Clients of a financial planner had been defrauded in a ‘Ponzi’ scheme. The fraud involved withdrawals from accounts a financial planner had opened with the Bank of Queensland (Bank) for each client. In a class action the clients sued both the Bank and a funds manager who had been acting as an agent for the Bank in relation to the administration and operation of the accounts, alleging that for various reasons they were liable for the fraudulent withdrawals. The Bank and the Agent settled with the clients at mediation. The Bank then sought cover under its insurance policy. While the policy responded, if multiple retentions applied rather than one, then the Bank would recover nothing from its insurers. That issue was litigated, with the NSW Supreme Court upholding the insurers’ position that there were multiple retentions. The policy The policy provided cover for ‘all Loss and Defence Costs resulting from any Claim first made during the Policy Period for any Wrongful Act’. ‘Wrongful Act’ was defined to include an act, error or breach of duty committed by the Bank. The definition of ‘Claim’ in the policy wording relevantly included a civil proceeding and any verbal or written demand, and went on to say that: 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. Findings Putting aside the aggregation/disaggregation clause, the court held that: The class action proceeding constituted one ‘Claim’, even though it involved multiple claims by multiple parties, being the named and unnamed members of the class. This is because it was a single proceeding. Each form completed by a client, to register as a member of the class, constituted a separate written demand. This meant that there were 192 separate ‘Claims’. Aggregation clause The court considered the reference to ‘a series of related Wrongful Acts’ required there to be a logical or causal connection between each ‘Wrongful Act’ which was no more remote than the ‘Wrongful Act’ required by the policy. Some of the withdrawals did share such a logical or causal relationship, as they each occurred at the same time pursuant to a single instruction from the financial planner. However, that was not the case for all of the withdrawals, as they occurred over a number of years and the Bank was alleged to be liable for the withdrawals for various reasons (including differing breaches of contract), and being responsible for the fund manager’s knowing assistance of the financial planner’s breach of fiduciary obligations. Even though the withdrawals all formed part of the broader Ponzi scheme, that consideration was said to be more remote than the ‘Wrongful Act’ required by the policy. Accordingly, the court held that the aggregation clause was inapplicable. Disaggregation clause The court went onto say that, even if aside from the aggregation clause there was only one ‘Claim’, then the disaggregation clause meant that under the policy there were multiple ‘Claims’. For the same reason the court found the withdrawals were not ‘a series of related Wrongful Acts’ for the purposes of the aggregation clause, it also found they were each ‘unrelated’ for the purposes of the disaggregation clause. Comment Where there is a dispute over the application of an aggregation cause, it is difficult to predict how a court will decide the question. Subtle differences in wording having significant bearing on what is required by aggregation clause, and reasonable minds can differ on whether the facts are sufficient to satisfy that requirement.
