The first instance decision of the High Court in AIG Europe Ltd v OC320301 LLP (formerly The International Law Partnership LLP) [2015] EWHC 2398 (Comm) was tested in the Court of Appeal when the Appellant (AIG) appealed against Mr Justice Teare's interpretation of the aggregation clause in a solicitor's indemnity insurance policy.
Factual Background
All solicitors are required to hold professional indemnity insurance, with a firm chosen from the SRA's list of 'Qualifying Insurers', and with a limit 'per claim' of £2m or £3m depending on the nature of the firm. In addition to this, and in common with other professional bodies, the SRA also requires that this insurance is on terms no less favourable than those specified in its Minimum Terms & Conditions (the MTC).
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'.
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 Appeal
AIG appealed to Court of Appeal (CoA) on the issue as to how the how the aggregation clause in the MTC should be construed.
In view of the importance of the interpretation of this clause, in addition to hearing from the parties, the CoA gave the SRA permission to intervene and make oral submissions.
The Decision
The CoA held that Mr Justice Teare had been wrong to find that the transactions had to be 'dependent' on each other before aggregation could occur. However, he had been right to find that there had to be 'inter-connection' between the transactions.
There are, however, degrees of connection between transactions. "[A]ny degree of relatedness" between claims was not satisfactory because this would be an impossibly wide construction of the clause which would render it "almost meaningless". Instead, the CoA agreed with the submissions of the SRA that there must be an "intrinsic" rather than a "remote" relationship, describing this as a relationship between the transactions, rather than a relationship with an outside connecting factor.
By way of analogy the CoA noted that the aggregation clause in this instance did not use alternative wider formulations found in more 'traditional' aggregation clauses and so could not have been intended to have the same width. It was therefore important to construe the wording of the aggregation clause against the background knowledge that there were wide aggregation clauses as well as narrow ones. In this instance, the clause used language which was imprecise and deliberately avoided a wide formulation. This supported the argument that the relationship between the relevant transactions had to be intrinsic.
The CoA's interpretation of the wording was also supported by the origins of the clause, as described by the Law Society Gazette on 27 January 2005, which it found was a legitimate aid to construction. The publication supported interpreting the disputed phrase as needing something more concrete than any relationship, however loose, between the transactions.
The CoA remitted the entire case to the Commercial Court to determine the facts of the case in accordance with its decision on the aggregation clause.
Comments
Aggregation is an important consideration for all insurance contracts, but this case will be of particular interest because the MTC aggregation clause is relevant to all solicitors professional indemnity policies.
Whilst the CoA 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 CoA'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.
Parties might also note the approach the CoA took to interpreting the clause and, in particular, that it viewed the origins of the clause as part of the relevant factual matrix within which it should be construed.
