Spire Healthcare Limited v RSA  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.
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.
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.
The risk of loss arising out of data breaches or cyber crime is now widely appreciated. Such events are increasingly common. Well-known recent examples include where:
- Users of the internet facilities of a leading airline (BA) were diverted to a fraudulent website which collected the personal details of approximately 500,000 individuals. The Information Commissioner’s Office (ICO) issued a notice of intention to fine the airline some £180m on the basis of the airline’s allegedly poor security arrangements.
- The computer system of a mining company (CMOC) was hacked and significant sums paid out in separate transfers to unknown bank accounts, which sums were then dissipated into other accounts, thereby becoming impossible to recover, or to recover cost-effectively.
- The Colonial Pipeline, being part of the USA’s national infrastructure carrying fuel in the south eastern USA, had to be closed down following a ransomware cyber attack on the computerised equipment managing the pipeline. The ransom demand of bitcoin was paid in full, although the FBI was reportedly able to recover much of the ransom payment.
‘Silent’ cyber coverage – The UK regulator has been seeking for some years to steer insurers away from unwittingly providing ‘silent’ cyber coverage, that is, where the insured is able to argue that, although cover for cyber risks is not expressly referred to, the wording of a general insurance policy is sufficiently wide to cover such losses. The consequence is that it has to be sensible to consider buying specific cyber insurance.
Points to look for when taking out insurance covering against cyber risks – Essentially, cyber insurance should provide cover against risks associated with data protection, information privacy, information governance and internet-based risks.
Crisis management – The cyber loss of greatest concern to many insureds is that arising from a breach of data protection obligations, whether this results from operator error, the deliberate act of a disaffected employee or the criminal activity of a third party. A comprehensive cyber insurance will cover all three possibilities.
If such an incident occurs, the organisation affected may wish to have cover for retaining a specialist data breach response team to manage the problem and lead the response. The main areas that need to be covered are regulatory compliance, containment of the problem, protecting, securing and restoring the computer system, retrieving personal data, conducting a forensic investigation into the network failure, securing evidence, protecting the brand, notifying third parties whose data has been affected and dealing with the regulator over the incident and any penalties that may be threatened.
No doubt it is sensible to agree with the insurers a panel from which specialist advisers can be retained, in the knowledge of their charges and depending on the severity of the incident and availability.
The insurers’ agreement will normally be required before such advisers are instructed. However, to cater for an urgent incident occurring when the insurers’ representatives cannot be contacted, the policy should allow the insured to incur emergency costs, up to a stated percentage of policy limits.
It is also necessary to clarify whether the cover is limited to restoring and replacing programs as they were at the time of the incident or whether it extends to replacing the system so that it complies with the latest standards of technical and resilient security, albeit for an equivalent computer device.
Ransoms and fines – The insured may wish the insurance to extend to cover any fines imposed by the authorities, to the extent that it is permissible to insure against such penalties.
For cases of extortion, the insured will no doubt wish to have cover for the charges of specialist advisers to guide the parties as to credibility of the threat, the position on sanctions, the best way to resolve or mitigate the loss and to conduct any negotiations with the criminals.
However, the policy will probably reserve to the insurers the decision whether to pay the criminals’ demands. If the decision was not to pay the ransom, and the criminals then took the threatened action, the insured could thereby find itself incurring substantial expense in defending claims, paying damages, dealing with the regulator and rebuilding the business. Here, it may be worth taking out legal expense insurance against the need to pursue the insurer for its decision not to provide the policy benefit.
Defence of third party claims and regulatory investigations – The insured may wish the cover for defence costs to be available from the date of notifying the insurers of circumstances which may reasonably be expected to give rise to a claim, rather than from the date of any subsequent proceeding, particularly since the skilful handling of a matter at an early stage may lead to the matter never getting as far as proceedings.
Business interruption loss – It is possible to obtain business interruption cover for cyber risks even if there is no interruption to, or degradation of, the insured’s system. This would be particularly helpful for the insured for breaches relating to third party personal information, since such events could very well expose the Insured to prolonged reputational damage or a downturn in sales even where there was never any interruption to the insured’s processes.
Whether the policy should indemnify the insured for loss of gross profit or alternatively for loss of turnover is likely to depend on the nature of its business and the premium the insured is willing to pay. Where cover is on a loss of gross profit basis, the issue for the insured would be how it would fund its fixed costs in the event of a prolonged loss of turnover.
