Australia: NSW Court of Appeal clarifies approach to aggregation clauses in insurance policies

In 2018, the NSW Supreme Court found that a class action brought against Bank of Queensland (BOQ) constituted 192 individual claims against BOQ for the purposes of BOQ's insurance policy and those claims could not be aggregated in order to calculate the number of applicable retentions payable under the policy.

On 6 August 2019, the first instance decision was overturned by the NSW Court of Appeal.1 The appeal decision provides some clarity with regard to the circumstances in which claims in class actions can be aggregated under an insurance policy.

An aggregation clause in an insurance policy allows claims to be aggregated for the purposes of calculating the number of applicable retentions, excesses or deductibles payable by the insured under the policy, and has particular relevance in the context of a class action which, by its nature, involves a single representative claimant bringing multiple claims on behalf of itself and others.

Background

Our article on the NSW Supreme Court's first instance decision can be viewed here.

In summary:

  • BOQ argued that it was entitled to indemnity from its insurers in the amount of A$6 million, being the sum it agreed to pay to settle a class action brought by Petersen Superannuation Fund Pty Ltd on behalf of itself and other clients of Sherwin Financial Planners.
  • Insurers argued that they were not obliged to indemnify BOQ under its insurance policy because the class action was comprised of multiple claims against BOQ, each of which was subject to a retention of A$2 million.

The NSW Supreme Court found that, although there was only one 'suit or proceeding' (the class action) against BOQ, there were 191 other 'claims' made against BOQ, constituted by the completion of individual Class Member Registration Forms. The Court found that those 'claims' could not be aggregated because they did not arise out of one or a series of related wrongful acts.

As each 'claim' was less than the retention prescribed by BOQ's insurance policy, the effect of the NSW Supreme Court's decision was that BOQ was effectively uninsured in respect of its settlement of the class action.

The Court of Appeal's decision

The issues on the appeal were as follows:

  • First, whether it could be said that the class action brought against BOQ consisted of multiple claims or a single claim under the policy.
  • Second, if there were multiple claims, whether they could be treated as a single claim by reason of the aggregation clause in the policy.
  • Third, if there was a single claim, whether the claim was to be disaggregated by reason of the disaggregation clause in the policy.

Multiple claims or a single claim?

Macfarlan JA, with whom Bathurst CJ agreed, held that the class action comprised multiple claims (being the claims brought by each investor) within the meaning of the policy.

White JA disagreed with the majority on this point, His Honour held that the class action constituted a single claim because it was brought by the representative party on behalf of the group members, not by each of the group members individually.

However, Macfarlan JA, with whom both Bathurst CJ and White JA agreed, found that the Class Members' Registration Forms submitted by the group members each constituted a single claim within the meaning of the policy.

The aggregation/disaggregation clauses

The Court then considered whether the multiple claims arose 'out of, [or were] based upon or attributable to one or a series of related Wrongful Acts', so that they could be aggregated by the aggregation clause.

The Court's main judgment on these issues was written by Macfarlan JA, with whom Bathurst CJ and White JA relevantly agreed.

Having regard to the way in which the claims against BOQ were formulated, the Court rejected BOQ's submission that its course of conduct amounted to a single Wrongful Act. The Court therefore considered whether the multiple Wrongful Acts were 'related'.

In this context, the Court first considered and accepted BOQ's contention that the 'Knowledge of Fraud' allegation was present in all the 'Wrongful Acts' pleaded by the class applicant.

The Court then considered whether there was 'a series of' related Wrongful Acts. In this context, the word 'series' was held to add 'little, if anything' to the notion of relatedness, other than accentuate the need for the impugned Wrongful Acts to be 'related'.

The Court had regard to the House of Lords' decision in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd (Lloyds TSB),2 but distinguished it on the basis of the different wording of the clause in that case.

The Court found that all of the Wrongful Acts alleged by the class applicant were alleged to have been wrongful because they were engaged in by BOQ with 'Knowledge of Fraud' and this was a sufficient unifying factor, rendering them 'related' for the purpose of the aggregation clause. The Court stated that this is the view a reasonable business person would reach, informed by the fact that grouping of claimants in class actions is only permitted by the Federal Court of Australia Act (FCA), where there are significant common questions arising with respect to their claims.

Given the Court's finding, the disaggregation clause was not relevant. If, however, there was a single claim, the Court found that disaggregation would not occur because the acts giving rise to the claim were 'related'.

Finding

The Court upheld BOQ's appeal and made declarations to the effect that only one retention was applicable to the class action brought against BOQ.

Key takeaways

While the construction of an aggregation clause will depend, in each case, on the particular wording of the relevant clause, the NSW Court of Appeal's decision should provide some comfort to insured respondents to class actions.

Importantly, the class action regime provided for by the FCA will, of itself, be a strong indicator that the claims of group members are 'related' for the purposes of an aggregation clause.

Footnotes

1 Bank of Queensland Limited v AIG Australia Limited [2019] NSWCA 190.

2 [2003] 4 All ER 43.

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.

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