Aggregation in Solicitor's Professional Indemnity Insurance

Following the Court of Appeal’s judgment in AIG Europe Limited v OC320301 LLP and others, Giambrone considers the potential implications for future decisions on aggregation.

The case arises from allegations of professional negligence (yet to be tried) against a firm of solicitors who represented a property development company in relation to building off-plan resorts in Turkey and Morocco. The firm designed a scheme for investments funds to be held in escrow and the firm acted as ‘escrow agent’ for investors and held the funds in its client accounts. Pursuant to trust agreements, the funds were not to be released until the value of the security was at least the same as the total amount of the investment to be protected. Claims in relation to each trust are being pursued before the Chancery Division of the High Court, alleging that payments were made in breach of the terms of the trusts. 

Although the trial of these claims has not yet taken place, AIG sought a declaration that it was entitled to aggregate the claims, thereby limiting its total exposure to £3 million, on the basis that the claims arise from “similar acts or omissions in a series of related matters or transactions”. At first instance, Mr Justice Teare in the High Court, refused to grant the declaration on the basis that, to fit the test of ‘a series of related ... transactions’, the transactions must be “some way dependent on each other”. Teare J granted AIG permission to appeal. 

Gabriele Giambrone, Managing Partner, commented: “Applying the natural meaning of the words, the High Court applied a narrow interpretation of the aggregation clause. Applying the wider test proposed by AIG would allow insurers to aggregate many more claims than were intended by the clause in the Solicitors Regulation Authority’s Minimum Terms and Conditions for professional negligence insurance.”

On 14 April 2016, the Court of Appeal handed down its judgment in relation to the appeal. The judges were unable to make any findings of fact for the purpose of the aggregation clause but allowed the appeal. A wider test is set out and the case was remitted back to the High Court, to be decided again, following the guidance provided in the judgment. Disapproving Teare J’s judgment that a series of related transactions must be in some way dependent on each other to activate the aggregation clause, the Court of Appeal said: “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.”

As stated above, the underlying negligence claims relate to off-plan property purchases. During the property boom between 2006 and 2008, various solicitors in England acted for a large number of clients purchasing off-plan properties in Calabria, Morocco, Turkey, Spain and Bulgaria, to name a few. With the onset of global economic downturn that followed, some of these off-plan developments were not built, or were significantly delayed, leading to significant claims of professional negligence against the solicitorsf. How the new ‘intrinsic relationship’ test will be applied in this and other cases remains to be seen.

“The Court of Appeal’s judgment provided high level guidance to the lower courts.” - continues Gabriele Giambrone - “The test was not, in my view, widened significantly. An intrinsic relationship still infers a close, essential, connection between the transactions.”

This case referred to a solicitor acting for the property developer and as escrow agent for the investors. Where a solicitor acted solely for the investors, and those investors were not related to each other, it is doubtful that there would be an ‘intrinsic relationship’ between the transactions. Using the example of off-plan property developments, reference to one geographical area (such as Calabria, Sicily, Tuscany) would not be enough to meet the test. The transactions would need to have a much closer connection.