Exclusions based on failure to maintain required security practices – Clauses in a policy wording that impose a general requirement to take reasonable precautions have been construed only to relieve insurers of liability where the loss is caused by actual recklessness on the part of the insured. The rationale for this is said to be that, unless some restriction is placed on such clauses, the insurers would be able to escape having to pay a claim whenever they can establish negligence on the part of the insured, which will usually be the very conduct that the policy is desired to cover.
However, clauses excluding cover if specific security practices are not followed may be upheld as drafted, particularly if the court considers such clauses to define the scope of cover.
The proposal, assessing the underwriting risk and premium rates – Specialist organisations monitor the internet, including dark web forums and markets, for new strains of malware and criminal techniques. Subject to considerations of confidentiality, the information thus obtained is capable of being used during the period of an insurance to strengthen the security of an insured’s network and its products. Use of this type of analysis could enable the insured to negotiate a lower premium.
For further information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.
On 31st January 2022, the Government published a consultation paper that proposed to weaken passenger rights and slash flight compensation amounts. Accordingly, Lovetts Solicitors, one of the leading law firms in the field of flight compensation claims, has appeared as signatory to a letter Which? sent to the Government opposing these plans
It is of deep concern that the Government is bowing to pressure from airlines to weaken passenger rights, amid some of the worst disruption seen at airports across the UK in years.
In recent weeks hundreds of flights have been cancelled and thousands of travellers have been affected by chaotic conditions as airlines and airports have struggled with staff shortages.
Under current legislation, passengers are able to claim between £220 – £520 in compensation for these delays and cancellations, going some way towards covering the additional costs incurred by passengers and reflecting the inconvenience caused. However, the Government are currently proposing to slash this to an average of £16 – £65. The upsetting scenes at UK airports have shown why passenger rights must be strengthened not weakened.
In an impact assessment, the government admitted the plan came after lobbying from low-cost airlines, which claimed compensation fees amount to up to three per cent of their annual turnover. However, there was no evidence produced to back up these claims. The impact assessment calculates total compensation amounting to £10.6 million of compensation paid out of a possible £16.3 million each year. An example would be to compare this to the turnover of easyJet up to 30th September 2019 which was £6.3 billion. Even if easyJet were liable for all compensation (which it wouldn’t be) and paid 100% of £16.3 million to passengers, it would only amount to less than 0.3% of turnover.
Prior to sending the letter, Which? challenged seven airlines to a right of reply – BA, EasyJet, Jet2, Ryanair, TUI, Virgin Atlantic and Wizz Air – asking them to provide information about flights potentially affected by compensation and the amounts they have paid out in recent years. However, none would reveal how much they pay out to passengers, with some citing commercial sensitivity.
Despite the lack of evidence, the Government proposes to save airlines at least £4.7 million a year to the detriment of passengers under these proposals.
In order to protect consumers, Which? wrote to Transport Secretary Grant Shapps with Lovetts Solicitors and other travel industry leaders as signatories. The letter urges him to abandon the proposed reforms. A copy of the full letter and signatories is detailed below:
Dear Secretary of State,
We write as consumer groups and businesses looking to work with your Department and regulators to build the travel industry back better post-pandemic; and enhance consumer protections at a time when budgets are tighter and many are planning to travel for the first time since the pandemic began.
We recognise the immense task you face working with regulators and industry to get the travel industry back on its feet. However, if the sector is to fully recover, the serious limitations and inconsistencies of the current regulatory and enforcement framework need to be addressed as part of your department’s long-term vision, helping rebuild consumer and business confidence. In order to create a well functioning and competitive market, it is essential that travellers can book with confidence, are protected when things go wrong, and have high levels of trust in the regulators and businesses that serve them.
We therefore warmly welcome the fact that your department has consulted on how consumer protections can be improved, including increasing the powers of the Civil Aviation Authority (CAA) and mandating alternative dispute resolution (ADR) in the aviation sector. We agree these reforms are needed and vital for building consumer protection and trust.
However we are of the view that other proposed reforms do not demonstrate a complete understanding of how the sector works and what consumers need. The DfT proposals on compensation, as also set out in the Aviation Consumer Policy Reform consultation, would in our view be a retrograde step. We are concerned that overall the proposals will leave most consumers whose flights are delayed worse off compared to the current compensation regime; and crucially, they will significantly weaken the financial deterrent which is currently a key aspect of the legislation to prevent airlines from delaying, cancelling or overbooking flights for commercial reasons.
We believe that it is imperative that consumers are offered the right protection that firstly ensures any disruption, inconveniences or losses they experience are minimised, and secondly, ensures that they are appropriately compensated when these do occur. The hollowing out or abandoning of the safeguards contained within the EC261 compensation regime would be a retrograde step, one that will lead to a further degradation in trust in airlines and hamper the recovery of the wider travel industry. We therefore urge you to urgently re-think these plans to change compensation rules under EC261, as presented in the consultation.
