In the recent Supreme Court decision AIG Europe Ltd v Woodman & Ors  UKSC 18 the court considered the meaning of the words “a series of related matters or transactions” within an aggregation clause in order to determine whether various claims under a professional indemnity insurance policy could be aggregated. The appeal was unanimously allowed, and the Supreme Court stated that the relevant wording must mean that the transactions must be interconnected in order to be aggregated.
Groups of investors brought two sets of claims against a firm of solicitors, relating to holiday resort developments in Turkey and Morocco. Two trusts were created to hold the investments, with the development land to be held by them as security. Claims in negligence were brought against the solicitors firm (acting as trustees), due to failure to ensure that the relevant security was in place before the project was shut down by regulators. The firm had professional indemnity insurance with the appellant.
The claimants’ losses totalled £10 million, and under the relevant insurance policy, a claim was limited to £3 million. Aggregation of claims was permitted under the policy, providing that the claims arose from “similar acts or omissions in a series of related matters or transactions”, under the Minimum Terms and Conditions cl.2.5 (a) (iv) (“the Aggregation Clause”). The insurer issued proceedings to obtain a declaration that the investors’ claims fell to be aggregated and regarded as one claim, limited to £3 million. The Court of Appeal held that an “intrinsic” connection between the transactions was required, rather than a connection involving some other factor. Without an “intrinsic” connection there could be no aggregation: see our earlier blog post, here.
The Supreme Court, when asked to interpret the wording of the Aggregation Clause, rejected the Court of Appeal’s approach. The Court stated that aggregation clauses must be read neutrally as they can operate in favour of the insurer (by capping the total sum insured) or the insured (by capping the amount deductible per claim).
To establish that the transactions are “related”, a “real connection” between the transactions is necessary. The Court held that determination of any relationship between the transactions turned on the facts, and followed Rix LJ in Scott v Copenhagen Reinsurance Co (UK) Ltd  Lloyd’s Rep IR 696 81 who acknowledged “an exercise of judgment, not a reformulation of the clause to be construed and applied” was required in determining whether the transactions were related. The Court of Appeal’s narrow definition of “transaction” was criticised, and the Court found that the Aggregation Clause was to be judged objectively, “taking the transactions in the round”.
On this basis, the Supreme Court suggested that claims specific to the Moroccan investments could be aggregated, and separately claims specific to the Turkish investments were suitably connected, but the two sets of claims could not be aggregated since the projects were separate. However, the parties were left with the opportunity to have the case remitted to the Commercial Court for further factual analysis.
The decision emphasizes that aggregation remains fact specific and also highlights that determining whether matters or transactions are related is simply a question of establishing a real connection, with previous notions of showing an intrinsic (as opposed to “remote”) connection, being dismissed as both unnecessary and inappropriate.