The disagreement over the exact meaning of the solicitors’ professional indemnity aggregation clause has received further comment by the Supreme Court. The ruling provides greater clarity for solicitors about when similar professional indemnity insurance claims can be aggregated together into a single claim.
Aggregating claims is intended to enable insurers to restrict their payout to a single insurance policy limit for all claims arising from closely related matters. Without aggregation, insurers would need to treat each claim separately, each with its own policy limit.
A dispute had arisen of the exact meaning of the words in the aggregation clause, set out by the Solicitors’ Regulation Authority in the Minimum Terms and Conditions for solicitors’ professional indemnity insurance. An insurer, AIG, sought a court ruling that it could aggregate a series of claims against a solicitor following the failure of a property investment scheme (see Brunel News, May 2016).
Property developer Midas International had been marketing luxury holiday resorts in Turkey and Morocco. Investors in the scheme put their investment into an escrow account set up by law firm The International Law Partnership LLP (TILP). When the development failed, investors found that all their money had been paid away to the developers and that there was no security to cover their losses.
Over 200 investors alleged that TILP had been negligent in paying away their capital and brought claims totalling around £10 million. AIG, who provided run-off insurance after the firm ceased trading, had issued a professional indemnity policy with a limit of £3m per claim. However the policy, as per the SRA Minimum Terms, also allowed claims to be aggregated when they arose from ‘similar acts or omissions in a series of related matters or transactions’.
AIG wanted all 214 liability claims aggregated into a single claim to benefit from the £3m policy limit, while the investors wanted them treated individually, or at least as two separate claims from the Turkey and Morocco developments.
Both parties agreed that the claims involved ‘similar acts’ but disputed whether they arose from ‘a series of related transactions’ as the investors argued that they had contracted individually with the developer.
In the first trial the judge refused AIG’s application. He said that to be “a series of related matters or transactions” the transactions would need to be ‘dependent’ on each other, which they were not in this case. At Appeal, the court re-opened the question, ruling that to be related the transactions would need to have an ‘intrinsic’ relationship with each other.
The case was referred to the Supreme Court which decided that the aggregation clause has two parts, both of which must be satisfied for it to apply. The first that the claims must arise from ‘similar acts or omissions’ was agreed by all parties in the Midas case. The second that the claims must relate to ‘a series of related matters or transactions’ was in dispute. The Court concluded that ‘related’ implied that there must be some form of interconnection between the claims – which would be dependent on the facts in each case. It commented that in the Midas case the claims for the Morocco and Turkey investments could potentially be separately aggregated, but that it was unlikely that the two projects could be aggregated together. The Supreme Court went on to offer both sides the opportunity to have the case heard in the Commercial Court for a more detailed analysis of the facts.
“The Supreme Court has made it absolutely clear that each aggregation case is different and that the decision will be an exercise of judgement based on the exact facts,” said James Page, Director – Client Servicing, Brunel Professions. “However this is an extremely useful ruling in setting aside both the “dependency” and “intrinsic relationship” interpretations, and it therefore sets out the basis on which future court hearings will reach their decisions.”
Brunel Professions is a leading provider of PII insurance broking to the legal profession. To find out more call James Page on +44 (0)117 325 0947.