For businesses and consumers, it is vital to have a clear strategy from the Government that takes into account the views of businesses and consumer groups operating in the sector. We urge you and your department to work closely with other departments such as BEIS and regulators like the CAA and CMA, to design a joined-up strategy; ensuring any future reforms of consumer rights in travel, including potential review of the Package Travel Regulations, create a coherent and comprehensible set of protections for consumers.
We look forward to working with you to rebuild the travel industry and consumer confidence in it, and are determined to support the delivery of this. By working together we are confident that we can create a travel market that works for both businesses and consumers.
We look forward to hearing your response.
Michael Higgins, Managing Director of Lovetts Solicitors says
“As we have seen recently, cancellations and significant flight delays cause considerable distress to passengers and results in them often losing time on holiday and creating memories with their families. £16 would not sufficiently compensate them for that distress.
If compensation is reduced, airlines will be able return to the days of making commercial decisions to delay and cancel flights that aren’t full to capacity to maximise sales and profits to the detriment of consumers. This would damage the UK’s reputation with passengers across the world.
Airlines are not significantly impacted by the current flight compensation regulations. If all claims were paid out, which they are not, it would only equate to the equivalent of 85p per flight ticket.
Lovetts Solicitors are proud to be a signatory to the letter Which? sent to the Government and we will do everything we can to protect consumer rights in respect of flight compensation.”
In light of the above, Which? and Lovetts Solicitors will continue to campaign on behalf of consumers to ensure that their rights are protected in respect of flight compensation.
Notes to editors
Lovetts Solicitors are a specialist debt recovery law firm based in Guildford, Surrey that has been operating since 1994. It is one of the leading law firms in the field of flight compensation claims. If further comment is required, please contact Michael Higgins, Managing Director of Lovetts Solicitors by calling 01483 457500 or emailing [email protected]
A full list of signatories to the letter were:
Director of Policy and Advocacy
SVP Global Government & Corporate Affairs
Chief Executive Officer
Chief Executive Officer
Chief Operating Officer
Inghams Esprit and Santa’s Lapland
Managing Director – Solicitor
Chief Executive Officer
On the Beach Group plc
Lovetts online client portal, CaseManager is a unique case management portal which allows a client to have complete control over the debt recovery process. CaseManager allows clients to instruct Lovetts Solicitors and view their cases 24/7. To ensure CaseManager remains a market leading client portal for debt recovery, Lovetts is continually looking to enhance and develop it. Accordingly, Lovetts recently sent out a client satisfaction survey in order to gather our clients valuable feedback.
The results of the survey are detailed below and the feedback will enable Lovetts to provide our clients with the features and updates that they want to see. At Lovetts we want to make the debt recovery process as simple and stress free as possible. Accordingly 60% of clients that took part in the survey rated CaseManager’s ease of use either 4 or 5 stars out of 5.
66% of clients said they check case information either every time or most times that they login to CaseManager. With the remaining 33% saying they sometimes check case information. For us, this shows that this functionality is really useful and is time effective for both the client and for Lovetts as clients can simply login to their account and have their case information within seconds.
On the flip side we can see that 79% of clients that took part in the survey said that they never view auditing information or search for legal resources. Therefore this is something that we may look to remove.
Most of our clients (75%) told us that they use CaseManager either daily, weekly or monthly with the remaining 25% using CaseManager yearly. CaseManager is so useful for many different reasons, not just instructing us on a case. Clients are able to check the status of cases, run reports, make changes/updates to their account and much more on CaseManager at any point in the day. Therefore, this result is assuring to see as we can imply that the information provided on their is useful for clients.
We would like to say a huge thank you to all of the clients that took part in our survey and allowed us to gather some valuable information which can be used to improve your CaseManager experience.
For every survey completed, Lovetts donated £2 to Oakleaf, which is a mental health charity Lovetts supports. They carry out fantastic work and Lovetts would like to thank all the clients that participated in the survey.
If you have any questions above the above please do not hesitate to contact us at [email protected]
Commercial Rent (Coronavirus) Act 2022
Under the Commercial Rent (Coronavirus) Act 2022, which came into force on 24 March 2022, a statutory arbitration regime has been introduced for resolving disputes relating to arrears of rent owed by businesses required to close for a period during the pandemic, this now being known as the period of ‘protected rent’.
The pre-existing moratorium on landlords’ remedies for rent arrears due under business tenancies has been lifted. However, the Act introduces a fresh six month moratorium from 24 March 2022 in respect of protected rent arrears.
