’s conduct regarding the different groups, the liability of Spire, as operator of the hospital, remained the same for both.

Aggregation clauses in product liability

Whilst the Court of Appeal’s judgment was concerned with identifying the original cause of a series of claims arising out of the conduct of an individual, the decision has potentially broader application, including where, e.g., multiple incidents or claims arise from a common product defect. In these circumstances, the Court of Appeal have made clear that there should be a wide search for the “originating” or “original” cause which need not be the sole cause provided there is some causative link. The exercise should be relatively simple and straightforward, and not needlessly complicated.

If a common product defect results in multiple incidents, the judgment in Spire suggests the court will be more inclined to aggregate the claims (subject to the policy wording) – which at one end of the scale could favour the insured (because the deductible will only be applied once) but at the other end of the scale could favour the insurer (since the limit of indemnity will apply to all claims in total).

It is also worth noting that aggregation clauses may play a more prominent role so far as vehicle supplier/manufacturer product liability cover is concerned going forward, as Level 3+ autonomous vehicles come into use with the potential for multiple incidents over an extended period of time being linked back to a common software defect. For such cases, the aggregation clause found in the relevant policy will need to be considered carefully, but nevertheless such guidance from the Court of Appeal is welcome.

For more information about this case and its implications or to discuss any issues relating to product liability, please contact Daniel West.

Product Liability