NSW Supreme Court Finds in Favour of Insurers on Aggregation of Claims
In the shadow of the Banking Royal Commission, and in an environment where class actions appear to be a permanent feature of the legal landscape, the decision of the NSW Supreme Court in Bank of Queensland Ltd v AIG Australia Ltd  NSWSC 1689 will be of interest both to insurers and insureds.
The Court’s decision is a stark reminder of how important it is for insureds to have properly worded and effective aggregation clauses in their policies, which operate to ensure that related multiple claims, wrongful acts and losses are subject to a single excess or retention.
In this particular instance, the Court concluded that there were in fact multiple Claims arising from separate wrongful acts. On that basis, and given the language of the aggregation clause in the Bank of Queensland’s (BOQ) policy, the Court held that up to 192 separate retentions were payable. In circumstances where the applicable retention was $2 million, this had the practical effect of leaving the BOQ effectively uninsured.
In light of the decision:
- insurers would be advised to re-examine the aggregation clauses of their policies (particularly those issued to subject of class actions or anticipated class actions);
- insureds would likewise be advised to ensure that the aggregation provisions of their policies do not leave them exposed to multiple retentions or excesses; and
- those considering bringing representative actions should take care to ensure that they do not formulate claims in a manner which will leave them, ultimately, with a defendant who is effectively uninsured.
Between 2004 and 2013, BOQ offered its customers and their financial advisers access to a Money Market Deposit Account (MMDA) deposit facility.
One financial planner used 192 MMDA accounts for the purposes of misappropriating funds. Representative proceedings were subsequently commenced against BOQ and its agent DDH Graham Ltd by the 192 deposit holders.
The representative proceedings were ultimately settled prior to trial for $12 million, $6 million of which was paid by BOQ. BOQ sought to recover its loss and costs under its applicable insurance policy (the Policy).
Issues and Decision
Relevantly, the insuring clause of the Policy stated that:
“The Insurer shall pay on behalf of each Insured all Loss and Defence Costs resulting from any Claim first made during the Policy Period for any Wrongful Act.”
The Policy went on to specify that the BOQ must pay a Retention of $2 million for “each and every Claim” and that insurers would only be liable for “Loss” or “Defence Costs” in excess of that amount.
The definition of “Claim” included the following terms, which were both aggregating and de-aggregating in nature:
“..For the purposes of this policy all Claims arising out of, based upon or attributable to one or a series of related Wrongful Acts shall be considered to be a single Claim; conversely where a Claim involves more than one unrelated Wrongful Act, each unrelated Wrongful Act shall constitute a separate Claim.”
In determining whether one retention of $2 million should be applied, the Court started by noting the seminal decision in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd  1 All ER (Comm) 13, where the Court stressed that the purpose of an aggregation clause is:
“…to enable two or more separate losses covered by the policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind.”
Whilst the judge accepted that there was only one “suit or proceeding” (i.e. the Representative Proceeding), he went on to conclude that there were nonetheless, in his view, 192 separate ‘Claims’ made against the BOQ. Each of those ‘Claims’, he concluded, crystallised at the time that each class member filled out a Class Member Registration Form
In coming to this conclusion, Stevenson J relied on the comments of McKerrcher J In Morgan, in the matter of Brighton Hall Securities Pty Ltd (in liq)  FCA 970, at  and :
“It seems to me that the whole essence of the representative claim is that there are multiple claims before the court. The character of each claim is not changed by the proceeding which embraces it. The representative proceeding is simply designed to facilitate an efficient and cost-effective way to resolve multiple individual claims. Those claims, being made in a proceeding in court, constitute proceedings.
… if a person sues, amongst other things, on behalf of another in a representative proceeding, even if the group member is not named, that unnamed group member nevertheless has brought proceedings.”
Arising out of a series of related Wrongful Acts?
Having concluded that there were, for the purposes of the Policy, 192 separate claims – Stevenson J nonetheless went on to consider whether the Claims could be said to arise out of one Wrongful Act or a series of related Wrongful Acts.
First, Stevenson J concluded that each individual withdrawal of funds constituted the relevant Wrongful Act for each Claim which had been made.
In determining whether these multiple Wrongful Acts could be considered ‘related’ or a ‘series’, the judge suggested that the relevant indicia were whether the acts were ‘similar in nature’, shared an ‘integral relationship’, were ‘temporal succession’ and had 'some characteristics in common'.
In this case, he held that while each withdrawal might be considered ‘similar in nature’ with ‘some characteristics in common’, each withdrawal should nonetheless be considered a ‘separate act, made on a different occasion, from different MMDA, causing loss to different parties and in response to different and separate purported instructions'.
On balance, the Court did not accept that the Claims arose out of a series of related Wrongful Acts.
Judgment and implications
In a particularly concise conclusion, Stevenson J concluded that:
“Multiple “Claims” have been made against the Bank. Those Claims do not arise out of, nor are they based on or are attributable to, a series of related Wrongful Acts. Multiple retentions apply.”
For a fairly short decision, the decision in BOQ v AIG may well have significant implications for insurers and insureds, particularly in the class action space.
Insureds should take steps to satisfy themselves that the aggregation clauses in their policy operate in a manner consistent with their understanding, and do not leave them exposed to paying multiple retentions.
Insurers will no doubt be considering whether the decision can be applied to other claims, particularly class actions where the pleaded case may point towards arguments of multiple Claims arising out of unrelated Wrongful Acts.
It will be interesting to see whether the BOQ decides to appeal this decision which, after all, could very well have left a close to $400 million hole in the bank’s finances had the underlying class action been more significant.