The new procedure provides a means of resolving disputes over protected rent arrears by reference to who, as between the landlord and the tenant, is most able to ‘take the hit’. The procedure may well result in arrears of rent being wholly or partly written off, or becoming payable only over time. That said, there are constraints and limits on the new procedure which can protect the position of landlords.
How the statutory arbitration regime works
The Act requires the parties to go through a compulsory pre-arbitration stage, following which either the landlord or the tenant may invoke the arbitration procedure. This type of arbitration must be commenced within six months of the coming into force of the Act, i.e. by 23 September 2022.
Protected rent – If the dispute does proceed to arbitration, the statutory regime provided for under the Act is confined to arrears of protected rent, that is rent due in respect of a specific period, relating to the period of mandatory closure of businesses by the authorities. For premises in England, the period is 21 March 2020 to 18 July 2021. For premises in Wales, the period is slightly different.
The viability principle – In order to proceed with the arbitration, the arbitrator must establish that the tenant’s business is viable or would become viable if the tenant was given any kind of relief from payment.
The affordability principle – The procedure requires the party commencing the arbitration to submit formal proposals for payment, accompanied by evidence as to its financial position. The idea here is to establish why the tenant cannot pay the full amount, but can pay the amount proposed. The respondent party may also submit proposals and evidence. The parties may subsequently submit final proposals. Certain contingencies, such as the possibility of borrowing or re-structuring a business, must be disregarded.
The award – The arbitrator decides the matter by applying certain principles, the first of which is that awards should be aimed at preserving or restoring the viability of a tenant’s business, so far as is consistent with preserving the landlord’s solvency.
A second principle is that tenants should be required to pay protected rent in full and without delay. This means that tenants who can pay the protected rent should do so.
If the arbitrator permits the tenant to pay arrears of protected rent by instalment, the repayment period cannot extend beyond 24 months from the date of the award.
The general effect of this statutory regime is that, in appropriate circumstances, tenants may be given relief from paying arrears of protected rent, their entitlement to such an outcome depending on their and their landlord’s respective financial positions.
The award takes effect as if it alters the terms of the tenancy in respect of the protected rent. Therefore, tenants and other persons such as a guarantor or a former tenant will not be in breach of covenant and so at risk of forfeiture for failure to pay the rent if the tenant complies with the award.
Confidentiality – It is clear that an arbitration of this type could result in the disclosure to the arbitrator and the other party of confidential information. By contrast, arbitrators are required to publish their awards which must set out their reasoning. The Act requires arbitrators not to include confidential information; that is, commercial information the disclosure of which might significantly harm the legitimate business interests of the person to whom it relates, or information relating to the private affairs of an individual the disclosure of which might significantly harm that individual’s interests.
Fees – The party instituting the arbitration is required to pay the arbitration fees in advance. The general rule is that, at the time of making the award, these will be allocated 50/50 between the parties. However, the arbitrator has a discretion as to the allocation of arbitration fees and, if he or she exercises that discretion, can also vary the general rule that each party will bear its own costs of the arbitration.
Choice of arbitrator – Under this type of arbitration, the parties do not have the ability to appoint a chosen individual as arbitrator. Arbitrators are appointed by applying to one or other of seven arbitration bodies approved by the Secretary of State for Business, Energy and Industrial Strategy, amongst these bodies being the Chartered Institute of Arbitrators and the Royal Institute of Chartered Surveyors.
These bodies, supervised by the Secretary of State, may in a particular case appoint a single arbitrator or a panel of arbitrators, who must as usual act impartially and independently from the parties. Arbitrators must also be qualified to conduct the arbitration and must in fact conduct the arbitration in a proper manner.
For further information, please contact Michael Higgins, Wendy Miles, Chris Earl or William Sturge at Lovetts
Philipp v Barclays Bank, The Consumer Association intervening (Ct of Appeal, 2022)
‘Authorised push payment‘ (‘APP’) fraud, as it is known, is the situation where the victim is deceived into transferring money away to an account controlled by a fraudster. It is one of the biggest types of fraud reported by the UK banking and financial services sector.
Various voluntary codes of practice (notably the 2017 BSI Code of Practice and the CRM Code introduced in 2019) have been developed within the financial services industry to compensate customers, albeit subject to their terms and conditions.
Meanwhile, victims of APP fraud should be assisted by the recent case of Philipp v Barclays Bank, in which the Court of Appeal has clarified that the circumstances where customers are owed a legal duty of care are wider than many previously understood. As one of the barristers said in another recent case, it is sound policy that, in the fight to combat fraud, banks with reasonable grounds for believing that a payment instruction is an attempt to misappropriate funds should not sit back and do nothing.
