Rob Fink, partner at Fenchurch Law, on why advisers need to check their PII policy smallprint when it comes to Arch Cru compensations.
Advisers have been required to write to investors in Arch Cru with their redress determinations. Most will have notified their professional indemnity insurers of an Arch Cru exposure and, in most cases, those notifications have been accepted. However, arguments are beginning to emerge from insurers as to the number of policy excesses which should apply to claims for Arch Cru payments.
If the relevant insurance policy states only that the excess shall apply to each and every claimant, then it is likely a policy excess should be applied to each Arch Cru investor.
However, some insurance policies include an aggregation or ‘series of claims’ clause under which two or more related claims are treated as a single claim for the purpose of the excess.
Check the Ts & Cs
In order to determine whether such claims are related, attention needs to be given to the exact wording of the clause. Advisers need to consider these clauses very carefully to ensure the correct number of excesses are applied to Arch Cru claims.
Case in point
The House of Lords considered one such form of aggregation clause in Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Company  UKHL 48. The case concerned the mis-selling of many thousands of pensions where, individually, the claims would fall within the deductible but, when aggregated, amounted to over £100m.
The bank asserted that the losses resulted from a systemic failure to institute a proper training scheme throughout the company and that this systemic failure should operate to aggregate all the claims.
The aggregation clause in the policy stated: “If a series of third party claims shall result from any single act or omission (or related series of acts or omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the deductible.”
The court held that the phrase “result from” meant the proximate cause of the loss and that the clause did not demonstrate that insurers were willing to accept a cause more remote than the act or omission which gave rise to the loss.
As such, the only unifying factor in the clause could be the “third party claims” and, on the facts and circumstances of the case, the court concluded that each of the third party claims arose from an individual breach of duty and the claims could not, therefore, be aggregated.
However, this is to be contrasted with the aggregation clause considered in Standard Life Assurance Ltd v ACE European Group and others  EWHC 104 (Comm).
In this case, Standard Life had marketed a particular fund as being particularly safe when, in fact, that fund’s assets included a significant proportion of asset-backed securities which became illiquid following the collapse of Lehman Brothers in 2008.
The clause said: “All claims or series of claims (whether by one or more than one claimant) arising from or in connection with or attributable to any one act, error, omission or originating cause or source, or the dishonestly of any one person or group of persons acting together, shall be considered to be single third party claim for the purposes of the application of the deductible”.
The court held that the phrase “originating cause” and the word “source” opened up the widest possible search for an aggregating cause. It did not matter that the fund had been marketed over a period of years to many thousands of customers, through numerous different channels, using many different forms of marketing literature.
It held that, due to the wide wording, it was, in fact, the continuing state of affairs of marketing the fund in question as a safe investment which was the unifying factor in relation to all the claims and that those claims should, therefore, be aggregated.
As such, aggregation clauses with phrases such as “arising out of”, “and/or causally arising from”, “originating cause” and “directly or indirectly” widen the search for a unifying cause but each needs to be considered in detail.
With regards to Arch Cru, if a professional indemnity policy includes such a wide aggregation clause, particularly one which uses the phrase “originating cause”, then it may be possible to argue that only one excess should apply to all Arch Cru claims and advisers should be wary of agreeing to multiple excesses until they have clarified the position.
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