The Court of Appeal has overturned the High Court’s August 2015 ruling that insurers cannot aggregate multiple related professional indemnity claims when the terms of the transactions are not conditional or dependent upon each other.
The AIG Europe Ltd v OC320301 case is the first of its kind as it addresses whether multiple claims against a firm of solicitors that give rise to a claim against the firm’s professional indemnity insurance policy should be treated as a single claim.
In the High Court hearing, Judge Teare ruled that claims had to be dependent on each other to be aggregated. He said that the claims in question could not be viewed as such.
If they were aggregated, then this would cap the insurer’s aggregate liability by the policy’s limit of indemnity, rather than each claim separately. In this case, the outcome was the difference between AIG facing claims of £11m around failed holiday property schemes, instead of a £3m single claim limit.
The Court of Appeal disagreed with Judge Teare, but ruled that matters or transactions must have an intrinsic relationship with each other. The High Court will now determine on the case.
James Denison, a member of the professional indemnity sector focus team at the Forum of Insurance Lawyers, and an associate at Weightmans, said: “The Court of Appeal’s judgment confirms suspicions that matters and transactions need not be dependent on each other to be related for the purposes of clause 2.5(a)(iv) of the solicitors’ minimum terms, contrary to the first instance decision of Teare J.
“Qualifying insurers may welcome the decision for that reason alone. However, transactions must still be intrinsically related for the clause to bite and that remains a narrow test. The Court of Appeal’s construction of clause 2.5 may therefore dissuade insurers from taking part in the solicitors’ PI market and could conceivably lead to another review of the SRA Minimum Terms & Conditions for professional indemnity insurance.”