16 August, 2019
Bank of Queensland Limited v AIG Australia Limited [2019] NSWCA 190
What you need to know
- A NSW Supreme Court decision last year effectively defeated an insurance claim for a class action by holding that each group member's claim was a separate claim and a $2M deductible applied to each.
- The NSW Court of Appeal has now held that while there were multiple claims, they are treated as a single claim under the aggregation clause and so only one deductible was payable by Bank of Queensland (BOQ).
- The application of aggregation clauses is fact dependant – both in relation to the nature of the claims and the policy wording.
Background
BOQ offered customers a financial product known as a Money Market Deposit Account. The product was promoted to financial planners, who were given authority as signatory of the accounts. The class action alleged that BOQ failed to protect investors' interests when it became aware of a fraudulent Ponzi scheme conducted by a financial planner using the accounts.
BOQ settled the class action and claimed defence costs and the $6M settlement sum under its insurance. As the policy imposed a $2M deductible on each claim, and there were almost 200 group members each of whom claimed less than $2M, applying the deductible to each group member's claim would have relieved the insurer of any liability to indemnify BOQ for the $6M settlement payment.
The class action was multiple claims under the policy
The definition of "Claim" in the policy was fairly typical of those found in policies of this type.
The Court was split on whether the commencement of the class action itself was a single claim or multiple claims. By its nature, a class action is commenced by a lead applicant on behalf of group members (and not brought by each group member).
The majority held that, although a single proceeding, the class action constituted multiple claims under the policy – the policy being construed by asking what a reasonable businessperson would understand its terms to mean. Taking each member of the class separately, there was a "suit or proceeding" brought by that member within the definition of "Claim".
This was particularly so at least from the time investors submitted the registration forms to participate in the settlement. Accordingly, there were multiple claims at least from the time group members took a positive step to participate in a class action.
But the multiple claims were treated as a single claim under the policy
The aggregation clause was also in fairly familiar form. It provided that "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", such that one deductible applied.
At first instance, the Court held that the Wrongful Acts were the purported withdrawals made from the accounts. The Court held that the aggregation clause did not apply because the Wrongful Acts were not sufficiently similar or logically or causally connected.
But the Court of Appeal held that the multiple claims should be aggregated. In particular:
- A separate Wrongful Act occurred each time BOQ acted on a request for a withdrawal. The question was whether they were "related Wrongful Acts" under the policy.
- All of the acts were wrongful on the basis that they were allegedly engaged in by BOQ with knowledge of fraud – this was a sufficient unifying factor for them to be a "series of related Wrongful Acts".
Of course not all aggregation clauses are the same – the result may have been different if the policy referred to a "single source" or "originating cause".
Concluding remarks
The decision is positive for insureds by confirming a commonly held market view that only one deductible should apply to multiple claims originating from what common sense would suggest is a common source. The commercial driver of many class actions—multiple small claims adding up to a single large amount—lends itself to a situation where the application of a deductible to each claim would render the insurance coverage inutile. This would presumably not be what insureds taking out insurance coverage would expect.
It should be stressed that the application of an aggregation clause will in each case depend on the wording of the clause and the nature of the claim. Insureds (and brokers) should scrutinise proposed policy wordings in view of the nature of their business and the likely class action risk.
For further information, please contact:
Ian Bolster, Partner, Ashurst
ian.bolster@ashurst.com
