On 14 August 2015, the Commercial Court handed down judgment in AIG Europe Limited v OC320301 LLP & Ors.
The decision is the first consideration by a court of the ‘aggregation’ wording in the Solicitors Regulation Authority’s minimum terms and conditions (MTCs), which set out the minimum terms upon which participating insurers may provide qualifying insurance to solicitors in England and Wales.
The aggregation clause was implemented in 2005, but all previous disputes concerning its construction and application have been conducted by way of arbitration proceedings, which are confidential.
The MTCs do not permit insurers to impose aggregate limits on their liability. The aggregation clause, therefore, plays an important role in determining participating insurers’ exposure under qualifying insurance policies.
The judgment considered the MTC aggregation wording in the context of a dispute between AIG and The International Law Partnership (TILP), a firm of solicitors to whom AIG was required to provide run-off insurance following cessation of the firm’s practice in 2009.
TILP acted for a property developer, Midas International Property Developments Plc (Midas), in relation to property developments in Turkey and Morocco, which Midas had promised to develop into holiday homes. Midas obtained investment investments in the developments from a large number of individual investors. TILP performed similar roles in relation to both developments including acting in a trustee role in respect of the investors’ monies.
The developments failed, as did Midas, and over 200 investors in the developments in Turkey and Morocco issued proceedings against TILP to recover their investments. Their claims have not been resolved, but were stayed by consent to allow the aggregation issue to be determined. In the Commercial Court proceedings, AIG sought a declaration that the claims that had been asserted against TILP by the investors fell to be aggregated, and thus considered a single claim, with the result that one £3m limit of liability would apply.
AIG sought to aggregate the claims on the basis that they arise out of ‘similar acts or omissions in a series of related matters or transactions’, that being the wording from sub-paragraph 2.5(a)(iv) of the MTCs. Representatives of the underlying claimants were joined as defendants to the action and opposed the declaration. The SRA informally intervened in the proceedings and made submissions on the construction of the relevant wording in the MTCs.
Mr Justice Teare (pictured) found that the underlying claims all arose out of ‘similar acts or omissions’ and, therefore, that the first half of the clause had been satisfied. However, he held that the second half of the clause had not been made out. He found that the natural meaning of the words ‘a series of related matters or transactions’, in the context of a solicitor’s professional indemnity policy, is ‘a series of matters or transactions that are in some way dependent on each other’.
On the facts, he found that the relevant matters or transactions were not so dependent.
This finding of a requirement for interdependence will concern insurers because it imposes a restriction on aggregation not previously perceived by them when offering and pricing insurance for law firms. It may affect insurers’ preparedness to be participating insurers and will affect participating insurers’ willingness to insure certain law firms. Law firms will also be troubled by the judgment: it may cause renewal premiums to increase and some law firms may have difficulty in obtaining affordable insurance cover.
Law firms with large policy excesses will also be affected because most insurers also use the same aggregation clause to govern the payment of excesses, and the result may well be an obligation for law firms to pay multiple excesses in situations not previously contemplated.
Mr Justice Teare himself gave AIG permission to appeal his judgment, and it is likely that the Court of Appeal will, therefore, be given the opportunity to provide further guidance on this important issue.
Will Glassey is a partner and Tom Ataii a senior associate at Mayer Brown, who are acting for AIG in this litigation