Aggregation in indemnity insurance: case pending before the United Kingdom Supreme Court

The United Kingdom Supreme Court has recently announced, via its website, that, on 10 October 2016, it will hear an expedited appeal on the meaning and effect of a standard form aggregation clause in an English solicitors’ firm’s Professional Indemnity Insurance Policy.

The question for the Court has been summarized as follows: “What is the true construction of the words “in a series of related matters or transactions” within the aggregation clause of a professional indemnity insurance policy?”

For those interested in the case, the issues were canvassed in some detail in the English Court of Appeal’s April 2016 judgment in the case of AIG Europe Ltd v OC320301 LLP [2016] EWCA Civ 367, which is the subject of the appeal.

The Professional Indemnity Insurance Policy in issue was subject to the Minimum Terms and Conditions, which are mandatory for solicitors’ liability insurance under English law. The law firm in question was The International Law Partnership LLP. The firm faced underlying third party claims from 214 investors that had lost money on two collective investment schemes relating to unsuccessful property developments in Turkey and Morocco. The law firm is alleged to have released the investors’ funds from escrow negligently and in breach of contract, and a trial of the underlying third party claims is scheduled to take place in 2017.

The aggregation clause in the Policy limited the cover available with respect to any One Claim, which the Policy provided was to be assessed by reference to whether or not the underlying claims arose out of “a series of related matters or transactions”.

Insurers sought a declaration from the English Commercial Court that the 214 investors’ underlying claims were to be treated as One Claim under the Policy. At first instance, however, the Commercial Court declined to grant Insurers the declaration that they sought. On the contrary, the Commercial Court held that the 214 claims would only be treated as One Claim if the series of transactions were “in some way dependent on each other”.

On an appeal brought by Insurers, the Court of Appeal rejected the proposition that the matters or transactions needed to be “dependent on each other” in order to be “related”. However, the Court of Appeal went on to conclude that there had to be an “intrinsic relationship” between the matters or transactions for them to be “related”, not an “extrinsic” one (such as geography or the identity of the solicitor).

The Court of Appeal remitted the case back to the Commercial Court, to enable the trial judge to make the necessary findings of fact to enable the Court to determine whether or not the 214 claims arose out of a series of matters or transactions that had an “intrinsic relationship” between them.

The Court of Appeal’s judgment did not, in and of itself, provide a clear answer to the scope and application of the aggregation clause to the facts of a particular set of claims, although it did offer some hints as to the Court of Appeal’s likely approach.

Hopefully, the United Kingdom Supreme Court will offer some clearer answers for the insurance market, one way or the other.


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