Aggregation of Losses: Pensions Mis-Selling Lloyds TSB v Lloyds Bank Group Insurance Co Court of Apeal, 8 November 2001

Author:Mr Nigel Brook
Profession:Clyde & Co


Lloyds TSB and other companies were involved in providing personal pension plans to the public, including those opting out of occupational schemes. They faced claims from thousands of investors, who alleged that the companies' sales reps (formally, Financial Service Consultants or "FSCs") had failed to give "Best Advice" in accordance with the relevant code of conduct. The average claim was relatively small but the aggregate liability per company was substantial.

The companies had professional indemnity insurance which imposed a deductible "each and every third party claim" and went on to provide that:

"If a series of third party claims shall result from any single act or omission (or related series of acts or omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible."

The definition of "act or omission" was framed in the same terms as the Insuring Clause - in other words, if circumstances giving rise to a claim were covered under the policy, they also constituted an "act or omission".

In two separate cases the Court was asked to decide preliminary issues, based on assumed facts. It was common ground that there had been a systemic failure of the companies within each group concerned properly to assimilate the affect of the Financial Services Act 1986 and the regulations made under it; to appreciate the Best Advice responsibilities of the FSCs when selling pensions; and to institute a proper scheme of training to ensure that such responsibilities were carried out. Insurers accepted that the claims could be considered as a "series of claims", but contended that they could not be aggregated for the purposes of the deductible.

Moore-Bick J found that the management failure to train FSCs - and not the inadequate advice given by each FSC to a third party - was the real or effective cause of the third party claim, in that the failure of the FSCs to give Best Advice was the virtually inevitable result. He declined to decide whether this management failure was a single act or omission, or a related series of acts or omissions. He also concluded that, even if forced to confine himself to individual failures on the part of FSCs to give Best Advice, these individual failures were nonetheless linked by the common factor that they were the result of the management's failure to provide proper...

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