High Court: first authority
Solicitors’ professional indemnity insurers cannot aggregate multiple related claims when the terms of the transactions are not conditional or dependent upon each other, the High Court has decided in a ruling said to protect law firms from financial risk.
It is the first judicial authority on the aggregation clause of the Solicitors Regulation Authority’s minimum terms and conditions (MTC) and means that AIG now faces claims worth more than £11m, rather than the £3m limit for a single claim.
AIG Europe Ltd v OC320301 LLP & Ors [2015] EWHC 2398 (Comm) concerned actions being brought on behalf of 214 people who lost money in failed holiday property schemes in Turkey and Morocco and alleged that the now defunct International Law Partnership had been negligent in protecting their money.
AIG, the firm’s run-off insurer, argued that their liability should be limited on the basis that all the claims flowed from the release of money held in escrow when it ought not to have been, and so met the test in the MTC that claims arising from “similar acts or omissions in a series of related matters or transactions” should be treated as a single claim.
Sitting in the Commercial Court, Mr Justice Teare agreed that all the claims arose out of similar acts or omissions, but decided that the wording of the second part of the clause “in its context appears to me to point to transactions which are, by reason of their terms, dependent on reach other rather than independent of each other”.
He continued: “For these reasons I have reached the conclusion that the underlying claims are not to be aggregated as one claim. They arise out of similar acts or omissions but the acts or omissions are not in a series of related transactions because the terms of the transactions are not conditional or dependent upon each other. The acts or omissions are not therefore in a series of related matters or transactions.”
Richard Woodman, a partner at City firm Royds who acted for the professional trustees representing the claimants, said: “AIG’s interpretation of the [MTC] would have set a very dangerous precedent and placed law firms at financial risk if insurance firms had refused to cover multiple claims with high aggregate values.
“We are also pleased that the Law Society and the Solicitors Regulation Authority recognised the implications of this case and made submissions to the court during the trial.”
Royds instructed Tom Leech QC of Herbert Smith Freehills’ advocacy unit and Edward Risso-Gill of Thomas More Chambers.
Ben Hubble QC, Carl Troman and Peter Morcos of 4 New Square, instructed by Mayer Brown, represented AIG.
The SRA proposals for reform will potentially reverse the effect of this. People need to consider the proposals and respond.