When do aggregation clauses apply?

Solicitors sometimes act in cases that are multiple transactions, where one mistake can lead to claims for small amounts which total a large sum. Examples include acting for thousands of people in claims for equal pay, or for nuisance following a fire, or for a landlord on a lease granted to many tenants.

Most practitioners give ?some thought to the limit of indemnity and assume they are covered for all eventualities. Many might, however, be surprised by the effect of the aggregation clause in their indemnity insurance policy. 

In AIG Europe Limited v OC320301 LLP (formerly The International Law Partnership LLP) [2015] EWHC 2398 (Comm), the Commercial Court had to consider the aggregation clause in the minimum terms and whether the solicitor’s actions constituted ‘similar acts or omissions in a series of related matters or transactions’. If the claims arose from such acts, there would be one claim and AIG would be liable for £3m; if there were multiple (relatively small) claims, AIG would be liable for £11m. 

‘Similar’ and ‘related’

The solicitors acted on a property development in two resorts. The scheme they set up involved many investors placing money in an escrow account that would not be released until there was sufficient security. The developments failed, the solicitors having apparently released the money prematurely, so lots of investors lost lots ?of money. 

Mr Justice Teare found clearly that the claims arose from similar acts or omissions. While there was not much assistance given as to what ‘similar’ meant, there had to be ‘a real or substantial degree of similarity’. The solicitors failed to provide effective security; accordingly all claims arose out of similar acts or omissions. So far, so good.

He then considered the term ‘series of related matters or transactions’. AIG said the transactions were related as they arose out of the same modus operandi, all being subject to the same security structure. 

The court concluded the claims did not arise out of a series of related transactions because the transactions were not ‘conditional or dependent on each other’. 

It is surprising that this particularly important term has not been considered before. It is also surprising that the judgment is so brief (52 paragraphs and just about ten pages long). One senses that the judge felt the interpretation could go either way. In dealing with the definition of ‘similar’, the judge said he should not introduce other words to assist with understanding. On the other hand, when looking at the meaning of ‘series of related’, he imported a requirement that the transactions should be dependent or conditional on ?one another. 

So, we have a case where many people invested money in property developments. The money was paid into an account and was paid out wrongly. To a lay person, all of those events could well be deemed related and in a series, as well as similar. 

For any firm doing lots ?of similar transactions or conducting similar cases, the AIG case is a warning: if the solicitor is fundamentally doing the same thing many times over for the same client or multiple clients, there is a risk that claims arising may well be aggregated. The judge’s gloss – that they have to be dependent or conditional – may well not assist in determining whether aggregation applies in the circumstances.

Inconsistent approach

The question for the profession is the extent to which Joe Public should be protected and the effect of protection on the cost and availability of insurance – a difficult balancing act. The judge disavowed such considerations and said his role was simply to interpret wording. One cannot help but think that the ultimate outcome has been about deciding where the losses fall. 

This is not a compelling judgment. There is inconsistency in the approach to the definition of words and authorities are given perfunctory treatment. ?The underlying facts of the dispute are dealt with tersely, ?and counsel’s arguments are referred to with extreme brevity.

But the judge’s difficulties and discomfort can be understood when again one stands back and tries to ascertain what is really meant by ‘series of related matters or transactions’. If a solicitor is acting on lots of similar matters or taking on similar cases, is he or she thereby involved in a series? If they all look like peas in a pod or if they happen to form a larger whole, do they become related? 

This is very much a case ?where the judge came to a view, and it would not be surprising ?if the Court of Appeal has a different one. SJ

Patrick Gaul is a partner in the professional risk team at Weightmans @Weightmans www.weightmans.com