section image

Aggregation clauses in solicitors’ insurance – the Supreme Court speaks

News | Mon 27th Mar, 2017

Last week, in AIG Europe Ltd v Woodman the Supreme Court overruled a Court of Appeal decision that claims made by 214 investors in two holiday home developments (one in Turkey and one in Morocco) could not be aggregated. We commented on the first instance decision of Teare J. in a previous post.

The funds the investors had provided were supposed to be held in escrow by the defendant solicitors until a promised level of security was given by the developers to a trust as security for the investments. The defendant solicitors were also the trustees of the trust. The solicitors/trustees are alleged to have released the funds held in escrow without the promised level of security being provided, causing total losses to the investors of over £10m.

The solicitors’ insurers rely on clause 2.5(a)(iv) of the Law Society’s solicitors’ Minimum Terms and Conditions to cap their indemnity at £3m. This clause allows the insurers to treat claims “arising from similar acts or omissions in a series of related matters or transactions” as a single claim. The key question is whether the investors’ claims arose from a “series of related matters or transactions”.

The Court of Appeal had held that the expression “related matters or transactions” required that there must be an “intrinsic” relationship between the transactions rather than an extrinsic relationship with some outside third factor and ruled that the aggregation clause could not be relied on by the insurers.

The Supreme Court rejected the Court of Appeal’s analysis as the word “intrinsic” could take on different meaning in different contexts. The Supreme Court said that the Court of Appeal had taken too narrow a view of the “transactions” to be considered when applying the phrase “a series of related matter or transactions”. Although each transaction was principally bilateral, the solicitors’ role as both escrow agents and trustees created a multilateral element. All the investors were co-beneficiaries of a common trust. The claims of each group of investors did arise from acts of omissions in a series of related transactions and could be aggregated.

However, the connections between the two developments was weaker. The security structures were similar and involved companies in the same group but different groups of investors were protected by different deeds of trusts over different assets. Accordingly, the insurers could only rely on the aggregation clause to limit their liability to one claim in respect of the Turkish development and one claim in respect of the Moroccan development.

Portfolio Builder

Select the practice areas that you would like to download or add to the portfolio

Download    Add to portfolio   
Title Type CV Email

Remove All


Click here to share this shortlist.
(It will expire after 30 days.)