In high value professional negligence claims against relatively small firms of solicitors, claimants will often be entirely reliant upon those firms’ professional indemnity (PI) insurers to pay any damages awarded. Problems arise due to the fact that neither the solicitor defendants nor their insurers are required to confirm that the claim will be covered by the policy, nor disclose the terms of indemnity under the policy, until such time as the claim has been proven and the defendant solicitors have gone into insolvent liquidation.[i] This creates uncertainty when litigating, as a claimant can incur substantial costs bringing his claim to trial, to find that the solicitor defendants have become insolvent and that the claim is not covered by their PI insurance.

Claimants therefore often have to assess the likelihood of coverage by reference to the SRA’s Minimum Terms and Conditions of Professional Indemnity Insurance (the Minimum Terms). If it can be said about a particular claim that any insurance policy compliant with the Minimum Terms must indemnify for that claim, a claimant can proceed with a degree of confidence that, if his claim succeeds, he will recover his damages.

Difficulties arise when it cannot be said with certainty whether indemnity against a particular claim (or claims) falls within those minimum requirements. One issue which commonly becomes contentious between insurers, solicitor defendants and claimants seeking to recover, is the circumstances in which the terms of a policy may aggregate a number of claims being made against a single firm, and treat them as a single claim. The issue is prevalent where various claims are made against solicitors involving similar or the same facts or circumstances.

As policies may limit the level of cover in respect of a single claim[ii], the entitlement to aggregate claims in this way is of benefit to an insurer, as it can drastically diminish the sums the insurer is liable to pay out under the policy. For the same reason, a legitimate entitlement to aggregate can be bad news for claimants whose claims may not be met in full, and for solicitor defendants who will be liable to meet the balance.

Section 2.5 of the Minimum Terms provides:

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:

  1. 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

  1. all claims against one or more insured arising from one matter or transaction will be regarded as one claim.

The purpose of an aggregation clause is said to be to enable two or more separate losses covered by a policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind.

The case of Lloyds TSB General Insurance Holdings Ltd and others v Lloyds Bank Group Insurance Co Ltd [2003] considered the entitlement to aggregate claims in circumstances where there had been widespread 'mis-selling' of financial products. The relevant aggregation clause provided 'If a series of third party claims shall result from any single act or omission (or related series of acts or omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible.'

Considering the principles of aggregation and the wording of the clause, the House of Lords rejected that a series of acts or omissions which merely each resulted from a common cause (in this case, broadly speaking, an inadequacy in training and monitoring of representatives) could be aggregated under the clause. The relevant unifying factor was that the claims which could be aggregated were all caused by the relevant series of acts or omissions, and not that the acts or omissions comprising the relevant series themselves had a common cause.

Lloyds TSB General Insurance Holdings Ltd and others guides us to the correct interpretation of sub-sections 2.5(a)(i) and (ii) of the Minimum Terms. However, it predates the inclusion of 2.5(a)(iii), 2.5(a)(iv) and 2.5(b) which were incorporated in the wake of insurers’ concerns as to the narrowing effect of the decision.

2.5(a)(iii) and (iv) are not entirely clear. If extending the rationale in Lloyds TSB General Insurance Holdings Ltd and others, one might conclude that for (iii) to apply, each claim in respect of which aggregation is sought must arise from the very same act or omission as the other claims, and that for (iv) to apply, each claim in respect of which aggregation is sought must arise from the very same similar acts or omissions as the other claims.

The alternative, wider interpretation is that the claims need not arise from the very same acts or omissions at all, but that it is sufficient that they arise from separate but similar ones.

In January of this year, both the Law Society and the Solicitors Regulation Authority (SRA) were granted leave to intervene in the case of Godiva Mortgages Limited v Travelers Insurance Limited, (proceeding in the Mercantile Court) in which Travelers Insurance Limited have advanced that claims arising from certain activities of a solicitor at the insured firm were to be aggregated as a single claim. The Law Society and SRA seek clarification, on behalf of the profession, of the circumstances in which aggregation can apply. Hopefully the outcome will provide some clarity for the future.

The clear regulation of aggregation clauses in solicitors’ PI insurance is necessary, not only so that law firms may have a clear understanding as to the minimal scope of their indemnity, but to protect the public, who are entitled to know the minimal extent of their redress in the event that their solicitors should fail them.