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The
House of Lords held that pensions mis-selling claims could not be aggregated
in applying a deductible in a bankers' composite insurance policy since
the claims did not result from a single act or omission, or related
series of acts or omissions, as required by the aggregation clause.
Following
the SIB review in 1994, some 22,000 pension mis-selling claims were
made by TSB customers seeking compensation for losses suffered by reason
of alleged mis-selling. The customers claimed that "best advice"
had not been given on the question of whether it was in the interests
of an employee in any case to leave his or her employer's occupational
pension scheme.
No claim
had exceeded £35,000 but in total TSB had paid out more than £125m
in compensation. TSB sought to recover under a bankers' composite insurance
policy. This provided cover in respect of "the assured's legal
liability to third parties…for financial loss caused by a breach
on the part of the assured or an officer or an employee of an assured
of the provisions of the Financial Services Act 1986…in respect
of which civil liability arises on the part of the assured." There
was a deductible in the policy of £1m for "each and every
claim", with no aggregate limit. The aggregation clause provided
that "if a series of claims shall result from any single act or
omission (or related series of acts or omissions)" it should be
considered to be a single claim for the purposes of the deductible.
The question
of aggregation was decided by way of preliminary issue. At first instance,
Moore-Bick J held that TSB's failure to train and monitor its salesmen
constituted an act or omission or series of acts or omissions within
the meaning of the aggregation clause and had been the cause of all
22,000 claims. The Court of Appeal did not agree. It held, on the basis
of this particular insuring clause, that the "act or omission"
must constitute the cause of action, namely, the failure to give best
advice to the investor. The failure of the training system was not in
fact the cause of the civil liability to third parties, which was what
was indemnified under the policy. However, regardless of this, the Court
of Appeal then went on to allow aggregation. This was done by saying
that the acts or omissions in question could be "related"
and "form a series" if they had a "single underlying
cause" or common origin or they were "the same omission"
which had occurred on more than one occasion.
The House
of Lords agreed with the Court of Appeal that an "act or omission"
for the purposes of aggregation had to give rise to the civil liability
in question. The duty imposed on the company under the rules was to
ensure that the company representatives complied with the LAUTRO Code
of Conduct. That imposed a contingent liability on the company giving
rise to the company's own liability, rather than being vicariously liable
for the acts of the representatives. It followed that the absence of
a training or monitoring system, even though an independent breach of
the rules, was legally irrelevant to the civil liability of the company.
Even without such a training system, TSB would not have been liable
unless their representatives actually contravened the Code. Likewise,
any such contravention by a representative would have given rise to
liability, whether the company had a training and monitoring system
or not. It was not, therefore, an act or omission from which liability
resulted.
However,
the Court of Appeal was wrong to hold that there was a related series
of acts or omissions. In order for events to be related or to constitute
a "series", the nature of the unifying factor or factors which
made them related or a series must be expressed or implied in the sentence
in which the words were used. The words in parenthesis "(or related
series of acts or omissions)" had to play a subordinate role covering
the case in which liability under each of the aggregate claims could
not be attributed to a single act or omission but could be attributed
to the same acts or omissions acting in combination.
For the
claims to be aggregated there had to be a common causal relationship,
meaning that the acts and events formed a related series only if they
together resulted in each of the claims. Here, however, the claims arose
from a separate contravention of the rules in each case. The obligation
on the company to "ensure" the salesman complied was not enough
to bridge the gap nor could it unless one gave a different meaning to
the words "act(s) and omission(s)". The claims still had to
result from something done or omitted as between the relevant salesman
and the relevant third party. The fact that the claims might have arisen
from the same underlying cause and were of a very similar nature was
not enough to bring them within the aggregation cause.
In giving
judgment, the House of Lords stressed that the choice of language by
which parties designate the unifying factor in an aggregation clause
(eg: "event" as opposed to "originating cause")
is of critical importance. The parties could, had they so chosen, have
used a clause such as that found in Axa Re v Field or the Municipal
Mutual cases. On this wording, however, TSB would not get the benefit
of aggregation.
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