AIG Europe Limited –v- OC320301 LLP and Others
While some in the market may regard the recent decision of AIG Europe Limited -v- OC320301 LLP [2015] EWHC 2398 (Comm) (14/08/2015) as a fairly dry analysis of a particular aggregation clause, others will see it as yet another example of the courts’ instinctive inclination to side with policyholders/claimants whenever that feels consistent with the overall “justice” of the case.
The dispute in AIG -v- OC320301 LLP was in substance between a large group of 214 claimants and AIG, the PI insurers of the firm of solicitors whom those claimants had retained.
The claimants had all become involved with a UK property developer, Midas International Property Development Plc (“Midas”), which planned to develop holiday homes at two sites, one in Turkey and one in Morocco. The claimants had either invested in one or other of those developments or had made payments in order to purchase a holiday home once the developments were complete.
Midas retained the Solicitors in respect of both developments. The claimants were told that they would be protected by security interests in the underlying assets (land, in the case of the Turkish development; shares in the company which owned the land, in the case of the Moroccan development) and that their funds were only to be released once the promised level of security was in place (“the cover test”).
In fact, and for different reasons in relation to each of the two developments, there was never adequate security. In both cases the Solicitors failed to apply the cover test properly, with the result that the claimants’ funds were released without their positions being protected.
Midas subsequently went into liquidation, so that the claimants’ only possible recovery was by claiming against the Solicitors. Crucially, the claimants’ claims totalled over £10m (albeit the average claim was for only about £46,000), whereas the limit of cover in the Solicitors’ PI policy was £3m. .
The aggregation clause was Clause 2.5 of the Minimum Terms & Conditions (“the MTCs”), which aggregated all claims, whether arising against one or more insured, arising from:
“(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) similar acts or omissions in a series of related matters or transactions…”
AIG argued that sub-clause (iv) applied, ie that the 214 separate claims arose from “similar acts or omission in a series of related matters or transactions”.
The claimants sought to persuade the court (Mr Justice Teare) that, since solicitors are obliged to carry professional indemnity insurance so as to ensure that they are able to compensate their clients, the aggregation clause should be construed so as to give the public the greatest level of protection. The court held that this submission was “too simplistic”. It observed that the MTCs - including the aggregation clause - were the result of discussions between the SRA and the insurance industry: doubtless the aggregation clause could have been more narrowly expressed, but then the limit per claim might have been lower or the premium might have been greater. “Thus, when construing the MTCs, and in particular the aggregation clause, the court should do so in a neutral manner, neither predisposed to assist the public nor predisposed to assist the insurer.”
The court then went on to consider how the two limbs of sub-clause (iv) applied to the facts of this case.
“Similar acts or omissions”
The claims had to arise from “similar” acts or omissions, but what was meant by “similar” in this context? The court held that “the requisite degree of similarity must be a real or substantial degree of similarity as opposed to a fanciful or insubstantial degree of similarity”. It might be said that this is so obvious or trite as to deprive this supposed test of any utility.
Be that as it may, the court had little hesitation in concluding that, in relation to both the Turkish and Moroccan developments, all the claims arose from the Solicitors’ failure to ensure that there was effective security (albeit in the one case over land and in the other case over shares), so that the cover test was not properly applied and the claimants were exposed to loss in the event that, as occurred, the developments failed. The claims thus arose out of similar - if not identical - acts or omissions.
“In a series of related transactions”
The court concluded that this phrase has at least three possible meanings, which were variously supported by the claimants and AIG.
First, as submitted by AIG, the phrase could mean simply a number of transactions which, on the facts of the particular case, were sufficiently similar and/or connected. The court rejected that submission: “If it were correct, the scope of the unifying factor and hence of the aggregation clause would be very wide with no clear limit. Claims would be aggregated where they arose out of similar acts or omissions in … transactions which are sufficiently similar and/or connected… But such test is vague, uncertain and soft-edged. AIG offered no assistance as to how one judged whether transactions were “sufficiently” similar and/or connected…”
Secondly, the phrase “a series of related matters or transactions” could mean, in the context of this particular case, a number of independent transactions which nevertheless were related because they were investments in one particular development. That was the claimants’ fall-back position. It would at least have meant that they could recover £3m for the claims in respect of the Turkish development and a further £3m for the claims in respect of the Moroccan development.
Finally (and this was the claimants’ primary case), the phrase could mean a series of transactions which were related by reason of being dependent on each other. By dint of what can only be described as some very abbreviated reasoning, this was the construction favoured by the court, which held that this was the most natural meaning of the phrase in the context of a solicitors’ insurance policy, since it was “difficult to talk of transactions being related unless their terms are in some way inter-connected”.
That construction constituted an unambiguous triumph for the claimants, since it was not suggested that any of the 214 transactions was dependent on any of the others. Thus there was no aggregation, and AIG was left potentially liable to pay the entire £10m sought by the claimants.
However, it is far from clear why the court felt compelled to hold that transactions should only be described as “related” if “their terms were in some way inter-connected” or if the transactions were “dependent on each other”. Many might say that transactions can be “related” simply by virtue of having a near identical subject matter (in this case, the investment in one or other of the two developments) or involving the same central participant (in this case, Midas).
The court plainly appreciated that a different opinion on this issue might prevail, since it is understood that it gave AIG permission to appeal.
