2016 was a significant year for professional indemnity insurers operating in the solicitors' market, with the aggregation decision in AIG Europe Ltd v OC320301 LLP & Ors  EWCA Civ 367.
Aggregation clauses allow two or more claims to be treated as a single claim where the claims are connected by a unifying factor. Depending on the limit of liability, the excess payable by the insured and/or the size or value of the claims, it may be in the insurers' or the insured's interests that claims are aggregated.
In this decision TILP were instructed by property development company Midas International Property Development Plc (Midas) to assist with legal work relating to the development of two holiday resorts in Morocco and Turkey. A scheme was created under which investment funds were held in an escrow account, with TILP as escrow agent, the aim being for Midas to secure investment from potential investors. Deeds of trust were created for the benefit of investors, allowing them to hold security over the land to be purchased in connection with the resorts. As escrow agent, TILP were permitted to release funds from the escrow account once a certain level of security was in place. Between 2007 and 2008, TILP released monies from the escrow account. However, the development of the resorts did not proceed and 214 investors claimed to have lost investment in excess of £10 million. The investors alleged that their investments should not have been released from the escrow account.
Insurers sought a declaration that the claims be aggregated as one claim under clause 2.5 of Solicitors' Minimum Terms and Conditions of Professional Indemnity on the basis that the claims arose from "similar acts or omissions in a series of related matters or transactions."
At first instance the judge refused this declaration, finding that "a series of related matters or transactions" relates to matters or transactions which are "dependent" on each other. It was common ground between the parties that the transactions had not been dependent on each other and the judge therefore found there were 214 individual claims (each of which would have an individual limit of liability of £3 million).
In the Court of Appeal, insurers argued there was no justification for the judge’s conclusion that transactions needed to be interdependent in order to constitute “a series of related matters or transactions”. They contended that all of the Midas transactions fulfilled the requirements of the aggregation clause. The trustees sought to uphold the judge’s reasoning. The Law Society, through the SRA, intervened and argued that the clause did require some sort of relationship between the matters or transactions: while the relationship did not need to be as narrow as interdependence, it needed to be based on an intrinsic connection rather than some common extrinsic factor such as geography or the identity of the solicitor.
The Court of Appeal held that the wording of the clause required that there should be some sort of connection between the transactions for them to be related. The connection had to be intrinsic rather than remote – for instance, transactions which took place in contemplation of each other might be connected. The Court of Appeal rejected the idea that any degree of relatedness would be sufficient as this would result in an impossibly wide construction of the clause.
This decision has significantly fettered insurers' ability to aggregate and, in doing so, has caused much disappointment and uncertainty for those operating in the solicitors' market.
The case came before the Supreme Court on appeal by insurers in October 2016 and judgment is due to be handed down shortly.
In the meantime insurers are hoping that the decision of the Supreme Court takes a less restrictive approach. If not, there will be further erosion of confidence in the solicitors' market.