UK: Supreme Court Finds For Solicitors' Insurer Over Liability For Aggregated Claims

Last Updated: 31 March 2017
Article by Francesco Zingales

In a significant decision, the English Supreme Court today set aside a decision of the Court of Appeal and has given judgment in AIG Europe Limited v OC320301 LLP and Ors [2016] and found that the investors' claims fell within the 'series of related matters or transactions' definition contained in Clause 2.5 (a) (iv) of the minimum terms and conditions (MTC) laid down by the Solicitors Regulation Authority.

This is understood to be the first appellate court decision on this issue since Lloyds TSB case and is therefore likely to be relied upon by other national courts when interpreting the scope of the aggregation clauses under the MTC. Until these proceedings, the aggregation wording in Clause 2.5 of the MTC had never previously been considered and its meaning is a matter of importance to the solicitors' profession and their clients, to the insurance industry and to the Law Society.


The matter involved claims ("the Underlying Claims") brought by two trustees (who represented around 214 investors or beneficiaries) (the "Investors") against a firm of solicitors (the "Insured") for losses of around £10 million. The International Law Partnership LLP (ILP) had been engaged by Midas International Property Development Plc to devise an investment scheme to help Midas obtain investment for the construction of holiday properties in Turkey and Morocco. The scheme attracted many investors but local companies were unable to complete the contracts to purchase rights to the land and this led to the failure of both developments. Escrow accounts had been set up to protect the investments. However, ILP had already made payments out of the accounts, causing loss to 214 investors.

AIG provided professional indemnity insurance to ILP, with a limit per claim of £3m. It was common ground between the parties that the aggregation clause in the AIG policy was not drafted in the same terms as that contained in the MTC and, consequently, the aggregation clause at 2.5 of the MTC was instead the relevant wording to consider. Clause 2.5(a) (iv) of the MTC aggregation clause states that all claims against the insured arising from an act or omission, or 'similar acts or omissions in a series of related matters or transactions' would be regarded as 'one claim'.

The Court of Appeal

At first instance AIG sought a declaration that the investors' claims were one claim for the purposes of clause 2.5, thus limiting their liability to £3m. The High Court refused the declaration and found that the natural meaning of a 'series of related matters or transactions' in the context of a solicitors insurance policy was a series of matters or transactions that were dependent on each other or inter-connected.

The Court of Appeal held that Teare J was wrong to find that the transactions had to be 'dependent' on each other before aggregation could occur. It concluded, endorsing the submissions of the Law Society that the true construction of the words "in a series of matters or transactions" is that the matters or transactions must have an intrinsic relationship with each other, not an extrinsic relationship with a third factor and describing this as a relationship between the transactions, rather than a relationship with an outside connecting factor.

The Supreme Court's decision

The SC ruled that neither approach is correct as the correct test to assess whether claims aggregate on the basis they shall be treated as "a series of related matters or transactions' is an objective one and, applying this test to the facts of the case, ruled that the trust deed created a multilateral element by reason of the investors being co-beneficiaries.

The Supreme Court ruled that the proper starting point is to identify the relevant matters or transactions and, subsequently, the connecting factors shall be identified and viewed objectively

It therefore came to the conclusion that the claims of each group of investors arose from acts or omissions in a series of related transactions as the transactions fitted together in that they shared the common underlying objective of the execution of a particular development project, and they also fitted together legally through the trusts under which the investors were co-beneficiaries.

One independent bystander shall evaluate the "transactions in the round" and assess if there are significant connections, such as the investment on a standard scheme. The Supreme Court ruled that there were two aggregated claims as the investments in Turkey and Morocco involved different sites, different assets and different deeds. The Court emphasized that, even if the development companies were members of the Midas group and the legal structure of the development projects was similar, the development projects were separate and unconnected. They related to different sites, and the different groups of investors were protected by different deeds of trust over different assets.

The Supreme Court made a clear distinction between "an act giving rise to a claim" and "an act which occurs in the course of a wider transaction" thus criticising the COA's narrow view of the transactions when had been defined it as "the payment of money out of an escrow account which should not have been paid out of that account." The transaction was defined as an investment in a particular development scheme under a contractual arrangement, of which the trust deed and escrow agreement were "part and parcel", being the means designed to provide the investor with security for his investment.

Whilst the Supreme Court has given parties helpful guidance on the degree of connection required by aggregation clauses using wording of this type, it will be interesting to see how this will now be applied in practice; especially as the application of aggregation clauses has given rise to so many disputes historically. In particular, the SC's guidance and the potential for further cases applying it, may prompt Qualifying Insurers to try and revisit the aggregation language in the MTC with the SRA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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