AIG Europe Limited v Woodman and others

An aggregation clause permitting claims arising from similar acts or omissions in a series of related matters or transactions requires an identifiable substantive connection between the transactions. Mere similarity is insufficient, but the relationship need not be intrinsic or involve mutual dependence.

The court must identify the transactions broadly and assess them objectively in the round. The inquiry is acutely fact-sensitive and calls for judgment rather than a reformulation of the clause. Transactions may be related where they fit together through a shared underlying objective and a common legal structure.

Investors in two overseas property developments claimed against solicitors who had released investment funds from escrow without adequate security. The solicitors’ professional indemnity policy limited cover to £3m for each claim and incorporated clause 2.5(a)(iv) of the Minimum Terms and Conditions. That provision permitted claims to be aggregated where they arose from similar acts or omissions in a series of related matters or transactions.

Teare J held that transactions were related only if they were conditional or dependent upon one another and dismissed the insurer’s action for declaratory relief. The Court of Appeal, [2016] EWCA Civ 367, rejected that requirement but held that the transactions needed an intrinsic relationship rather than an extrinsic connection with a third factor. It allowed the appeal and remitted the matter.

The central issue before the Supreme Court was the proper meaning and application of “a series of related matters or transactions”.

1. Appeal allowed unanimously. Lord Toulson delivered the judgment, with which Lord Mance, Lord Clarke, Lord Sumption and Lord Reed agreed. The Court of Appeal’s requirement of an “intrinsic” relationship was unnecessary and unsatisfactory. The word was elusive in this context and might exclude transactions which Parliament’s regulatory scheme and the amended aggregation terms were capable of covering.

2. Aggregation clauses must be construed neutrally. Depending on the circumstances, they may benefit either insurer or insured. The Law Society framed the minimum terms as a regulator and had to balance public protection against the cost and availability of professional indemnity insurance.

3. Clause 2.5(a)(iv) imposed two distinct requirements. The claims had to arise from similar acts or omissions, and those acts or omissions had to occur in a series of related matters or transactions. “Related” required an interconnection: the transactions had in some way to fit together. Mere similarity was insufficient. The clause prescribed no further criterion, so its application was acutely fact-sensitive and involved an exercise of judgment rather than reformulation of its language.

4. The court must first identify the relevant transactions. It was too narrow to treat the release of money from an escrow account as the transaction. Each transaction comprised the investment in a development under the relevant contractual arrangements, including the trust deed and escrow agreement. Relatedness was to be assessed objectively, taking the transactions in the round rather than exclusively from one party’s viewpoint.

5. The transactions within each development were related. The investors participated in a standard scheme, combined their funds for a common development and were co-beneficiaries under a common trust. Their claims could therefore be aggregated by development.

6. The transactions concerning the two separate developments were similar but, on the facts as they appeared, were not related. They concerned different sites, projects, trusts and assets. