The Court of Appeal has overturned the High Court’s definition of the ‘aggregation clause’ in solicitors’ professional indemnity insurance policies. The decision could allow insurer AIG to aggregate a series of over 200 property liability claims into a single claim and benefit from a £3m policy limit, rather than paying out over £10m in negligence claims. Professional indemnity insurers will welcome the appeal decision as it may reduce their exposure to multiple related claims.
The proceedings arose following the failure of a holiday home developer in 2009 (see Brunel News, September 2015). Law firm, The International Law Partnership (TILP), acted for the developer, Midas International, which was planning to build holiday homes in Turkey and Morocco. Over 200 people invested in the planned developments. When both developments failed and Midas went into liquidation the buyers issued negligence proceedings against TILP to recover their investments.
AIG, who provided run-off insurance to TILP after the firm ceased trading, sought a High Court declaration that all the claims could be aggregated into a single ‘claim’. This would enable it to benefit from the policy limit of £3m rather than paying all 214 claims. The case centred on the definition of the aggregation clause in the Solicitors Regulation Authority’s (SRA) professional indemnity insurance minimum terms and conditions (MTC).
AIG argued that the MTC allowed the investor’s claims to be aggregated as they were ‘similar acts or omissions in a series of related matters or transactions’. In the High Court, the judge Mr Justice Teare, found against AIG. He concluded that to be ‘related’ the transactions needed to be ‘dependent on each other’ and that this condition had not been met.
However the Court of Appeal has now overturned that decision. It has ruled that there must be an ‘intrinsic relationship’ between the transactions, for AIG to be able to aggregate the claims. The Court did not decide the facts of the case and has sent it back to the High Court to make a decision in accordance with its guidance.
“This decision is mixed news for solicitors,” said James Page, Director – Head of Client Servicing, Brunel Professional Risks, said: “On the one hand, insurers can potentially rely on the aggregation clause to limit their exposure in a series of intrinsically linked claims, and policies will pay out less. On the other, it will also protect solicitors from having to pay out multiple policy excesses on every claim, if they are negligent in a series of linked transactions. I doubt this will be the end of the matter though, as the Court of Appeal has also given investors in the Midas case permission to appeal whether their transactions were in fact linked.”