Lloyds TSB v. Lloyds Bank Insurance

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Note: the decision in this case has now been overruled by the House of Lords; for a note of that decision, click here.

DMC/INS/09/01
Lloyds TSB General Insurance Holdings Ltd V Lloyds Bank Group Insurance
Abbey National Plc V Alan Godfrey Lee & Others
English Court of Appeal: Potter, Longmore LJJ, Lady Justice Hale: Unreported: 8 November 2001
Jonathan Sumption QC and Guy Philips instructed by Barlow Lyde and Gilbert for Lloyds Bank Group Insurance
Christopher Clarke QC and Timothy Howe instructed by Simmons & Simmons for Lloyds TSB General Insurance Holdings
Nicholas Strauss QC and Laurence Rabinowitz instructed by Herbert Smith for Abbey National PLC
INSURANCE POLICIES: CONSTRUCTION: PENSIONS MIS-SELLING: LARGE NUMBER OF CLAIMS: DEDUCTIBLE AGGREGATION CLAUSE: SERIES OF CLAIMS RESULTING FROM RELATED SERIES OF ACTS OR OMISSIONS: UNDERLYING CAUSE: COMMON ORIGIN
Case Note contributed by Aleka Sheppard, LLM, PhD, Director of the London Law Shipping Centre at University College London

Subject: mis-selling of pensions resulted from related acts or omissions by financial services companies: how the deductible in the aggregation clause of the insurance policies should be applied 

Summary
This case related to claims brought by the claimants under their errors and omissions policies for indemnity against claims brought against them by third parties for the mis-selling of pensions. The key point in the case was the construction to be given to a deductible clause in the policies which allowed claims resulting from any single act or omission or related series of acts or omissions to be treated as one claim for deductible purposes. The court held that the claims for pension mis-selling arose from the claimants’ failure to give best advice to their clients and therefore stemmed from a related series of acts or omissions.

DMC Category Rating: Developed

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Facts
The claimants, Lloyd’s TSB and Abbey National, were each insured under a policy covering, amongst other things, negligent acts, errors, and omissions on the part of their Officers or employees in the course of advising clients (third parties) with regard to pension plans. The policies covered specific losses for TSB up to £100,000,000 in the aggregate with a deductible of £1,000,000 each and every loss, and for Abbey National up to £10,000,000 in the aggregate with the same deductible. There were a number of claims made by third parties for losses suffered due to the failure by the claimants’ financial advisers to give "best advice", as required by the Financial Services Act 1986. The aggregate of the claims amounted to £125,000,000. The claimants then claimed indemnity against their respective underwriters under their errors and omissions policies.

The policies provided for a deductible of £1million for every loss. The deductible clause read:

"the deductible shall apply to each and every third party claim and shall be subject to no aggregate limitation. 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".

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The Issues
The key issue in the case was the construction of the deductible aggregation clause in the two insurance policies; namely, did the mis-selling of pensions amount to a single act or omission (or related acts or omissions) so as to be regarded as a single third party claim for the purpose of the deductible? The underwriters argued that the claims were caused by the individual failures of the financial service consultants and therefore did not result from a single act or omission so as to fall within the second sentence of the deductible clause.

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Judgment - delivered by Longmore LJ
The Court of Appeal held that the relevant act or omission and/or the means by which the loss was caused was the failure of the claimants - through their consultants - to give "best advice" to the third parties. Approving Mr. Justice Moore-Bick’s judgment at first instance, the court held, upon construction of the clause, that the series of claims fell within the deductible aggregation clause, being a result of a related series of acts and omissions. The focus for construction was upon the word "related". A series of acts or omissions could be related by reason of having a single underlying cause or common origin, particularly where the acts or omissions in question were of an identical or very similar nature.

A petition for leave to appeal to the House of Lords is pending.

Comment
This case offers useful guidance on the interpretation of aggregation clauses containing the words ‘act or omission’, particularly as many of the authorities cited to the judge at first instance offered little assistance because the aggregation clauses in those cases referred to cause or event rather than act or omission, as here.

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