How do you apportion a claim under a liability policy?

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How do you apportion a claim under a liability policy? The answer, according to the UK Court of Appeal, is you don’t. The Court of Appeal handed down judgement today in the much talked about Standard Life Appeal (ACE European Group & Ors v Standard Life Assurance Limited). Having been ordered to pay more than £100m to Standard Life by the High Court, Standard Life’s professional indemnity insurers took the case to the Court of Appeal. In firmly denying that appeal today, the Court of Appeal provided important clarification as to how liability insurance policies work.

Standard Life’s initial insurance claim related to a £2.2bn pension fund (the Pension Sterling Fund). Following the collapse of Lehman Brothers and onset of the credit crunch certain assets in which the fund had been invested (Asset Backed Securities and Floating Rate Notes) experienced losses with the result that the fund lost approximately 5% of its value (a little over £100m). Standard Life chose to reverse the effect of the fall by injecting £100m into it. 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 policy. Insurers denied cover and challenged Standard Life’s interpretation of the policy on a number of grounds…

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