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.

Comment

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.

For more information on this or other Herbert Smith publications, please email us.

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.

 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.