Mrs Philipp was a music teacher and her husband a retired physician. A fraudster tricked them into believing that they were cooperating with the Financial Conduct Authority, the National Crime Agency and the Fraud Department of HSBC. The fraudster persuaded the couple to transfer in excess of £700,000, being the bulk of their life savings, into Mrs Philipp’s account at Barclays and thence to accounts in the United Arab Emirates. By the time the fraud was discovered, the money had gone.
There was a dispute as to whether the bank had asked any safeguarding questions or given any scam warnings.
Mrs Philipp brought an action against the bank for breach of a duty of care, which duty was to be implied into her contract with the bank under the common law, or pursuant to section 13 of the Supply of Goods and Services Act 1982. The duty was characterised as a duty to observe reasonable care and skill in executing her instructions. Mrs Philipp’s case was that the bank ought to have had in place policies and procedures to detect and prevent potential APP fraud and reclaim monies subject to it.
The bank’s case was that it did not owe such a duty. The bank also took a point on causation, arguing that Mrs Philipp and her husband had been so thoroughly deceived that they did not trust the police or the bank and were lying to the bank about the purpose of the transfer. Thus, even if the bank had delayed the transaction, asked questions to get to the bottom of what was going on, arranged for Dr and Mrs Philipp to meet the police and then given warnings, Mrs Philipp would have gone ahead anyway.
The bank applied for ‘summary judgment’, that is, to strike out Mrs Philipp’s claim on the basis that the court could decide without a trial that there was no duty of care in these circumstances.
The Commercial Court agreed with the bank and struck out the action.
Mrs Philipp appealed. The Consumers’ Association (Which?) was then granted permission to intervene, supporting the appeal and contending that the court should recognise a duty of care in the circumstances.
The leading case in this area of the law is Barclays Bank v Quincecare (1992). In that case, a dishonest company chairman gave payment instructions resulting in the misappropriation of funds from his company. The court held that the bank would be liable to compensate Quincecare if it executed an instruction to pay out funds knowing it to be dishonestly given, or shut its eyes to the obvious fact of the dishonesty, or acted recklessly in failing to make such enquiries as an honest and reasonable bank would make; and the bank should refrain from executing an order if and for so long as it was put on enquiry by having reasonable grounds for believing that the order was an attempt to misappropriate funds. In such cases it is not the original dishonesty, but the bank’s subsequent negligence in dealing with the payment order that is to be regarded as causing the loss.
Applying the duty of care identified in Quincecare to the present case, the Court of Appeal held that the existence of this duty is not confined to ‘internal frauds’ by employees against their company, or to cases where it can be said that in truth the actual customer never gave a payment instruction. The correct analysis is that a bank is under a primary duty to execute orders promptly. However, the bank has another duty which operates in tension with that primary duty, to use reasonable skill and care in executing the customer’s orders. If the bank is actually aware that a payment instruction is an attempt to misappropriate funds, it will very probably be liable if it simply pays out. If the bank’s state of knowledge as to the dishonesty or otherwise of the order is less clear than that, the bank is required to refrain from executing the order if and for so long as the circumstances would put an ordinary prudent banker on enquiry. The circumstances in question would be the existence of reasonable grounds for believing that the order is an attempt to misappropriate funds. The standard of conduct required of the bank is that of the law of negligence.
The Court of Appeal therefore held that a relevant duty of care could arise in the case of customers who are the unwitting victims of APP fraud themselves instructing their bank to make a payment, provided the circumstances are such that the bank is on enquiry that executing the order would result in the customer’s funds being misappropriated.
The court went on to hold that the right occasion to decide whether such a duty arose in the present case was at a trial.
The bank had argued that the duty of care contended for would have been unworkable and onerous in practice. However, the court considered that there was ample evidence that this was not the case and that the proper place to resolve this issue too was at a trial.
Accordingly, the order to strike out which the bank had obtained was set aside. The parties could now pursue the resolution of their dispute on the basis that the law recognises that banks can indeed owe a duty of care to the victims of APP fraud.
For further information, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.
We are delighted to share that we will be extending our sponsorship with Woking FC into the 2022/23 season.
Lovetts have been huge supporters of Woking for many seasons now and so the decision to extend was an easy one. We are looking forward to supporting the club moving forward both on and off the pitch. With the announcement of new manager Darren Sarll we are optimistic that Woking will continue to make significant progress on and off the pitch.
