A multi-million dollar question – aggregating claims in class actions

In brief 7 min read

The New South Wales Court of Appeal has held in Bank of Queensland Limited v AIG Australia Limited¹ that, under the terms of a civil liability insurance policy, each Class Member Registration Form in a class action proceeding constituted a separate 'Claim'. The Court of Appeal also held that those Claims arose from 'a series of related Wrongful Acts' so as to justify aggregation under the policy's aggregation clause, with the effect that a single deductible applied to the settlement sum. This decision overturned the effect of the decision at first instance.

Key takeaways

• The interpretation of an aggregation clause will turn upon the particular wording used and the context in which that wording appears.
• The majority of the Court of Appeal (White JA disagreeing) held that multiple 'Claims' under the insurance policy could arise from the single class action proceeding and the court unanimously held that Class Member Registration Forms each constituted a separate 'Claim'.
• Allegations in the class action pleadings (relating to each of the 'Wrongful Acts' giving rise to the Claims) were the 'unifying factor' which justified the description of those Wrongful Acts as 'a series of related Wrongful Acts' sufficient to engage the aggregation clause. 
• The Claims were therefore aggregated under the terms of the policy and only one deductible was payable.

The class action

In March 2016, the Petersen Superannuation Fund (Petersen) filed a class action in the Federal Court of Australia against Bank of Queensland (BOQ) and DDH Graham Limited (DDH). The proceedings were brought on behalf of Petersen and at least 191 others (the Investors) who were customers of Sherwin Financial Planners Pty Ltd (Sherwin).  

The class action claimed DDH knew, or ought reasonably to have known, that there was a serious or real possibility that fraud was being committed by Sherwin. DDH was also alleged to have implemented withdrawals from customers' accounts in breach of its contractual obligations and to have knowingly assisted Sherwin in the breach of its fiduciary obligations. DDH's conduct and knowledge were attributed to BOQ. A settlement was reached and approved by the court in May 2018 whereby BOQ and DDH paid $6 million each in settlement of the claims against them.

The insurance claim

BOQ sought indemnity under a Civil Liability Insurance Policy (Policy) issued by AIG Australia Limited (AIG), Catlin Australia Pty Ltd (Catlin) and Zurich Australian Insurance Limited (Zurich). The Policy:

• had a deductible of $2 million (Deductible) for 'each and every Claim';
• included an aggregation clause such that 'all claims arising out of, based upon or attributable to one or a series of related Wrongful Acts shall be considered to be a single Claim', and also included what the parties referred to as a 'disaggregation' clause such that 'conversely, where a claim involves more than one unrelated Wrongful Act, each unrelated Wrongful Act shall constitute a separate Claim.'

BOQ brought proceedings against the insurers claiming it was entitled to an indemnity in respect of the settlement sum of $6 million and its costs of defending the class action, subject to a single $2 million Deductible. In the course of the proceedings, Zurich settled with BOQ. 

The remaining insurers, AIG and Catlin (the Insurers), argued BOQ was not entitled to be indemnified because the Deductible applied with respect to each of the 192 Investors, each constituting a separate Claim. 

The judgment at first instance: no 'series of related Wrongful Acts'

Justice Stevenson found in favour of the Insurers, holding that:

• there were multiple, separate Claims;
• those claims were not aggregated because the Claims did not arise out of, were not based on and were not attributable to a 'series of related Wrongful Acts'; and
• a $2 million Deductible applied to each Claim. The effect of this was that, because no one Claim exceeded the deductible, BOQ was not entitled to indemnity.

On the first point, His Honour found the class action itself, being a 'suit or proceeding', constituted only one Claim, but each Class Member Registration Form completed by the Investors was a 'written demand' constituting a separate Claim.  

His Honour then considered whether the aggregation clause applied. His Honour concluded that the Wrongful Acts were the various similar withdrawals from customer accounts but that each withdrawal was a separate Wrongful Act, made on a different occasion from a different account, causing loss to different parties, in response to different instructions and 'wrongful' for different reasons. Although they occurred 'within the broader, more remote scheme of a fraudulent practice', His Honour did not consider them to constitute a 'series of related Wrongful Acts' sufficient to aggregate the Claims.

