New Zealand: Aggregation clauses in insurance policies - recent judicial consideration

Last Updated: 17 November 2018
Article by Jonathan Scragg

Most Popular Article in New Zealand, November 2018

Aggregation clauses play a vital role in all forms of insurance, although they have been discussed most commonly in the context of liability insurance. Aggregation fixes the amount recoverable by the assured where the assured's liability arises out of a number of separate acts of negligence. The policy may fix the maximum sum recoverable on a "per claim" basis, or it may require the assured by way of deductible to bear the first part of the amount of any claim.

Where there is a large number of small claims that cannot be aggregated, and none of the claims exceeds the deductible, the assured will recover nothing. By contrast, where there is a small number of large claims that cannot be aggregated, the assured will recover the sum insured in respect of each claim.

It follows from this that the effect of an aggregation clause will depend upon the number and size of claims, and whether the aggregation relates to deductibles or policy limits. It equally follows that there has to be a consistent interpretation of aggregation wording by the courts, because it will not be known in advance of any one case which party will benefit from aggregation.

Bank of Queensland v AIG

The recent decision of Stevenson J in the Supreme Court of New South Wales in Bank of Queensland Ltd v AIG Australia Ltd [2018] NSWSC 1689 demonstrates just how minor variations in wording can affect the outcome as between otherwise similar cases.

In this case the Bank, through an intermediary, DDH Graham Ltd (DDH), operated Money Market Deposit Accounts (MMDAs) for its clients. Some 192 clients had appointed Sherwin Financial Planners Pty Ltd (SFP) as their financial planner, and SFP had through DDH arranged MMDAs for those clients. Unfortunately, SFP appears to have been a fraudulent enterprise. Between March 2004 to January 2013 funds were withdrawn from the MMDAs by SFP without client authorisation. In February 2013 SFP went into liquidation, having misappropriated the funds in question.

The 192 account holders sought to recover their losses from the Bank. They alleged that the Bank had released funds on the strength of emails, had failed to investigate suspicious activity on the part of SPF and had knowingly assisted SFP in its dishonest conduct.

The account holders formed a Group for the purposes of representative proceedings brought in the name of one of their number. Each member of the Group signed a "Class Member Registration Form" setting out the various transgressions of the Bank. The matter was mediated, and the outcome was a settlement under which each of the Bank and DDH was to pay $6 million to the Group. The settlement was approved by the Court in May 2018, thereby bringing an end to the claims.

The Bank carried liability insurance. There was a deductible of $2 million for "each and every claim". A "Claim" was defined as either: "(i) any suit or proceeding... brought by any person against an Insured"; or "(ii) any... demand from any person that it is the intention of the person to hold and insured responsible for the results of any specified Wrongful Act." The term "Wrongful Act" meant "any act or error or breach of duty or omission or conduct". Finally, there was an aggregation clause under which all "Claims arising out of, based upon or attributable to one or a series of related Wrongful Acts" were deemed to be a single Claim.

The familiar issue in the present case was the number of deductibles to be borne by the Bank. It asserted that there was only one claim and thus only one deductible. The insurers' case was that each member of the group had brought a separate claim and that the Bank had to bear 192 deductibles.

Stevenson J found for the insurers on two separate grounds. First, although a representative action using one named claimant was only one "suit or proceeding" for the purpose of limb (i) of the definition of "Claim", each member of the group had, by signing a "Class Member Registration Form", made a separate Claim in the form of a demand for compensation. On that simple ground, the Bank had to bear 192 deductibles.

Secondly, the same conclusion followed from the application of the aggregation clause. Claims were to be aggregated into a single claim if they were "arising out of, based upon or attributable to one or a series of related Wrongful Acts." The Wrongful Acts in the present case were the unauthorised withdrawals, but they did not constitute a "series of related acts" because there was no interconnection between them: they were all carried out at different times, and while they were similar they were not a "series".

AIG Europe v Woodman

Readers may well be aware of the decision of the UK Supreme Court in AIG Europe Ltd v Woodman [2017] UKSC 18. That case concerned a number of investment contracts made with the developers of two separate sites. The funds were paid into an account held by solicitors, on terms that the funds would not be released to the developers until security had been provided. The funds were lost by release without security, and claims were brought against the solicitors. The liability policy provided that all claims "arising from similar acts or omissions in a series of related matters or transactions" were to constitute one claim for the purposes of determining the maximum sum insured.

Unsurprisingly, the insurers asserted that there was only one claim per development, whereas the solicitors (or, at least, their creditors) argued that each payment out of the fund was separate and thus could not constitute part of a "series of related matters or transactions."

The Supreme Court agreed with the insurers: the relevant "transactions" were the investment contracts and they were related in that they were interdependent, so it followed that there were only two claims and only two limits of indemnity.

Conclusion

It will be seen, therefore, that diametrically opposing conclusions were reached in the two cases. The reason is clear. In Bank of Queensland the aggregation was by reference to "one or a series of related Wrongful Acts" whereas in Woodman the aggregation was by reference to "a series of related matters or transactions". It may be commented that in Woodman the lower courts had assumed that "matters or transactions" referred to "wrongful acts", an analysis rejected in the Supreme Court.

What matters, therefore, is the trigger for aggregation. The investment contracts in Woodman and Bank of Queensland clearly constituted a "series", but the misappropriations in both cases clearly did not constitute a "series."

Care should thus be taken in the drafting to ensure that the appropriate trigger for aggregation has been adopted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions