AIG Europe – When can similar claims against professionals be aggregated by insurers?
Thursday 23rd March 2017
The much anticipated Supreme Court decision in AIG Europe Limited v Woodman and others was handed down on 22 March 2017. The decision helps clarify the circumstances in which professional indemnity insurers can aggregate multiple claims to determine whether the indemnity limit has been exceeded. The decision is therefore an important one for insurers and anyone with multiple claims against the same insured professional.
The Law Society requires that firms of solicitors carry professional indemnity insurance of at least £3 million per claim. However, those requirements also provide that in certain circumstances, insurers can aggregate more than 1 claim, including where they arise out of “related matters or transactions”. The dispute in this appeal concerned the meaning of “related matters or transactions” in that context.
The underlying facts are these: Two claims were brought against a firm of solicitors. The first claim was brought by investors in a development project in Turkey. The second claim was brought by investors in a similar development project in Morocco. The developer was the same in both the Turkey and Morocco developments.
The solicitors released the investors’ funds to the developers, but the developers were wound up shortly thereafter and all the money in the escrow accounts had been paid out. Essentially, the investors’ funds had been released without adequate security.
The solicitors were subsequently intervened by the SRA and John Owen of this firm was appointed as the SRA’s intervention agent (but Gordons LLP was not involved in this litigation).
The investors’ claims against the solicitors amounted in total to more than £10m. But, the insurers said that all of the investors’ claims arose from “similar acts or omissions in a series of related matters or transactions”. On that basis, the indemnity limit for all of the investors’ claims was, the insurer said, £3m.
The Commercial Court, at first instance, determined that the claims all arose from “similar acts or omissions” and that was not contested. It determined that, to constitute “a series of related matters or transactions”, the transactions had to be dependent on one another. That decision was appealed. The Court of Appeal held that there must be an “intrinsic”, rather than a remote, relationship between the transactions. It was appealed to the Supreme Court.
The Supreme Court decided that:
- “Intrinsic” was too elusive a term;
- “Related” implies some inter-connection between the matters or transactions, and they must in some way fit together. This is, though, an acutely fact sensitive exercise;
- The transactions of the Turkey investors were connected in significant ways, as were the transactions of the Morocco investors;
- The question should be judged objectively and not from either party’s viewpoint;
- The claims of each group of investors arose from acts or omissions in a series of related transactions. The transactions fitted together, because they related to the execution of the same development and the investors were co-beneficiaries. So, the Turkey investor claims could together be treated as 1 claim, and the Morocco investor claims could together be treated as 1 claim;
- However, whilst the claims of the Turkey and Morocco investors bore a “striking similarity”, that was not enough to aggregate both sets of claims. They related to different sites, and the different investors were protected by different deeds of trust over different assets;
- Accordingly, the insurers are entitled to aggregate the various claims of the Turkey investors, and separately to aggregate the claims of the Morocco investors, but they are not entitled to treat the claims of both the Turkey investors and the Morocco investors as aggregated to one claim.
The decision gives some welcome guidance to Claimants, in a previously uncertain area; transactions need to “fit together”, and not just be “strikingly similar” to be treated as “related” for insurance aggregation purposes.
If you would like to discuss this further, please contact Frances Mitchell on 0113 227 0210 or by email to email@example.com.