The BOQ Appeal

BOQ appealed the decision. The key issues on appeal were:

• whether the class action and other steps taken by or on behalf of the Investors constituted multiple Claims or a single Claim; and
• whether, if there were multiple Claims, the Claims were to be treated as a single Claim by reason of the aggregation clause.

The Court of Appeal decision

The Court of Appeal (Bathurst CJ, Macfarlan JA and White JA) allowed the appeal and concluded that there were multiple Claims but they were to be treated as a single Claim by reason of the aggregation clause. Therefore, only one $2 million Deductible was payable by BOQ and the Insurers were liable to indemnify BOQ for the remainder.  

Claim or Claims?

Justice Macfarlan, with whom Chief Justice Bathurst agreed, concluded that a reasonable businessperson would, taking each Investor separately, consider that the class action was a 'suit or proceeding' brought by that Investor, at least from the time the Investor lodged its Class Member Registration Form, and therefore there were multiple Claims.  

Justice White, on the other hand, agreed with BOQ's contention (supported by the primary judge) that the class action was a single Claim. His reasoning was that the class action was a 'suit or proceeding' brought by Petersen on behalf of the Investors, rather than by each Investor.  

In any event, all of the judges agreed that each Class Member Registration Form constituted a separate Claim as they were each 'written demands' within the Policy's definition of 'Claim'.

Aggregation or no aggregation?

The court also held that the multiple Claims arose out of, or were based upon or attributable to, 'a series of related Wrongful Acts' and should therefore be aggregated under the terms of the Policy. The result of this finding was that only one Deductible was payable by BOQ.

Chief Justice Bathurst, agreeing with Justice Macfarlan, acknowledged the difficulties of construing aggregation clauses of this kind, particularly in ascertaining what the 'unifying factor' is which enables separate claims to be treated as a single claim. 

His Honour also made reference to the limited assistance provided by case law dealing with different aggregation clauses in different types of policies and in different factual circumstance. However, he acknowledged the guidance provided by cases dealing with the meaning of a 'series' (ie a 'number of events of a sufficiently similar kind following one after the other in temporal succession') and held that in the present case, there must not only be a 'series' of Wrongful Acts, but those acts themselves must also be 'related'. His Honour concluded that the withdrawals (for which BOQ was vicariously liable) met these requirements.

Justice Macfarlan, who wrote the leading judgment, considered that both the 'temporal' element and the 'sufficiently similar' element of the descriptor 'series' had little work to do in this clause. This is because, absent the unlikely coincidence of withdrawals occurring simultaneously, they must of necessity occur both in succession and because the word 'related' in the aggregation clause independently required a 'sufficiently similar' connection to be present.  

His Honour rejected BOQ's submission that there was a single Wrongful Act (that is, 'continuing' to process withdrawals after acquiring knowledge of the fraud). Instead, he found that a separate Wrongful Act occurred each time a withdrawal was processed. There were, therefore, multiple Wrongful Acts.

However, His Honour also decided the Wrongful Acts were related by reason of the 'Knowledge of Fraud' allegations in the class action pleadings which applied to all of the Wrongful Acts and which were therefore the 'unifying factor'. Of significance was that the grouping of claimants in the class action was only permitted by the court, and only occurred because of the significant common questions that arose in connection with each of the claims.  

Justice White agreed with Justice Macfarlan that there was a series of related Wrongful Acts such to engage the aggregation provisions. His Honour explicitly rejected the Insurers' submission that the whole of the 'series of related Wrongful Acts' had to give rise to all of the Claims, stating that such an interpretation would lead to disconformity in the operation of the clause depending on whether there were one or more Claims. He also agreed with Justice Macfarlan that treating the aggregation and disaggregation provisions as mirror provisions (the connecting word between them being 'conversely') informed their construction.