In AIG Europe Limited (Appellant) v OC320201 LLP (formerly The International Law Partnership LLP) & 5 others (Respondents) & The Law Society of England and Wales (acting in its regulatory capacity as the Solicitors Regulatory Authority) (Intervener) [2016] EWCA Civ 367, the Court of Appeal determined the true construction of the phrase “a series of related … transactions” in the aggregation clause in the standard minimum terms and conditions of solicitors’ compulsory liability insurance.

A solicitors’ firm was engaged by a property developer to set up a scheme whereby the developer could solicit investments in projects in Turkey and Morocco. The funds were drawn but the developments fell through and 214 investors brought claims against the law firm on the grounds that it had failed to apply the relevant test before allowing the developer to draw out the investment money. The solicitors’ firm had entered into a run-off period and the Appellant provided cover under the terms of the firm’s professional indemnity insurance.

The Appellant applied for a declaration that the above claims were to be considered “One Claim” under the aggregation clause. Under this clause, “[a]ll claims against any one or more insured arising from … similar acts or omissions in a series of related matters or transactions … will be regarded as One Claim”. The first instance judge refused to grant the declaration sought, interpreting “a series of related matters or transactions” as a series of matters or transactions that are in some way dependent on each other, which the claims were not. The insurance company appealed the decision.

The Court of Appeal first ascertained the literal meaning of the aggregation clause and held that “there must be a relationship of some kind between the transactions relied on rather than a relationship with some outside connecting factor, even if that extrinsic relationship is common to the transactions” (paragraph 19). What is intrinsic will depend on the facts of each case. The first instance judge’s interpretation had been too narrow in assessing that the transactions should “depend on each other” in order for there to be a unifying factor.

In assessing the meaning of the aggregation clause, and in particular the phrase “a series of related … transactions”, the Court of Appeal had regard to “the importance of construing the critical words of the insurance policy against the background of knowledge of availability of wide aggregation clauses as well as narrow ones” (paragraph 25). Following Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43, the court considered that the wording was not as wide as a traditional cause-based clause, which had deliberately not been adopted by the parties.

In conclusion, the court held that the true construction of the phrase “in a series of related matters or transactions” was that the transactions had to have an intrinsic relationship with each other, not an extrinsic relationship with a third factor. In reaching its decision, the court considered the history of the origin of the clause published in the Law Society Gazette, 27 January 2005, held to be a legitimate construction aid. The appeal was allowed but the Court of Appeal remitted the case to the Commercial Court to determine whether the transactions in question had an intrinsic relationship on the facts, so as to meet the requirements of the clause.

By James Crabtree with thanks to Laura Dietschy

Posted by Cooley