Having recently received guidance from the Supreme Court in AIG Europe Ltd v Woodman  UKSC 18 on how to approach the application of "related" in the context of aggregating "a series of related matters or transactions", we have now seen the Australian Supreme Court of New South Wales applying this approach to one of the first reported post – Woodman aggregation decisions in the case of Bank of Queensland Ltd v AIG Australia Ltd  NSWSC 1689.
From 1998 onwards, the Bank of Queensland (BOQ) offered its customers a financial product known as a "Money Market Deposit Account" (MMDA). BOQ appointed DDH as its agent to promote, operate and administer the MMDAs. Each account holder nominated a person as an authorised signatory; commonly the financial planner to whom DDH had promoted the MMDAs. One such financial planner was Sherwin Financial Planners Pty Limited (SFP). SFP went in to liquidation on 27 February 2013.
Between March 2004 and January 2013, SFP acted as financial advisor to Petersen Superannuation Fund Pty Ltd (Petersen) and at least 191 other individuals and advised them to deposit monies into a MMDA. When those account holders were later unable to access their deposits, they concluded that SFP was operating a "Ponzi" scheme and had misappropriated the funds.
In 2016, Petersen (on behalf of itself and the other 191 "Group Members") therefore commenced representative proceedings against BOQ (and DDH as its agent) on the basis that BOQ breached its contractual terms to the account holders by allowing monies from the MMDAs to be withdrawn in circumstances where those withdrawals were:
- unauthorised withdrawals; or
- made by email, which was not permitted under the MMDA agreement; or
- made when BOQ knew or ought to have known that a fraud was being committed in respect of the MMDAs.
Following the issuing of representative proceedings, Petersen and the Group Members completed a "class member registration form" to allow for the distribution of any settlement sums between them. In January 2018, the matter settled at mediation with the Bank and DDH each paying Petersen and the Group Members $6m; a total of $12m.
In September 2018, BOQ issued proceedings against AIG (and other insurers) seeking an indemnity for the $6m settlement sum and the defence costs incurred in the representative proceedings under a civil liability insurance policy (the Policy). This culminated in Stevenson J giving judgment on 6 November 2018. As the Policy retention was $2m for each and every claim, the key question was whether Insurers' liability under the Policy applied to a single claim (with one retention) or to multiple claims with multiple retentions so that Insurers had no liability to make any payment to BOQ.
The proceedings centred on the definition of "Claim" in the Policy:
"2.2 Claim means:
(i) Any suit or proceeding…brought by any person against an Insured for monetary damages or other relief..;
(ii) Any verbal or written demand from any person that it is the intention of the person to hold an Insured responsible for the results of any specified Wrongful Act…
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."
"Wrongful Act" was defined, inter alia, as "any act of error or breach of duty or omission or conduct…committed or attempted or allegedly committed or attempted by or on behalf of another person for which the Insured is legally liable in the actual or alleged provision of, or actual or alleged failure to provide, Professional Services".
One or more claims
As the purpose of an aggregation clause is to enable two or more separate losses covered by a policy to be treated as a single loss, Stevenson J first considered whether BOQ faced more than one loss/claim. The need to aggregate almost fell away when Stevenson J concluded that Petersen (on behalf of itself and the Group Members) had "brought" one suit or proceeding, which amounted to one "Claim" in accordance with Clause 2.2(i).
However, Insurers were saved by the fact that each Claimant had also completed a class member registration form in order to authorise a distribution of the settlement sums. As each Group Member's form asserted a specific loss against BOQ in their capacity as an individual Claimant, each form was held to be a separate written demand that fell within the definition of a "Claim" as specified by Clause 2.2(ii). Accordingly, it was held that 192 "Claims" had been made against BOQ via the class member registration forms.
As all aggregation clauses require a unifying factor, Stevenson J quickly identified that "Wrongful Act" was the unifying factor in the policy wording. As he then concluded that each of the 192 Claims referred to separate Wrongful Acts (by reference to the individual withdrawals from the MMDAs), the question, for aggregation purposes, was whether the Claims arose out of, were based on or were attributable to "a series of related Wrongful Acts".
Stevenson J used the guidance from the AIG v Woodman case (where the aggregation clause referred to "similar acts or omissions in a series of related matters or transactions") to focus on whether the Wrongful Acts were related and referred to their Lordships in AIG v Woodman observing that:
"Use of the word "related" implies that there must be some interconnection between the matters or transactions or in other words that they must in some way fit together".
Having set out this guidance and acknowledged that the Wrongful Acts (ie the individual withdrawals from the MMDAs) were, at least, "similar in nature" and had "some characteristics in common", he concluded that they were insufficiently connected as "each was a separate act, made on a different occasion from a different MMDA causing loss to different parties and in response to different and separate reported instructions".
Somewhat confusingly, Stevenson J also made reference to the test of "related" in American Automobile Insurance Co v Grimes (2004) US Dist Lexis 1696 where claims were held to be "related" (and therefore aggregated) if there was a "logical and causal connection" between them. He then recognised that there was a logical and causal relationship between certain account withdrawals that were carried out, virtually simultaneously, pursuant to instructions given in a single email. However, he did not go on to conclude that these claims aggregated based on this finding.
Instead, Stevenson J concluded that not all impugned withdrawals shared such a logical or causal relationship. Furthermore, although they may have all shared a common factor in that they occurred within the broader fraudulent scheme perpetuated by SFP, this was a factor more remote than the Wrongful Act required by the Policy. Ultimately, he concluded that the transactions did not have a "sufficient degree" of similarity nor an "integral relationship" to constitute a "series" of transactions, nor the necessary "causal" or "logical" interconnection to constitute them being a "series of related Wrongful Acts". Accordingly, the Claims did not aggregate and BOQ were responsible for the entirety of the settlement sum.
As group litigation claims continue to develop and expand in the UK and beyond, there is a correlating importance on how to aggregate such claims in civil liability insurance policies. Precision around suitable aggregation wording is therefore essential.
Bank of Queensland Limited v AIG Australia Ltd shows us that defining “Claim” is also as important as the aggregation wording itself. If policy wording allows the parties to define “Claim” by reference to the group litigation proceedings themselves, then there may not be any claims to aggregate at all.
And when multiple claims do exist, we are into the application and interpretation of key aggregation terms like “series of related" matter/transactions/Wrongful Acts. In that regard, the Courts now have Supreme Court guidance on how to interpret these terms. However, we see from Stevenson J's decision that there is more than one approach to interpreting aggregation terms and the recent case authority in this area has not necessarily made the decision on how to aggregate any easier. We are therefore ultimately in the hands of the judiciary on how claims will aggregate. But that’s no bad thing is it?