Bank of Queensland v AIG – Aggregation in representative proceedings
In the recent judgment of Bank of Queensland Ltd v AIG Australia Ltd  NSWSC 1689, the NSW Supreme Court held that, although a representative proceeding that had been commenced against Bank of Queensland (BOQ) constituted one “Claim” under BOQ’s policy of insurance, the Class Registration Form completed by each class member were separate “Claims”. As there was an absence of a “unifying factor”, those claims were incapable of aggregation, resulting in the application of multiple deductibles.
Petersen Superannuation Fund Pty Ltd (Petersen) and others each held Money Market Deposit Accounts (MMDAs) with BOQ pursuant to individual agreements. Pursuant to an agreement between BOQ and DDH Graham Ltd (DDH), DDH was required to promote, process deposits to, and operate and administer the MMDAs as agent of BOQ.
Funds in each of the MMDAs were alleged to have been misappropriated to conduct a “ponzi scheme” and could not be recovered.
Petersen commenced a representative proceeding against BOQ and DDH on behalf of itself and 191 others to recoup their alleged losses. Each class member had completed a Class Registration Form with particulars of their respective claim, including the amount they each sought from BOQ and DDH.
BOQ and DDH settled the representative proceeding on the basis that they would each pay AU$6M. BOQ sought indemnity from its insurers (AIG being the lead) for the settlement and its defence costs under a civil liability insurance policy (Policy), which had a deductible of AU$2M for each and every “Claim”.
BOQ commenced proceedings against its insurers seeking a declaration that the representative proceeding was one Claim under the Policy and, as such, only one deductible applied.
The definition of Claim in the Policy relevantly included:
2.2 Claim means:
(i) any suit or proceeding …
(ii) any verbal or written demand from any person that it is the intention of the person to hold an insured responsible for the results of any specified Wrongful Act…
For the purposes of this policy 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; conversely where a Claim involves more than one unrelated Wrongful Act, each unrelated Wrongful Act shall constitute a separate Claim.
“Wrongful Act” was defined as:
(i) act or error or breach of duty or omission or conduct (including misleading or deceptive conduct) committed or attempted or allegedly committed or attempted by or of the Insured; or
(ii) any act of error or breach of duty or omission or conduct (including misleading or deceptive conduct) committed or attempted or allegedly committed or attempted by or on behalf of another person for which the Insured is legally liable:
in the actual or alleged provision of, or actual or alleged failure to provide, Professional Services.
The Court had to consider:
- whether the representative proceeding constituted a single Claim or multiple Claims; and
- if there were multiple Claims, whether they were on account of one or a series of related or unrelated Wrongful Act(s).
If there was a single Claim under the Policy, then one AU$2M deductible would apply. If there were multiple Claims, incapable of aggregation, then multiple AU$2M deductibles would apply, providing no cover to BOQ for the settlement sum paid to resolve the representative proceeding.
Justice Stevenson held that the representative proceeding constituted a single Claim as set out in clause 2.2(i) of the Policy; however, he also held that each Class Registration Form constituted a Claim pursuant to clause 2.2(ii) of the Policy, thereby constituting 192 individual Claims.
In coming to his decision, his Honour referred to the English Court of Appeal and House of Lords decisions in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd and the need to identify a “unifying factor” in the terms of the aggregation provision which, if satisfied, would result in the aggregation of multiple claims.
The “unifying factor” in the aggregation clause in Policy was “Wrongful Act”.
As various categories of Wrongful Act were alleged in the representative proceeding, his Honour was required to identify which Wrongful Act(s) gave rise to the Claims. BOQ submitted the Wrongful Act (and therefore the unifying factor) that gave rise to the Claims was that BOQ continued to effect withdrawal instructions, without question, after its agent (whose knowledge was imputed to BOQ) had received suspicious instructions from March 2010 and knew of the subject fraud.
Instead, his Honour held that the relevant Wrongful Acts that gave rise to the Claims were the individual withdrawals made from each class member’s account, noting that some of these took place before BOQ and its agent knew of the subject fraud.
His Honour then considered whether the individual withdrawals that gave rise to the Claims were “a series of related” Wrongful Acts that would become a “unifying factor”. His Honour held that each of these withdrawals were unrelated Wrongful Acts as they did not have “a ‘sufficient degree’ of similarity nor an ‘integral relationship’ such as to constitute them a ‘series’ of transactions, nor the necessary ‘causal’ or ‘logical’ ‘interconnection’ to constitute them being a ‘series of related’ wrongful acts.”
His Honour also noted that the mere fact that the withdrawals all occurred within the broader, more remote scheme of a fraudulent practice, was not sufficient to aggregate the Claims.
Significantly, his Honour considered that, even if his determination that each Class Registration Form was a Claim was incorrect (and so there was only one Claim, being the representative proceeding, as opposed to 192 Claims under the Policy), his conclusion as to the relevant Wrongful Acts was such that the aggregation provision would operate to treat the single Claim (being the representative proceeding) as constituting multiple Claims under the Policy. On this basis, multiple deductibles would apply even if there was only one Claim.
The Court’s application of the aggregation provision emphasises the importance of the “unifying factor” within such provisions and the significant implications it may have as to the availability of cover for complex claims, particularly class actions. A broader unifying factor in this case may have resulted in a different outcome.