Spire Healthcare Ltd v Royal & Sun Alliance Insurance Ltd

The Court of Appeal has provided clarity on the effect of aggregation clause wording of one source or original cause. This wording aggregates claims on a wide basis and requires the courts to undertake a broad search for a unifying factor.

Factual history

Royal & Sun Alliance Insurance PLC (RSA) underwrote a combined liability policy for Spire Healthcare Limited (Spire). Following the actions of a rogue surgeon a settlement fund was agreed, with Spire agreeing to pay £27m towards a compensation fund for victims. Spire then sought indemnity under the policy.

Paterson was a consultant breast surgeon employed by the Heart of England NHS Foundation Trust (HEFT). He also worked at Spire hospitals. Patterson’s misconduct centred around two main acts known as the Group 1 and Group 2 claims, these were:

  1. When patients had breast cancer Paterson often negligently performed sub-total mastectomies (STM), also known as cleavage sparing mastectomies which involved leaving some breast tissue behind. This was well known to be negligent practice. 
  2. Paterson would often falsely report pathology tests and perform unnecessary treatment on patients.

Around 750 former patients commenced proceedings against Patterson, Spire and the HEFT. Patterson was convicted in 2017 and jailed for 20 years. He was found to have been both negligent and criminally culpable. It was the criminal element which led Paterson’s own indemnity provider, the Medical Defence Union (MDU) to exercise their complete discretion and decline cover. With the claimants then seeking redress from other sources to compensate victims, Spire found themselves vulnerable for the actions of Paterson, despite his status as an independent contractor.

To claim under the policy Spire had to prove they had non-delegable duty to patients and were liable because of their own negligent actions, or of those defined as a “persons employed” under the policy. Spire claimed they were liable on four separate grounds (1) the actions and omissions of an employee who facilitated Patterson’s behaviour (2) the failure of management at the hospitals to adequately investigate and take action based on Patterson’s conduct, and (3) for breach of the implied term that the patient would receive treatment with reasonable care and skill.

The final ground (4) was the risk of vicarious liability between being established, making Spire liable for Patterson’s conduct. This was noted on the Judgment as an ambitious argument, however ultimately “…moot by the time of trial”. When Spire sought indemnity, RSA did not dispute their liability to indemnify Spire, as Spire’s non-delegable duty and negligence had been established. The principal issue was the meaning of the aggregation clause, and the maximum amount Spire was entitled to under the policy.

First Instance Judgment

The policy contained a limit of indemnity of £10m with an overall aggregate limit of £20m. The key wording of the policy was in effect to aggregate "… all claims during any Period of Insurance consequent on or attributable to one source or original cause…".

Spire claimed that they were entitled to consider their losses as two separate original causes. There was a distinction between the two groups of claims and as a result they were entitled to two limits of indemnity, subject to the overall £20m cap.   

RSA argued this was a false distinction as all the claims arose from one cause, Patterson’s conduct.  This was the single aggregating factor and therefore Spire should only be entitled to one limit of indemnity at £10m.

HHJ Pelling QC found the case in favour of Spire and allowed that the two groups could be considered two distinct causes. While the aggregation clause applied within those two groups, it did not apply as between them. To allow the claims to aggregate as one, based on Paterson’s overall conduct, would be too vague and remote.

Referring to the case of Cox v Bankside Members Agency Ltd [1995] HHJ Pelling maintained that “where a single individual conducts separate decisions or mis-appreciations, there could be separate originating causes (being each of the separate decisions, motivations or mis-appreciations) even though only one individual was involved.”

HHJ Pelling Judgment was primarily based on the following assertions and interpretation of the policy wording:

  • Patterson’s actions in Group 1 and 2 should be considered as a separate source or original cause as there needed to be a causal link between the original cause and loss in each case in order for them to be considered as one.
  •  Patterson’s motivation was different in both Groups and therefore lacked the causal link to be considered as one.
  • Although there were some individuals who sadly fell into both groups, HHJ Pelling maintained this did not establish a causal link between Patterson’s actions, and that they could still be considered two distinct losses.

Court of Appeal Decision

RSA successfully appealed this decision. The Court of Appeal held that contrary to what HHJ Pelling maintained, that there was only one source or original cause. This was Paterson’s conduct. The motivation behind his conduct was irrelevant to the question of Spire’s liability, and therefore could not be used as the basis to separate the causes.

The Court of Appeal set out the relevant principles of aggregation in their Judgment and provided clarity on the wording. Amongst other points, Lady Justice Andrews drew on the following:

  • Aggregation wording should be interpreted in a balanced way (Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48)
  • A cause is not the same as an event, and can be considered in the widest sense (Axa Reinsurance UK Ltd v Field [1996] 1 WLR 1026 at 1025)
  • Original cause does not mean proximate cause. Although there does need to be a causal link between the cause and the loss; it is not as narrow as proximate cause. There must also be a limit to the degree of remoteness (Beazley Underwriting Ltd v The Travelers Companies Incorporated [2011] EWHC 1520 (Comm))
  • There is no meaningful distinction between one source and original cause and the two expressions are interchangeable. (Standard Life Assurance v ACE European Group [2012] Lloyd's Rep IR 655)

In applying these principles to the facts, the Court of Appeal overturned the first instance decision. The court found that HHJ Pelling misapplied the facts of Cox v Bankside and that the court should have been looking for a unifying factor in the claims.

The Judgment in favour of RSA took the view that all of the claims in Group 1 and Group 2 could be aggregated with one another with the result that only a single £10m limit applied. 

This Judgment provides useful clarification on the effect of aggregation wording where the multiple claims arise out of the actions of a single individual. Although the issue of Spire’s own liability was not in dispute in this claim, it provides interesting context to the developing case law on the liability of hospitals for independent contractor surgeons. Spire’s own admission of their non-delegable duty together with the risk of vicarious liability being established, (a concept not previously considered as akin to employment), could leave private hospitals extremely vulnerable for claims for which their insurance cover is inadequate.

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