In AIG Europe Limited v OC320301 LLP (formerly The International Law Partnership LLP) and Others [2015] EWHC 2398 (Comm), the High Court considered the interpretation of the aggregation clause contained within the Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors and Registered European Lawyers.  The High Court held that the natural meaning of the phrase "series of related matters or transactions" required the transactions to be conditional or dependent on each other.  In reaching its decision, the High Court looked to the purpose of the aggregation clause and its context - i.e. a solicitors' insurance policy.  The High Court also considered the meaning of "similar acts or omissions", holding that the requisite degree of similarity required was a real or substantial degree of similarity, as opposed to a fanciful or insubstantial degree of similarity. 

Tom Leech QC, a partner in the firm's Advocacy Unit, appeared on behalf of the successful defendants. 

BACKGROUND

In England and Wales, solicitors must arrange professional indemnity insurance which complies with the Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors and Registered European Lawyers ("MTC").

The aggregation clause  within the MTC was rewritten following the decision of the House of Lords in Lloyds TSB General Insurance Holdings and Others v Lloyds Banking Group Insurance Company Limited [2003] UKHL 48, to read as follows:

"2.5 The insurance may provide that, when considering what may be regarded as one claim for the purposes of the limits contemplated by clauses 2.1 and 2.3:

(a) all claims against any one or more insured arising from:

  1. one act or omission;
  2. one series of related acts or omissions;
  3. the same act or omission in a series of related matters or transactions;
  4. similar acts or omissions in a series of related matters or transactions

and

(b) all claims against one or more insured arising from one matter or transaction will be regarded as one claim."

The International Law Partnership LLP ("TILP") was insured by AIG Europe Limited ("AIG").  The terms of the policy incorporated MTC and the aggregation wording set out above.  The limit of liability for any one Claim was £3m. 

AIG, the Claimant in this action, sought a declaration that certain underlying claims against TILP fell to be aggregated and treated as one Claim because they arose from "similar acts or omissions in a series of related matters or transactions". 

The underlying claims in the dispute concerned the development of holiday homes in Turkey and Morocco by a UK company, Midas International Property Development PLC ("Midas").  These developments were open to investors.  Midas engaged TILP to advise it on all international property law aspects of the transactions.

TILP advised an elaborate scheme designed to protect the interests of investors in the developments. Under the scheme, investors' monies were paid into a trust which was to hold security over land purchased.  No monies were to be transferred out of the trust until a specified level of security was in place and an express test (known as the "cover test") had been met.  There were two trusts in place, one for the developments in Turkey and a second for the developments in Morocco. 

Both the developments in Turkey and Morocco failed, and Midas was wound up.  However, by this time, all of the invested monies had been paid out of the trusts to local Midas companies.

The investors in the developments allege that if the Trustees and TILP had put in place an effective form of security and/or applied the cover test correctly, the investments would have been protected or would never have been released.  Several causes of action are claimed, including negligence, breach of fiduciary duty, misrepresentation, breach of escrow agreements and breach of duty as trustee.

The 214 investors claim to have lost in excess of £10 million.

ISSUE

AIG sought a declaration that all of the claims brought by the investors could be aggregated, as they arise from "similar acts or omissions in a series of related matters or transactions". 

In support of this, AIG submitted that all of the underlying claims follow from the improper release of monies (i.e. incorrect application of the cover test) and/or arise out of investments in Midas' property business which was operated in a manner common to all underlying claimants.

The Trustees of the Turkey and Morocco trusts disputed this, or in the alternative, the Trustees' case was that claims in relation to the Turkey developments aggregate separately from the claims in relation to the Morocco developments. 

In support of this, the Trustees submitted that the complaints were different in respect of each of the Turkey and Morocco developments, the relevant transactions did not follow each other in temporal succession, and were not related as there was neither a connection between the investors nor dependence as between any of the transactions (i.e. the transactions by each investor were separate and independent of each other).

DECISION

The High Court refused AIG the declaration sought, holding that the claims could not be aggregated under the relevant wording.

Teare J considered the meaning of the relevant wording in two parts:

1. "Similar acts or omissions"

Teare J held that the aim of the aggregation clause was to permit claims to be aggregated for the purpose of applying the limit of the insurer's liability per claim.  The requisite level of similarity must be that which is appropriate having regard to that aim. 

Therefore, the requisite degree of similarity must be a real or substantial degree of similarity as opposed to a fanciful or insubstantial degree of similarity. 

Teare J held that the underlying claims arose out of similar acts or omissions, given that in all of the underlying claims, there was a failure to provide effective security so that the cover test was not properly applied.  After the investors' monies had been released, the investors were exposed to loss in the event that the developments failed.

2. "Series of related matters or transactions"

Emphasising that the words must be considered having regard to the context in which they are found, namely an aggregation clause in a solicitors' insurance policy, Teare J held that the words denote a series of transactions which are related by reason of being conditional or dependent on each other.  This construction was favoured as being the most natural meaning of the phrase in its particular context. 

Two other possible constructions were rejected.  AIG had argued that the phrase could mean a series of independent transactions which are related because they are of a similar kind (i.e. all are made pursuant to the "Midas modus operandi").  Teare J held this meaning to be unlikely, given that the result would be a very wide scope to the aggregation clause with no clear limit.  Further, the test to be applied if this were the meaning would be vague and uncertain. 

Teare J also considered whether the transactions were related because they were investments in one particular development (e.g. the Turkey development).  However, the wording of the aggregation clause was held to point to transactions which are, by reason of their terms, dependent on each other rather than independent of each other. 

No authority was relied upon in reaching the above conclusions.

COMMENT

Until now there has been no authority on the construction of the aggregation provision in Clause 2.5 of the SRA's Minimum Terms and Conditions which govern all professional indemnity policies issued by participating insurers to solicitors.  The aggregation provision was written following the House of Lords decision in Lloyds TSB General Insurance Holdings and Others v Lloyds Banking Group Insurance Company Limited [2003] UKHL 48.

This case will be of particular interest to professional indemnity insurers and their insured solicitors.  Whilst aggregation clauses are common in insurance policies, construing them and applying them to particular facts can be notoriously difficult as this case demonstrates.  In addition, as Teare J made clear, the interpretation of the relevant words must be considered in the context of the relevant policy and its purpose.

Tom Leech QC, partner in the firm's Advocacy Unit, who appeared for the successful defendants in this case commented:

"This case is of considerable interest and importance to insurers and their insured solicitors given the lack of authority on this aggregation provision up until now.  Leave to appeal has been given by Mr Justice Teare which highlights both the importance of the case and the difficulty the Court faced in construing the word 'series'.  This may not be the end of the story".