Does Your Insurance Policy Do What You Think It Should?

Where the terms of a contract are clear, there is no need to rely on additional rules or practices that could result in a different interpretation. This was confirmed by the Court of Appeal in its most recent decision on contractual interpretation.

Spire Healthcare Limited v Royal & Sun Alliance Insurance Plc involved an appeal to the Court of Appeal on the construction of provisions of a combined liability insurance policy (the Policy) issued by Royal & Sun Alliance (RSA) to Spire Healthcare (SH).

Background

Over 700 former patients of private healthcare operator SH had made claims against it arising out of unnecessary and negligent operations carried out by the disgraced consultant breast surgeon, Mr Ian Paterson. SH agreed to pay almost £27 million into a settlement fund for those patients. A dispute then ensued between SH and RSA as to the level of cover provided by the Policy.

The schedule to the Policy (the Schedule) confirmed a Limit of Indemnity of £10 million for "any one claim" and a limit of £20 million in respect of all damages costs and expenses "arising out of all claims" during the period of insurance.

The general terms of the Policy, which dealt with medical negligence, stipulated at proviso 5(a), that "The total amount payable...in respect of....all claims.....consequent on or attributable to one source or original cause.... shall not exceed the Limit.". Proviso 5(b) then stated: "the total amount payable...in respect of all damages arising out of all claims ...shall not exceed the appropriate Limit". The Limit being the limit of indemnity.

SH argued that proviso 5(a) did not operate so as to limit cover for the various connected claims made against the surgeon to a total of £10 million. RSA argued that it did.

First Instance Decision

At first instance the court agreed with RSA. The court held that, when read with the Schedule, proviso 5(a) was effectively an aggregation clause, meaning that linked claims were to be treated as a single claim. Accordingly, where a number of claims were attributable to one source or original cause, they were to be treated as one claim and subject to the £10 million limit. SH appealed to the Court of Appeal.

Court of Appeal Decision

The appeal was dismissed.

Lord Justice Simon confirmed that, when construing insurance policies, the combined effect of the wording in both the Policy and the Schedule must be considered. Clearer words could have been used to put the question of whether proviso...