Insurance Aggregation – Recent Developments

The recent Supreme Court decision in the case of AIG Europe Limited -v- Woodman and Others [2017] UKSC 18, is of great significance for anyone interested in solicitors’ professional indemnity insurance. This decision has provided valuable guidance to the profession on the issue of insurance aggregation and has largely succeeded in clearing up the uncertainty caused by the Court of Appeal on the same issue. What is the background to this decision?

Aggregation

Solicitors, as professionals are required by law to obtain professional indemnity insurance. Under s37 of the Solicitors Act 1974, the Law Society made a series of rules known as the Minimum Terms and Conditions. These dictate how an applicable insurance policy should operate. One of the Minimum Terms and Conditions concerns the issue of aggregation. This is the ability of an insurer to group multiple claims together under the same indemnity limit. Clause 2.5 of the Minimum Terms and Conditions, states that:

…aggregation is allowed in respect of “all claims again anyone on more insured arising from:
– One act or omission;
– One series of related acts or omissions;
– The same act or omission in a series of related matters or transactions;
– Similar acts or omissions in a series of related matters or transactions…”

The skill for insurer when deciding were not to aggregate a series of claims is to determine what exactly is meant by the phrase, “a series of related acts or omissions”. This was the issue that came before the Court in AIG -v- Woodman.

AIG v Woodman

The history of the claim is long and complex and I will not go into it here. As a brief summary: two claims had been brought in the High Court against, what were by that stage, two defunct firms of solicitors. There were a total of 214 difference Claimants, all who were investors in a project developing holiday resorts on a plot near Izmir in Turkey. All claimed that the solicitors had failed to properly protect their interests in these transactions. The solicitors’ professional indemnity insurer sought to aggregate all of these claims under one indemnity limit, thereby significantly lowering their financial liability. Naturally, the Claimants (who would receive next to nothing if the aggregation was successful) sought to resist this.

To settle the matter, the insurers sought a declaration from the High Court on the issue of aggregation. The case came before Mr Justice Teare, who accepted that all of the claims arose from a similar act or omission, but rejected the argument that they were in a series of related matters or transactions. Teare J, decided that for the claims to amount to a series of related matters or transactions, the relevant transactions would have to be dependent on each other. The decision was appealed to the Court of Appeal.

Court of Appeal

The Court of Appeal decided that Teare J had gone too far in deciding that the transactions would have to be dependent on each other. It instead decided that there would need to be an “intrinsic link” between the transactions, rather than an extrinsic relationship with a third factor. Unfortunately, the Court of Appeal give next to no guidance on what would constitute a sufficient qualifying intrinsic link. Unsurprisingly, the matter was appealed again, this time to the Supreme Court.

Supreme Court

Giving judgment, the Supreme Court noted that it was difficult to understand what the Court of Appeal had meant by “intrinsic link”, in the absence of any real guidance. In any event, the Supreme Court noted that the Law Society had deliberately worded the Minimum Terms and they had decided not to impose a criteria such as “intrinsic link” on that limb of the test. Consequently, the Supreme Court concluded that the Court of Appeal had gone too far.

The Supreme Court concluded that the test is to determine whether there is a “real connection” between the relevant transactions. What is meant by a real connection is very fact sensitive and may differ from transaction to transaction. It can only be determined following an objective assessment of all the transactions in the round. However, a real connection would be more than just a similarity in the type of act or omission.

Overall, the Supreme Court’s decision in AIG Europe Limited -v- Woodman is helpful. It removes the unclear and unnecessarily onerous test of “intrinsic link” created by the Court of Appeal. Undoubtedly, it opens the door to the possibility of wider aggregation of insurance claims, but it doesn’t open the flood gates. Insurers who wish to aggregate claims will still need to show a “real” connection between the relevant transactions. The Supreme Court has also warned insurers that any aggregation decision would have to be based on a comprehensive and objective assessment of the transactions behind the relevant claims. Failure to do this, or aggregation decisions made off the cuff, will undoubtedly be open to challenge.

Our professional negligence solicitors are experienced in advising on aggregation issues. Contact us today on 0800 988 7756 to arrange a free consultation.

 

aggregation

James Gould

James Gould

Solicitor

Tel: 0113 297 3183
Email:jgould@levisolicitors.co.uk
James Gould