Standard Life Assurance Ltd v ACE European Group [2012] EWCA Civ 1713
This case concerns whether the insured was entitled to recover, without apportionment, the full amount of its first party claim (as opposed to a third party claim), which it paid under a “mitigation costs” clause in a professional liability policy covering the insured against third party claims arising out of the provision of financial services.
The insured, Standard Life Assurance Ltd (SLAL), launched a fund in 1996 which was described as being equivalent of putting money in deposit. In fact, the fund included asset backed securities and, in 2008/2009 after Lehman Brothers collapsed, the fund suffered a one day fall in value of 4.8%. SLAL was thus facing widespread criticism from the media, mass claims from its clients and the scrutiny of the regulators.
To alleviate this crisis, SLAL opted to restore the value of the fund and make direct payments to those customers who had disinvested in the fund since the day of the fall in value. SLAL also set aside a certain amount for compensating customers on an individual basis. All in all, SLAL paid a total of £106,693,438 as “remediation payments”. These “remediation payments” did two things, they helped avoiding brand damage and a loss of a further £300million and compensated those who had sold units in the fund.
The insurers, at first, rejected the claim stating that these “remediation payments” did not fall within the “Mitigation Costs” clause because they amounted to costs not reasonably and necessarily incurred. The judge in the first instance declared that the remediation payments were reasonably and necessarily incurred by SLAL in taking control to avoid or reduce third party claims of a type covered by the policy. The insurers at trial then argued that there should be an apportionment of the remedial payments between the insured and uninsured interests at risk. This argument was the subject of the appeal.
The insurers submitted that there was a rule of law which required in cases such as this one an apportionment of the remediation payments by reference to the insured and uninsured interests at risk and sought to be preserved by that expenditure. The Court of Appeal, however, held that this argument failed at the first hurdle because, as a matter of construction of the policy, the insurers undertook “to indemnify the Assured for Mitigation Costs.” Mitigation costs must include sums paid in respect of brand damage and, as such, any apportionment costs would involve the insurers failing to honour their promise to indemnify the insured for Mitigation Costs.
As a subsidiary argument, the insurers said that the ability for an insured to recover mitigation costs under a liability policy is analogous to a sue and labour provision in marine policies. This argument also failed. The Court of Appeal held that this concept had its origin in under insurance of ship and cargo, i.e. property, and had nothing to do with liability insurance.
The Court of Appeal reinforced the principle that apportionment has no place in liability insurance and that it would be irrational to introduce it because the very concept of liability insurance is that the insured can recover up to the policy limit.