Woking FC’s commercial Director Mick Livsey comments –
“It is such great news that Lovetts Solicitors have signed up for the 2022/23 season with an increased package,”
“From the moment I sat down with Managing Director Michael Higgins it was apparent we shared so much passion for the Football Club and the community of Woking.
“It is our desire to build very special relationships with the business community and this is one such relationship, a huge thank you to Michael and everyone connected with Lovetts Solicitors.” Livesey added.
Lovetts are continuously working on ways on which we can support our local community and businesses within it. Along with our sponsorship at Woking FC we will work to continue our support at Oakleaf. Oakleaf is a mental health charity based in Guildford. They do amazing work to support their clients in the community with their mental health, providing a safe haven and supporting their clients return to work.
Corbin & King and Others v AXA Insurance (2022, Commercial Court)
Contrary to two previous court decisions, although a NDDA clause was held to provide cover for localised occurrences interfering with a business, in light of the Supreme Court decision in FCA v Arch, the clause was held to provide broader cover than that in the case of disease occurring more widely. Covid-19 was thus held to fall within the phrase ‘a danger or disturbance at your premises or within a 1 mile radius of your premises’ in a Denial of Access BI cover. The court held that cases of the disease within the radius constituted a danger and, coupled with other uninsured but not excluded danger constituted by the disease outside the radius, had led to regulations which caused the closure of the insured businesses and the business interruption loss.
A combined business insurance policy, including cover for property damage and business interruption, was issued to Corbin & King restaurants and other establishments for the period of one year from November 2019.
Access to certain of the insureds’ premises was subsequently restricted or hindered as a result of government regulations imposed in response to the covid-19 pandemic, first by a period of forced closure, then by an enforced closing time and after that by a further period of forced closure.
The insureds submitted claims under a clause in the Business Interruption section of the policy in the following terms:
“Denial of access (non-damage) cover
We will cover you for any loss insured by this section resulting from interruption or interference with the business where access to your business is restricted or hindered for more than the franchise period [2 hours] shown in your schedule arising directly from:
- the actions taken by the police or any other statutory body in response to a danger or disturbance at your premises or within a 1 mile radius of your premises.
- the unlawful occupation of your premises by third parties
Provided that …
We will not cover you where access to your premises is restricted or hindered as a result of … (4) notifiable diseases as detailed in the Murder, suicide or disease cover …”
The insureds contended that they had coverage because there were cases, or the threat of cases, of covid-19 within a one mile radius of each of their premises and this, combined with cases elsewhere in the UK, was an effective cause of the making of the regulations which led to the restriction of access to each of the premises.
By contrast, AXA contended that the cover provided by a NDDA clause is qualitatively different from that provided by a disease clause. The NDDA clause only provides a narrow form of cover in respect of ‘a danger or disturbance’ specific to the locality of the insureds’ premises, as opposed to a nationwide state of affairs. The paradigm type of incident covered is a nearby structure at risk of collapse. AXA argued that the insureds could only recover if they could demonstrate that it was the presence of the risk of covid-19 at the insureds’ premises or within a one mile radius, as opposed to the country as a whole, which led to the regulations.
In preferring the insureds’ argument, Mrs Justice Cockerill held that this clause provides a localised cover, but one which is capable of extending to disease occurring widely.
The judge began by considering whether she was bound by the findings of the Divisional Court in FCA v Arch, which had not been appealed on this point, that clauses similar to the one in the present case, covering dangers within a specified radius, had a narrow, localised focus and did not indemnify the insured against business interruption losses caused by regulations introduced to cover the pandemic as a whole. She held that she was not so bound. This was because the wordings considered by the Divisional Court were sufficiently different for her to proceed from first principles.
Further, in FCA v Arch the argument in the Divisional Court had proceeded on the assumption that such clauses contained a “but for” test of causation, i.e. in order for there to be coverage, the position had to be that, but for the occurrence of the insured peril, the insured’s business would not have been interrupted. That reasoning could not stand given that, on appeal, the Supreme Court had ‘moved the goalposts’ by finding that a broader test of causation applied generally in the case of disease, such that cases of covid-19 occurring within the radius were a concurrent cause of the restrictions along with all the other cases outside the radius. In coming to her conclusion, the judge noted that Lord Mance, a member of the Supreme Court but on this occasion sitting as a sole arbitrator, had come to a conclusion similar to hers in September 2021 in ‘The China Taiping Arbitration’.
From that point, Cockerill J found that:
- The wording of the clause was too general to be confined to transient, local incidents and could include generic circumstances such as a disease.
- The correct approach to construing a contractual clause was not to consider paradigm cases or historical origins, but the words used, as these would be understood by an ordinary policyholder (i.e. a small businessman possibly assisted by a high street broker).
