Aggregation clauses – Intrinsic Connection between transactions
AIG Europe Ltd .v. OC320301 LLP (formerly the International Law Partnership LLP) and others
17 May 2016
The Court of Appeal has recently given judgement in an appeal concerning the interpretation of the aggregation clause contained in the Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors in England and Wales.
The case concerned claims brought against a firm of solicitors arising out of property developments in Turkey and Morocco. The developments failed and a number of investors brought proceedings against the solicitors alleging that they had wrongly released monies from an escrow account without adequate security being in place to protect their investment. The claims were for in excess of £10 million. The solicitors policy of insurance was subject to a limit of indemnity of £3 million for any one claim.
The solicitors’ insurers sought a declaration that the claims should be treated as “one claim” under the policy. At first instance the Court held the key wording, “similar acts or omissions in a series of related matters or transactions”, to mean that the transactions should in some way be dependent upon each other so as to be treated as one claim. It was agreed as between the parties that each transaction was not so dependent on each other. The court therefore found that the claims should not be aggregated or treated as one.
The Court of Appeal however came to a different conclusion. The Court concluded that while the relationship did not need to be as narrow as “dependency”, there must be a relationship of some kind between the transactions beyond that of an outside factor, even if that extrinsic relationship was common to the transactions. The Court felt the fact of geography was too remote and rejected the insurers contentionthat any degree of relatedness between the matters or transactions was enough for claims to be aggregated.
The Court did not come to a conclusion on the facts as to whether the subject transactions were so related but remitted the issue back to the Commercial Court.
What does this mean?
The interpretation of aggregation clauses are invariably fact sensitive and it will be interesting to see how Courts in practice determine the “intrinsic” test. For example, the sale of apartments within the same building, are not likely, without some further connection, to be sufficiently related. Transactions that refer to each other may be sufficiently related as would those which are part of a single fraud; the fraud providing the connection between them.