AIG v OC320301 LLP and Others [2016] EWCA Civ 367

Russell-Cooke has successfully acted for the Solicitors Regulation Authority (SRA) intervening in the Court of Appeal in the public interest in its role as regulator in a case which is now the leading authority with regards to aggregation in relation to professional indemnity insurance for solicitors.

In the Judgment handed down on 14 April 2016, Lord Justice Longmore acknowledged that the Court was not upholding the first instance judge’s construction and stated that it had:

adopted a construction for which neither the appellant nor the respondents have submitted as their primary case

In doing so the Court of Appeal adopted the SRA’s approach to construction and found that:

the true construction of the words “in a series of matters or transactions” is that the matters or transactions have to have an intrinsic relationship with each other, not an extrinsic relationship with a third factor”. 

This is important because it means that the relationship must be found in the content of the instructions in two or more matters or in the terms of the deal in two or more transactions. The fact that, for example, losses had the same originating cause, such as the dishonesty of an individual solicitor or the identity of the client, would not cause the aggregation clause to apply.

This clarification means that clients and firms will be able to tell with more certainty whether claims aggregate and the extent to which levels of cover are adequate for particular matters or transactions.

The case arose out of 214 underlying claims by investors and beneficiaries to two trusts which were set up to hold security over land to be purchased at Peninsula Village, Turkey and at Al Johara Morocco.  The investors claimed against The International Law Partnership (“TILP”), a firm of solicitors, that the investment structure set up on behalf of TILP’s clients known as the Midas Group, resulted in ineffective security which resulted in losses to the investors.  TILP subsequently went into liquidation and had no funds to meet the claims.  Their professional indemnity insurers argued that all claims could be aggregated as ‘one claim’ and therefore refused to pay further sums beyond the £3 million limit of indemnity.

The SRA’s position was that the insurer’s interpretation of the aggregation clause was too broad and intervened as the trustee of the Compensation Fund, the discretionary fund of last resort for people who suffer loss because of a solicitor’s dishonesty or failure to account.

The construction of the aggregation clause (clause 2.5 of the MTC) adopted by the Court, follows the SRA’s position in this case (both at appeal and first instance) and in the previous case of Godiva Mortgages v Travelers Insurance Company and others [2011] EWHC 3687 (Comm), a case in which the SRA also intervened and which has yet to be concluded.

The application of the construction of the aggregation clause to the facts in this case has been remitted to the Commercial Court for a re-trial.

Counsel for the SRA were David Edwards QC, Dominic Kendrick QC and Tim Jenns of 7KBW.

Solicitors for the SRA at Russell-Cooke LLP were John Gould and Michael Colledge. John Gould is the author of The Law of Legal Services published by Jordans and Michael Colledge is a contributor.

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