- The phrase ‘a danger or disturbance at your premises or within a 1 mile radius of your premises’ was apt to include disease.
- The natural reading of exclusion (4) was that notifiable diseases which were not detailed in the Murder, suicide or disease cover could be covered under the NDDA.
- In the Irish High Court case of Brushfield v AXA (2021), the exact same clause had been held to be confined to dangers or disturbances at the insured’s premises or within 1 mile of the premises, with the result that a national pandemic was not covered. However, Cockerill J was unable to concur with the Irish court, amongst other matters because she considered its decision was overly concerned with paradigm and inferred subjective intention, and not enough with the wording.
- Pursuant to the Supreme Court’s judgment in FCA v Arch, the broader test of causation applied to disease claims under clauses such as the NDDA in Corbin & King v AXA.
- Because this was a composite policy, i.e. covering several insureds, and given the wording of the policy, the limit of cover was provided per insured and per claim.
Insurer, Axa, has said it does not intend to challenge the court of appeal judgment.
For further information on business interruption insurance, please contact William Sturge at Lovetts. by email [email protected] or by telephone on 01483 457500.
From 1st April 2022, restrictions were lifted on issuing Winding Up petitions. As a result, creditors are now able return to issuing petitions for debts over £750 against insolvent businesses.
Due to the Covid-19 pandemic, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) was introduced in June 2020. This prevented creditors issuing Winding Up petitions unless they could show that Covid-19 was not the reason why the business was insolvent.
There were further restrictions placed on Winding Up petitions on 1st October 2021. Whereby, creditors were only be able to issue Winding Up petitions for debts over £10,000 and were required to give a 21 day notice period to debtors before issuing a petition.
However, these restrictions have now ended meaning creditors are able to once again issue Winding Up petitions against insolvent businesses providing the debt is over £750 and it is not disputed.
Prior to issuing a Winding Up petition, the creditor must be able to evidence that the business is insolvent. This is typically done by showing a demand for payment was made to its customer but payment was not forthcoming.
Lovetts Solicitors achieves this by sending a draft Winding Up petition on behalf of creditors. This is where we draft the winding up but hold off on serving it formally. It will be sent only to the debtor with an accompanying letter warning them that if they do not settle the debt within a set time period (usually seven days) then the petition will be submitted at Court. The debtor is often motivated to avoid Court and liquidation, and Lovetts have found that 81% of draft Winding Up petitions result in full payment of the debt.
If a draft Winding Up petition does not achieve the desired effect, the next step is to go to Court. This is the process followed in that situation:
1. The petition is presented (i.e. sent to Court for a hearing date to be given).
2. The petition is served on the company’s registered office.
3. After at least 7 days has passed (but at least 7 days before the hearing is due), the Winding Up is advertised in the London Gazette.
4. Once the Winding Up has been advertised, the debtor’s bank will freeze all company accounts. This effectively prevents them from continuing to trade.
5. At the hearing, the Judge will hear the petition and make a Winding Up Order against the debtor unless they provide a defence or prove they can pay the debt.
6. Once the Order has been made, the official receiver will start the process of liquidating the company and distributing the assets to the creditors.
7. The directors of the company being wound up will be investigated for any wrongful trading. If they are found to have been accepting credit with no expectation of being able to pay it back, they may be found personally liable for certain debts.
As mentioned previously, it is important to establish that the debt is not disputed prior to issuing a Winding Up petition. If the debt is disputed, this may result in an injunction against the petitioner, the petition being thrown out of Court and the creditor being ordered to pay the other side’s legal costs.
However, it is important to act as quickly as possible if you suspect a customer is struggling with cash flow. It is often the creditors that shout the loudest that secure payment first. If you have concerns or you are seeking to take robust action in the form of a draft Winding Up petition, contact us today.
The natural reaction of many policyholders faced with a potential catastrophe is to seek to avoid or minimise potential problems of which they become aware. It seems sensible to attempt to remedy a situation which is otherwise likely to cause loss and damage, rather than do nothing and allow the damage to occur. A proactive response to looming problems can also be a regulatory expectation, as well as saving expense in the long run and protecting reputation.
Express wording required covering mitigation expenses – However, even though action to mitigate loss may well save insurers money, in the absence of express wording, cover cannot be implied into an insurance policy for costs to mitigate a loss that insurers might have to meet at a future date. An express provision is needed in the policy wording. Such wordings often require any mitigation expenses to satisfy a strict test of being ‘reasonably and necessarily’ incurred.
