AIG Europe Limited v Woodman and others [2017] UKSC 18

The Supreme Court has handed down its much-anticipated decision in the case of AIG Europe Limted v Woodman and others [2017] UKSC 18 regarding the scope of an aggregation provision in the Law Society’s Minimum Terms and Conditions of Solicitors’ Professional Indemnity Insurance.


Clause 2.5(a)(iv) provides that all Claims arising from “similar acts or omissions in a series of related matters or transactions” will be regarded as one Claim. The debate in the lower courts centred around the meaning of the word “related”. The first instance court held that it required the transactions to be conditional or dependent on one another, whereas the Court of Appeal decided that an “intrinsic” relationship between the transactions was necessary (as opposed to an “extrinsic” relationship with a third factor).


The Supreme Court did not find it "necessary or satisfactory" to interpose a requirement for an intrinsic relationship in the clause. In so doing it noted that the Law Society did not choose to limit the phrase “a series of related matters or transactions” by reference to any further criteria, following a process of negotiation with the insurance market after the House of Lords decision in Lloyd’s TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43.

The Supreme Court thus reached the inevitable conclusion that determining whether transactions are related is “an acutely fact sensitive exercise”. The process starts with identifying the relevant transactions. Then, having already observed the potential for aggregation clauses to benefit either insurers (by capping the indemnity limit) or insureds (by capping the excess payable), their lordships decided that the clause must be applied by “objectively taking the transactions in the round”.

Application to Facts

The case related to the intended development of two holiday home sites in Turkey and Morocco by two subsidiaries of the same UK Plc. The developments were to be financed by way of loans or purchases of holiday homes by investors. The solicitors were trustees of two trusts created to own or hold a charge over the development land as security for the investor beneficiaries. The funds were to be held in escrow until the trust held sufficient assets to cover (the “cover test”), at which time the funds could be released to the developers. The solicitors incorrectly applied the cover test and paid the money out before any good security had been acquired. The developers were wound up before the investors could recover.

The first instance court decided that the claims did not aggregate because the transactions did not depend upon one another in any sense. The Court of Appeal remanded the case to the first instance for determination having decided upon its intrinsic relationship test. However, it had taken the view that the relevant transaction was the payment of money out of the escrow account which should not have been paid. The Supreme Court did not agree, stating that the payment out was the act giving rise to a claim, but that act occurred in the course of a wider transaction involving an investment in a particular scheme “under a contractual arrangement, of which the trust deed and escrow agreement were part and parcel”.

The Supreme Court opined that the transactions in relation to each development aggregated because they shared the objective of executing a particular development project and were also legally related through the trusts under which the investors were co-beneficiaries. However, it could not see scope to aggregate the claims of the Turkish site investors with their Moroccan counterparts as there were no such connections. Their relationship was limited to one of similarity, which is not enough. The judges also noted the possibility of aggregating the claims of certain “cross-over” investors, but left it open to the parties to make their cases to the Commercial Court after a fuller factual analysis.


As is to be expected the Supreme Court has provided welcome clarity on the meaning of this clause - it is difficult to disagree with the observation that the word “intrinsic” is “elusive” when used to describe the relationship between two transactions.

The judgment is a useful reminder of the principle in Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] Lloyd’s Rep IR 696 that to apply an aggregation clause requires an exercise of judgment in applying the wording to the facts. It does not involve reformulating the clause to make further sense of it. Furthermore, the clause must be looked at objectively rather than from the standpoint of one party or the other. The decision is thus significant beyond the solicitors PI context.