UK: Aggregation of Pension Mis-selling Claims

Last Updated: 26 April 2002

Lloyds TSB General Insurance Holdings Ltd and Others v.Lloyds Bank Group Insurance Co Ltd and Others 8 November 2001

Factual Background

This Court of Appeal case involved a joint action by Lloyds TSB and Abbey National against their respective professional indemnity insurers for an indemnity in respect of their pension mis-selling liabilities. As with many other IFAs, the claimants had incurred substantial liabilities to individual investors to whom they had sold pensions during the period 1988 to 1994. Again, in common with several IFAs, the advice that caused the claimants’ exposure to each investor was typically provided by one of their team of financial services consultants who had failed to ensure that that advice complied with the regulatory requirements relating to the provision of investment advice ("Best Advice").

The preliminary issue for determination by the Court of Appeal was whether the individual incidents of pension mis-selling could be aggregated under the claimants’ policies on the basis that each claim arose from a general failure on the part of the claimants’ management to train their consultants properly.

For the purposes of the preliminary issue hearing, the Court was constrained to consider the issue on the basis of assumed facts such that the Court was required to assume that the provision of non-compliant advice by each consultant was, as a matter of fact, caused by the general management failure. The Court was concerned only with the issue of whether, as a matter of law, the general management failure could provide the basis for aggregation under the wording of the deductible in the claimants’ policies.

The aggregation wording in the Lloyds policy was as follows:

"If a series of third party claims shall result from any single act or omission (or a 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 deductible in the Abbey National policy was worded slightly differently. However, the parties agreed that it did not differ substantially from the Lloyds TSB wording in its effect.

The decision of the Court of First Instance

The Court of First Instance held that a general failure on the part of management to train the consultants could constitute a "single act or omission" for the purposes of applying the policy deductible. The Court also held, in the alternative, that the third party claims made against the claimants could be said to result from a "related series of acts or omissions" in that the non-compliant advice given by the consultant in each case arose from the general management failing to train consultants. The Court concluded therefore that the claimants’ policy wording did allow them, in principle, to aggregate their pension mis-selling claims on the basis of the general management failure.

The Court of Appeal decision

Pension claims could be said to result from a "related series of acts or omissions" but not a "single act or omission".

The Court of Appeal also reached this conclusion although they did so on narrower grounds. Before the Court of Appeal, the insurers submitted that the expression "resulting from any single act or omission", in the aggregation clause, was directly referable to the wording of the insuring clause in the policies which also used the wording "act or omission". (The insuring clause provided an indemnity in respect of third party claims for "financial loss caused by a negligent act, error or omission".) The insurers contended that the "act or omission" wording in the aggregation clause must, therefore, as a matter of construction, refer to the breach of duty specified in the insuring clause. The insurers’ central submission, therefore, was that the third party claims could only be aggregated where they could be shown to result from the same breach of duty, namely, the failure of the consultant to give compliant advice. Aggregation could not, they argued, be established by reference to the underlying state of affairs which gave rise to that breach of duty.

The Court of Appeal agreed with this contention and held that there was nothing within the wording "resulting from a single act or omission" which allowed the claimants to aggregate on the basis of an underlying cause such as a general management failure.

However, the Court of Appeal did conclude that the third party claims could be said to result from a "related series of acts or omissions". The Court held that the word "related" was sufficient to allow the claimants to look for an underlying cause linking the individual breaches of duty in each case. Lord Justice Potter, who gave the leading judgment in the case, stated that "in my view it is plain that a series of acts or omissions may be related by reason of having a single underlying cause or common origin … like the judge [in the Court of First Instance], I consider that the word related is wholly apt to apply to a series of acts or omissions which are of an identical or very similar nature and which share a common causal origin of that kind".

The Court concluded that the claimants were therefore entitled, in principle, to aggregate the third party claims on the basis of the general management failure properly to train their consultants.


Although it is likely that the insurers will seek to appeal this decision before the House of Lords, the Court of Appeal judgment is now the leading authority with regard to the aggregation of pension mis-selling claims and weighs heavily in favour of insureds.

It is true that where an aggregation clause mirrors the wording of the insuring clause as in Lloyds TSB, it will now be extremely difficult for an insured to seek to aggregate claims by reference to an underlying cause of the breaches of duty that have led to the claims he is seeking to aggregate. However where the aggregation wording also contains words such as "related" or "arising from one originating cause", it is plain that the Courts will allow an insured to look beyond the breaches of duty even where the aggregation wording mirrors the insuring clause. Since most aggregation wordings contain some kind of unifying wording, this judgment plainly has serious repercussions for insurers in the context of pension mis-selling.

Although the Court of Appeal upheld the First Instance decision, this does not necessarily bring the bar down as far as insurers are concerned. As stated above, the Court was constrained to determine the issues of construction on the basis of assumed facts. In the event that this matter were to proceed to a full trial of the facts, the Court would be required to determine whether, as a matter of fact, the third party claims were caused by a failure on the part of management properly to train their consultants. Such a task would be far from straightforward. Nevertheless the precedent has been set.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

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