Aggregating Different Types Of Loss Caused By One Individual

Spire Healthcare Limited v  RSA [2022] EWCA Civ 17

Insurance policies commonly contain an aggregation clause, providing that two or more claims are to be treated as a single loss for the purpose of the deductible and policy limit where they are linked by a contractually-defined unifying factor.  Such clauses can have a major impact on the amount recoverable.

The issue in this case was whether losses must be aggregated when they arose from two very different  types of breach of professional duty by a single individual.

The Facts

Mr Paterson was a consultant surgeon at hospitals managed by Spire for some years, until he was suspended from practice by the General Medical Council.

A number of former patients, both private and NHS, who had been medically required to undergo mastectomies, claimed that Mr Paterson failed to remove all breast tissue, thereby exposing them to an unnecessary risk of recurrence and metastasis.  Mr Paterson’s motive for this practice of performing sub-total mastectomies, or “STMs”, was never adequately explained, although he may have regarded it as “cleavage sparing”.  The psychological and sometimes also the physical effects on the claimants were profoundly damaging.

Meanwhile, it was found, in relation to a second group consisting mainly of private patients, that Mr Paterson had falsely reported pathology test results as indicative of the presence of cancer and then carried out unnecessary surgical procedures on the patients concerned.  His motivation here appeared to have been financial gain.  The victims of this practice suffered assault and mental distress as well as economic loss.

In all, some 750 former patients made claims against Mr Paterson, Spire and the Foundation Trust that employed him for NHS work. The claims were managed in the form of group litigation, which was settled when a compensation fund was set up for the victims.  Spire’s outlay by way of defence costs and contribution to the fund was over £37m. 

The Insurance Cover

Spire had a combined liability insurance policy with Royal & Sun Alliance, covering its legal liability for accidental injuries arising out of medical negligence at its hospitals.  The policy provided that,

“The total amount payable by [the Insurer] in respect of all damages costs and expenses, arising out of all claims during any Period of Insurance consequent on or attributable to one source or original cause irrespective of the number of Persons Entitled to Indemnity having a claim under the Policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity stated in the Schedule.” (Our underlining)

The limit of indemnity stated in the policy schedule was £10m and the policy was subject to an overall limit of £20m.

Whatever Mr Paterson’s motives may have been in carrying out the procedures, it was common ground that the injuries to patients were accidental from the perspective of Spire.   The sole issue before the Court of Appeal was whether the insurer could aggregate all the underlying claims together and rely on the limit of indemnity per loss of £10m, or whether there had been two originating causes of the losses and Spire could recover up to the overall policy limit of £20m.

The Decision

It is well established that clauses specifying that losses are to be aggregated where they are attributable to one original cause require the widest possible search to be made for a unifying factor in the history of the claims in question.  The original cause does not itself have to be an insured risk under the policy and it need not be the sole cause, but there must be a causative link between the original cause and the loss.  Moreover, the “original cause” as identified must not be expressed in such general terms that it fails to make clear the causal link between the original cause and the claim.

In Cultural Foundation v Beazley (2018) the Commercial Court had held that a claim against an architect for negligently designing defective structural engineering did not arise from the same original cause as a claim for failing to include in its designs detail and provision for the efficient execution of the project, which impacted only on cost. The two claims could not both be characterised in general terms along the lines of “poor initial design” since this was not useful in the context of searching for an effective original cause.

In the present case, the Commercial Court adopted the same approach, by focusing on Mr Paterson’s differing motivation: for Group 1, the original cause of the claims was Mr Paterson’s wrongful adoption of the practice of carrying out STMs; for Group 2, the original cause of the claims was Mr Paterson’s dishonest practice of  misrepresenting the need for  surgery.  Therefore, Spire was entitled to claim for two full losses, i.e. for £20m.

Decision of the Court of Appeal (CA)

However, the Court of Appeal analysed the matter from the perspective of how the claim was covered under Spire’s insurance.  The insurance did not cover any responsibility Spire might have for the negligence of surgeons or consultants.  Therefore, Spire’s ability to claim under the insurance depended on establishing its own negligence or the negligence of employed persons other than Mr Paterson.  This it did by persuading the insurers that (a) it was liable for the acts and omissions of one of its employees who facilitated and failed to report Mr Paterson’s conduct, (b) it had failed to investigate Mr Paterson’s conduct and take action and (c) it had breached an implied term to provide services to patients with reasonable skill and care. 

Based on this analysis and the caselaw requiring the widest possible search to be made for a unifying factor, the CA held that the Commercial Court’s decision had been wrong because the fact that Mr Paterson may have had differing motives in carrying out the injurious acts, and the fact that the claimants were in groups, had no bearing on Spire’s liability for the injuries sustained in consequence of the surgery that was carried out.  The CA held that the claims against Spire were all attributable to one original cause, namely Mr Paterson’s conduct in disregarding the welfare of his patients and performing operations on them without their informed consent. Therefore, Spire was only entitled to recover for one loss, up to the per loss limit of £10m.

For further information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.

1 August 2022