Many property insurance wordings do contain some form of loss mitigation or ‘sue and labour’ provision, although there is a notable variety of wordings providing for the expense of loss mitigation. By contrast, such provisions have been less common in liability policies.
Insurers must be notified in advance – In liability policies, the point of departure for claiming the cost of mitigating a potential loss is the provision for notifying circumstances which might reasonably be expected to give rise to a Claim by a third party against the insured. In this briefing note, third party Claims are referred to with a capital ‘C’, to distinguish them from claims (with a lower case ‘c’) under an insurance policy.
Once notified, any Claim subsequently arising from such circumstances will be deemed to have been made in the period of insurance in which the notification was given. The cost and expense incurred will attach to the policy year in which the notification is given and will therefore be subject to the limit of cover applying to that year of cover. Later policies are likely to contain an exclusion of claims arising as the consequence of any circumstance notified under an earlier policy.
Restrictions on the circumstances that can be notified – “Circumstances” is a broad term. Sometimes the insured will be able to specify precisely what it is that gives rise to the possibility of a Claim. However, the notification does not need to refer to a specific transaction from which a Claim may arise. Nor does it need to identify a specific defect in relation to the handling of the insured’s client as likely to give rise to a Claim. On some occasions, the insured may be able to do little more than point to the fact that something is not working for a reason which has yet to be ascertained, this sometimes being referred to as a ‘can of worms’ or a ‘hornet’s nest’ type of notification. Nor is it a question of whether the characterisation of a circumstance as one which may give rise to a claim can be made subjectively by the insured or must be assessed objectively. Provided that the circumstance notified may reasonably be regarded in itself as a matter which may give rise to a Claim for which the insurer may (but not necessarily will) be liable under the policy, the notification will be effective.
Whether any subsequent Claim must be of the nature anticipated – The approach of the courts is to avoid characterising notifications in unduly narrow terms. The issue of whether a Claim arises out of circumstance notified is assessed objectively but the test here is not demanding. Some causal link is required. Provided that there was a reasonable expectation that the circumstance in question may produce a Claim insured under the policy, it does not matter if it later transpires that the problem is something which is not covered under the policy.
Entitlement to recover the expense of mitigating loss expected to arise from a potential Claim – As discussed above, the insured may decide not to wait for a Claim to materialise but instead to incur costs and expenses in avoiding, circumventing or reducing the loss that may otherwise arise from a Claim and form the subject of a claim under the insurance.
The claim for recovery of the cost of mitigating a loss becomes a claim in its own right under the policy. Subject to the precise terms of the policy wording, the insured will be entitled to an indemnity for costs and expenses necessarily incurred in such mitigating action, provided that (a) the insurer has agreed to the course of action proposed and (b) the claim under the policy is for cost and expenses incurred in order to mitigate or avoid a Claim which might reasonably be expected to arise from the circumstances notified.
Examples of cases on mitigation of loss:
- In Standard Life v ACE (2012, Ct of Appeal), Standard Life (‘SL’) operated a fund which reduced in value following changes to its asset valuation methodology. Following complaints, SL investigated and found that a majority of investors would have valid claims as a result of misleading statements in some versions of the fund’s marketing literature, comparing investment in the fund in terms of risk to cash on deposit. SL made a cash injection in excess of £100m to restore the value of the fund. SL also compensated investors who had sold their units since the drop in value. When SL sought to recover these payments under the mitigation clause in its professional indemnity policy, insurers argued that the cash injection was a windfall insofar as concerned those investors who had received adequate marketing literature. However, the court held that the expense was reasonably and necessarily incurred and the fact that it produced a windfall for some investors was irrelevant. Nor would the claim be reduced to reflect that SL’s motivation in making the cash injection had included protecting its brand, or that SL’s total exposure had exceeded the sum insured.
- In Euro Pools v RSA (2019, Ct of Appeal), the insured designed and installed swimming pool booms that were supposed to be capable of being raised and lowered. The air drive mechanism for raising and lowering the booms failed in several of their installations, due to what was believed to be a design fault. The insured obtained the insurers’ agreement to modify the system by lining the booms with inflatable air bags. However, by the following policy year, it was clear that the air drive system would not work however it was modified and the insured obtained insurers’ agreement to replace it with a hydraulic mechanism. The insured claimed that the cost associated with installing the hydraulic system fell into the second year of the policy, but the court held that all the expense arose out of the original notification and was to be allocated to the first year of the policy in which, unfortunately for the insured, the limits of cover had already been exhausted.
For advice on insurance matters or further information on mitigation of loss clauses, please contact Wendy Miles, Chris Earl or William Sturge at Lovetts.