On 22 March 2017, the Supreme Court handed down judgment in AIG Europe Limited v Woodman and others [2017] UKSC 18, finally resolving the vexed issue of the proper construction and meaning of clause 2.5(a)(iv) of the Minimum Terms and Conditions for solicitors’ professional indemnity insurance (“the aggregation clause”), which permits the aggregation of claims arising from “similar acts or omissions in a series of related matters or transactions”.

The case involved a large number of claims brought against AIG’s insured (ILP, solicitors) by investors in two holiday resort developments, one in Turkey and one in Morocco. AIG issued declaratory proceedings against ILP, seeking a declaration that the investors’ claims be considered as one claim under the aggregation clause, alternatively two claims (by reference to the two developments).

Teare J at first instance dismissed the claim ([2015] EWHC 2398 (Comm)). Whilst Teare J accepted that all the claims arose from similar acts or omissions, he held that they were not “in a series of related matters of transactions” because he construed the aggregation clause to mean that the transactions had to be “conditional or dependent upon each other”. The Court of Appeal allowed the appeal ([2016] EWCA Civ 367), but placed a restriction on the clause, holding that the matters or transactions had to have an “intrinsic” relationship with each other, not an extrinsic relationship with a third factor.

The Supreme Court allowed the appeal and rejected the Court of Appeal’s requirement that the term “intrinsic” should be read into the clause. The Supreme Court held [22] that “Sub-clause (iv) separates the requirement that the acts or omissions giving rise to the claims should be similar and the requirement that they were in a series of matters or transactions which were related. Each limb must be satisfied for the sub-clause to apply. Use of the word “related” implies that there must be some inter-connection between the matters or transactions, or in other words that they must in some way fit together, but the Law Society saw fit after market negotiation not to circumscribe the phrase “a series of related matters or transactions” by any particular criterion or set of criteria. The absence of further prescription is not particularly surprising, considering the very wide range of transactions which may involve solicitors providing professional services. Determining whether transactions are related is therefore an acutely fact sensitive exercise. To borrow the language of Rix LJ in Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] Lloyd’s Rep IR 696, para 81, it involves “an exercise of judgment, not a reformulation of the clause to be construed and applied”.

This is a crucially important decision for the solicitors’ professional indemnity insurance market. The vast majority of solicitors’ insurance aggregation cases proceed in arbitration and the Supreme Court’s judgment brings welcome clarity to the area.

The full judgment is available here: https://www.supremecourt.uk/cases/uksc-2016-0100.html

Acting for AIG, Ben Lynch and Peter Morcos were led by Colin Edelman QC.