Ruth Kennedy discusses insurance and aggregation claims in Insurance Day
Clarity provided for insurers aggregating claims
The Supreme Court judgment in the case of AIG Europe Ltd v Woodman, handed down on 22 March 2017, is now the leading authority on the meaning of the aggregation clause in the Law Society’s Minimum Terms and Conditions, and provides guidance on the construction of aggregation clauses more generally.
The facts of the case
Initially two sets of claims were brought against effectively one law firm, International Law Partnership (ILP), by investors whose funds had been lost due to ILP’s failure to establish that sufficient security had been put in place prior to releasing the sums to a developer for two separate projects in Morocco and Turkey. Following the loss of funds, claims totalling over £10 million were brought by a total of 214 claimants.
ILP’s professional indemnity policy had a limit of £3 million per claim, however it permitted the aggregation of claims in circumstances where all claims arise from “similar acts or omissions in a series of related matters or transactions”. The insurers, AIG, argued that the investors’ claims against ILP fell within the scope of this aggregation clause and were therefore limited to £3 million in total.
Judgment at first instance and the Court of Appeal
At first instance, Teare J found that the investors’ claims did not fall within the aggregation clause, as they were not a series of related matters or transactions. He found that they had to be in some way dependent or conditional upon each other to be “related”.
The Court of Appeal rejected this approach. Instead, the Court found that “the true construction of the words ‘in a series of matters or transactions’ is that the matters or transactions have to have an intrinsic relationship with each other, not an extrinsic relationship with a third factor.”
Judgment of the Supreme Court
Lord Toulson, giving the lead judgment, found that the Court of Appeal’s formulation of “intrinsic relationship” was not “necessary or satisfactory”. Instead, the crucial question is whether there was “some inter-connection between the matters or transactions”. He found that assessing the connection should be conducted objectively and that the connecting factors in this case drove him to the firm conclusion that the claims of each group of investors arise from acts or omissions in a series of related transactions. However, he found that the separate projects in Morocco and Turkey did not sufficiently “fit together” and therefore could not be aggregated.
When assessing whether a group of claims can be aggregated, insurers should take a broad-brush assessment of whether the claims are inter-connected in some way (subject to the precise wording of the policy). This will be a highly fact specific exercise, but the connection can be a common underlying objective or legal structure underpinning the claim.
This article was originally published in Insurance Day and can be found here, behind a paywall.