The question whether insurers are entitled to aggregate a number of claims together when calculating their maximum liability can have a significant affect on claimants when the insured cannot itself meet a damages award.  It can be of no less significance for defendants if they find themselves uninsured for significant chunks of damages awards made against them.  Hence it may impact the SRA’s compensation fund.  In the case of solicitors, it will usually be cl. 2.5 of the Minimum Terms and Conditions (“MTC”) that governs whether the insurer can aggregate.  In August last year Teare J. handed down a judgment on the meaning of cl. 2.5 in AIG Europe Ltd v OC320301 LLP [2015] EWHC 2398 (Comm) which caused some consternation for indemnity insurers. 

An appeal ensued on which the Court of Appeal gave judgment this month, AIG Europe Ltd v OC320301 LLP [2016] EWCA Civ 367.  The Court of Appeal concerned themselves with principle rather than the application of the principle to the facts, remitting the case back to the Commercial Court to determine the actual result.  But the judgment provides important guidance on the question whether claims arising from negligent conduct in a number of matters or transactions can be treated as one claim when ascertaining the insurer’s liability.

Clause 2.5 of the MTC entitled “One Claim”, provides as follows:-

"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
(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) 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.”

In AIG Europe Ltd v OC320301 LLP a firm of solicitors, faced claims from some 214 investors in two investment projects, one in Turkey and one in Morocco. The investors entered into the arrangements on the basis that moneys paid by them into an escrow account would not be released until security was in place for purchases of the land to be used for the developments. In the event the sums were released without security, and the developer became insolvent without acquiring the land. Teare J. held that the £3 million maximum liability under the policy for a “series of related matters or transactions” did not apply.  He considered that the word “related”, depending upon context, could apply to (a) a series of transactions which were related by reason of being dependent on each other; (b) a series of independent transactions which were related because they were investments in one particular development so that there were two series; or (c) a series of independent transactions which were related because they were of a similar kind. Teare J. adopted (a) as the correct interpretation.  He held that there could be aggregation only if the claims were “inter-dependent”.  AIG appealed, with Teare J.’s permission and the SRA was joined into the proceedings as Intervener.

The Court of Appeal disagreed with Teare J. about the need for transactions or matters to be inter-dependant in order to qualify as a series of related matters or transactions under cl. 2.5.  That went too far.  However, AIG’s submission that any degree of relatedness between the matters or transactions went too far in the other direction.  Longmore LJ, delivering the judgment of the Court, held that the true construction of the words “in a series of related matters or transactions” is that the matters or transactions have to have an intrinsic relationship with each other, not a remote relationship.  The court held:

“There must be a relationship of some kind between the transactions relied on rather than a relationship with some outside connecting factor, even if that extrinsic relationship is common to the transactions. Thus transactions which all take place with reference to one large area of land in a particular country might be related transactions if they refer to or (perhaps) envisage one another, but if the relevant transaction is the payment of money out of an escrow account which should not have been paid out of that account, the fact of geography is too remote; what will be intrinsic will depend on the circumstances of that payment.”

In reaching that conclusion, the court rejected the argument that the key question was whether there was a common causal relationship for the losses that the insurer wished to aggregate.  Two losses with the same originating cause, such as the dishonesty of a particular solicitor, might not arise from matters or transactions having an intrinsic relationship with each other.

While the Court of Appeal remitted the case back down to the Commercial Court so that it could be re-tried, the appellate court did give some more concrete guidance on what might constitute an intrinsic relationship in the context of the facts of the instant case.  While explicitly anxious not to constrain the trial Judge at the re-trial, the Court observed:

“If the contracts or the escrow account in respect of one investor referred to the contracts or the escrow accounts of the other investors, there might be the relevant intrinsic relationship; if they do not, there might not be.  If there was a specific requirement that investors’ funds were to be held in a separate designated account for each investor that might militate against a finding that there was an intrinsic relationship between the relevant matters or transactions for the purpose of the aggregation clause.”

While there is plenty of room for argument in any particular case or set of cases whether transactions or matters have an intrinsic relationship with each other, the guidance given by the Court of Appeal ought to provide more certainty on what can be a crucial question for claimants, defendant-solicitors and their insurers.