NSW Court of Appeal clarifies when aggregation clause may be triggered in a class action
Bank of Queensland Limited v AIG Australia Limited [06.08.19]
In 2018 the NSW Supreme Court held that a class action brought against Bank of Queensland Limited (BOQ) by Petersen Superannuation Fund Pty Ltd (Petersen) could not be aggregated.
This decision was overturned in August 2019. The NSW Court of Appeal held that the class action proceeding was made up of multiple claims that could be aggregated as a series of related “Wrongful Acts”.
Petersen brought a class action, on behalf of itself and other investors, in the Federal Court of Australia alleging losses suffered as a result of a fraudulent scheme conducted by Sherwin Financial Planners Pty Ltd (SFP) that utilised BOQ accounts. A settlement of A$6 million was reached in February 2018, approved by the Federal Court.
BOQ sought declarations in the NSW Supreme Court claiming an entitlement to indemnity from its insurers under its professional indemnity policy (Policy) for the settlement and defence costs, subject to a single retention of A$2 million.
Insurers asserted that BOQ’s losses arose out of multiple claims (191 in total), each subject to the A$2 million retention. BOQ had no entitlement to recover because no single claim exceeded A$2 million.
Stevenson J found that while the class action proceeding constituted multiple separate claims, they could not be aggregated because the 191 claims were not attributable to a “series of related Wrongful Acts”. As each “Claim” was less than the A$2 million retention that applied to each “Claim”, BOQ was not entitled to payment under the Policy for the settlement reached.
See Kennedys’ previous article, Australian court considers whether class actions are single or multiple claims, for further analysis.
Issues on appeal
BOQ appealed to the NSW Court of Appeal. The issues on appeal were:
- Whether the class action proceeding constituted multiple claims or a single claim under the Policy
- If there were multiple claims, whether those claims should be treated as a single claim due to aggregation
- If there was a single claim, should the claim be disaggregated because of a disaggregation clause in the Policy.
Findings on appeal
The court allowed the appeal and made declarations to the effect that only one A$2 million retention applied to the class action proceeding brought against BOQ.
The court’s judgment focused on the facts of the class action proceeding and the wording of the aggregation clause in the Policy. The judgment confirms that it is crucial, when considering aggregation, to focus on those two things. Authorities on the application of different aggregation clauses will be of limited assistance.
Multiple claims or a single claim under the Policy?
Macfarlan JA, with whom Bathurst CJ agreed, held that the class action proceeding was made up of multiple claims within the meaning of the Policy, being the claims brought by each individual investor within the class action proceeding.
White JA disagreed with the majority and held that the class action proceeding was a single claim because it was a “suit or proceeding” (singular) brought on behalf of the investors.
The court was unanimous, however that the Class Members Registration Forms submitted by the investors each constituted a “written demand” within the meaning of “Claim” in the Policy.
Aggregation and disaggregation
The court was unanimous that the multiple claims that made up the class action proceeding arose out of, were based upon, or attributable to, one or a series of related “Wrongful Acts” and should therefore be aggregated under the terms of the aggregation clause in the Policy. As a result of this finding, only one retention applies to the settlement amount claimed for the class action proceeding.
The court disagreed with BOQ’s view that there was one “Wrongful Act”. The court held that there was a separate “Wrongful Act” each time a withdrawal was acted upon by BOQ in furtherance of the fraud/Ponzi scheme and with knowledge of the scheme. This constituted a unifying factor rendering the withdrawals “related” for the purpose of the aggregation clause.
MacFarlan JA focused on the Policy wording, noting that a “series of Wrongful Acts” is understood more easily as “related acts”. His Honour compared the Policy wording to the aggregation clauses in other decisions but distinguished this particular aggregation clause on the basis of different wording. The aggregation clause in this case is not a “cause-based clause”. A sufficient connecting factor is instead required for the “Wrongful Act”.
It was not necessary for the court to consider the disaggregation issue given the finding of multiple claims.
Macfarlan JA also noted that the relatedness finding was supported by the requirements for representative proceedings as set out in the Federal Court Act 1976 (Cth). The class action proceeding was only permitted by the Federal Court Act because of the significant common questions arising in connection with each class member’s claim.
This decision confirms that the triggering of an aggregation clause depends entirely on the facts of each matter and the policy wording. Authorities on the construction of differently worded aggregation clauses will provide limited assistance.
For an insured in a class action proceeding, there is now a strong basis to push back against insurers and rely on aggregation so that one retention or deductible applies. The impact of this for insurers could be significant.