To aggregate or not to aggregate?That is the question.

Bank of Queensland sought indemnity from three insurers under a claims made policy which had a limit of liability of $40 million, and a $2 million retention each claim.

The Bank had paid $6 million to settle a representative proceeding bought by a Superannuation Fund (Petersen) on behalf of itself and other investors. The loss sought arose from investments in a fraudulent Ponzi scheme run by a financial planner (SFP) which utilised the Bank’s accounts.  DDH Graham Ltd (DDH) operated the accounts pursuant to an agency agreement with the Bank.  Peterson alleged the Bank failed to protect the investors’ interests when it became aware of the fraud which SFP committed.  SFP had authority to give instructions for the investors, which DDH implemented.

At trial before Stevenson J,1 insurers successfully argued there were multiple claims, none of which exceeded the retention, so nothing was payable under the policy. The trial Judge said that although there was only one suit or proceeding, there were multiple claims for the purpose of applying the retention.  He declined to aggregate the claims on the basis that the Wrongful Acts were the Bank’s actions in permitting withdrawals from the accounts, with each withdrawal a separate act, made on a separate occasion, from a different account causing loss to different parties, and in response to different and separate purported instructions.  This conclusion was reinforced by the withdrawals being wrongful for different reasons such as some instructions came by email, some through unauthorized signatories, and others because they occurred after the Bank had knowledge of the fraud.

The Bank appealed. It maintained that there was one claim because there was only one suit or proceeding (the representative action).  However, if there were multiple claims as argued by the insurers (each group member having brought a suit or proceeding/made demand), then they should be aggregated and treated as a single claim for the purposes of the retention.

In construing the policy, the Court of Appeal asked what a reasonable businessperson would have understood the relevant terms to mean by reference to the text, context and purpose of the agreement.

The majority of the Court found the representative proceedings involved multiple claims brought by each Group member. They were unanimous that each investor’s Class Member Registration Form to join the action constituted a separate written demand.

In that case, a separate $2 million retention was payable for each claim, unless they could be aggregated. The question therefore was whether the claims in question arose out of, are based upon or attributable to one or a series of related Wrongful Acts.

The Court found there were separate (and therefore multiple) Wrongful Acts which occurred each time a request for a withdrawal was acted on. It then turned to consider whether the Wrongful Acts were related:

  • Based on the pleaded claim, there was knowledge of the fraud alleged in relation to all the Group Members’ transactions.
  • The use of the word “series” in the aggregation clause added little to the concept of whether the Wrongful Acts were related. It simply emphasised the need for such Acts to be related.
  • The aggregation clause in this instance was not an explicitly cause-related clause (such as that in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43). It simply identified the relevant question as being whether the Wrongful Acts were themselves related.  The alleged knowledge of the fraud by DDH (and therefore the Bank) was a sufficient unifying factor for them to be related as contemplated by the aggregation clause.

The Court therefore found that the payments were attributable to a series of related Wrongful Acts (which included breaches of contract and breaches of fiduciary duty). Although there were a series of payments out of the funds of different claimants, the similarity in the circumstances in which the payments were made was sufficient to give rise to the conclusion that there was a series of related Wrongful Acts.  The financial planner was the same, and the breach identical so as to be related Wrongful Acts with only one retention payable.

Although this outcome was dependent on the policy wording, it represents a relatively low threshold for an insured to establish that multiple claims should be aggregated for the purposes of applying only one retention. One common underlying factor was sufficient to trigger the aggregation clause in this instance.

  1. Bank of Queensland Ltd v AIG Australia Ltd [2018] NSWSC 1689.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.