Addleshaws seals victory for Standard Life in £100m insurance dispute

It is understood that the win will bring a bumper payday for Addleshaws, which represented the claimant on a conditional fee agreement (CFA). The firm said it would look to recover costs from the defendants.

The dispute, which The Lawyer listed as one to watch in January 2011 (3 January 2011), concerned a policy dispute over a £2.2bn pension fund - the Pension Sterling Fund.

Brick Court Chambers’ George Leggatt QC and Simon Salzedo QC were instructed by Addeshaw Goddard partner Richard Leedham to purse 11 insurers after they refused to indemnify a £100m cash injection the claimant had pumped into the fund.

This cash injection came after the collapse of Lehman Brothers in 2008 led to five per cent being wiped from the value of the assets in the scheme. 

Standard Life subsequently made a claim for £100m under its professional indemnity insurance policy on the basis that its actions averted potentially larger losses and therefore fell within the definition of ’mitigation costs’ under the cover.

Insurers denied cover and challenged Standard Life’s interpretation of the policy on a number of grounds. Mayer Brown partner David Chadwick instructed Alistair Schaff QC of 7KBW to lead the defence for insurers.

The insurers rejected the policy on the grounds that the payment was “reasonably and necessarily incurred” and this meant that they were not covered if it could be shown that there was an alternative course of action open to the insured.

In addition, Schaff argued that the phrase “in taking action to” meant that the payments were made with the dominant motive of mitigating against third party claims.

In his ruling, Mr Justice Eder said the correct approach was to look at the intended effect of the payment, not the company’s motive for making it or to whom it was directed.

In his judgment he stated: “I accept the insurers’ submissions that the cash injection was also incurred in order to avoid or to reduce ’brand damage’. However, in my view, both intended objectives were equally efficacious and […] this does not affect  [Standard Life’s] entitlement.

“Thus, it is my conclusion that [Standard Life] is, in principle, entitled to recover all the remediation payments including the cash injection without apportionment.”

The insurers also argued that the amount of any indemnity to which the claimant was entitled should be reduced in accordance with principles of apportionment found typically within policies of marine insurance or in the context of under-insurance.

Rejecting the contention, Eder J stated that it was “at the very least, very doubtful whether it can be said that there is any general principle of apportionment in a liability policy”.

The legal line-up:

For the claimant Standard Life Assurance Ltd: Addleshaw Goddard partner Richard Leedham instructed Brick Court’s George Leggatt QC and Simon Salzedo QC.

For the defendants (1) Ace European Group; (2) Liberty Mutual Insurance Europe Ltd trading as Liberty International Underwriters; (3) Catlin Insurance Company (UK) Ltd; (4) Chartis Insurance UK Ltd (formerly AIG UK); (5) Timothy Joseph Carroll, on his own behalf and on behalf of the underwriting members of syndicate 4444 for the 2008 year of account; (6) John David Neal, on his own behalf and on behalf of the underwriting members of syndicate 1886 for the 2008 year of account; (7) Aspen Insurance UK Ltd; (8) Axis Speciality Europe trading as Axis Specialty London; (9) Houston Casualty Company Europe Seguros Y Reaseguros SA; (10) Philip Thomas Foley, on his own behalf and on behalf of the underwriting members of syndicate 1218 for the 2008 year of account; (11) Arch Insurance Company (Europe) Ltd: Mayer Brown partner David Chadwick instructed 7KBW Alistair Schaff QC, Andrew Wales and Josephine Higgs both of the same set.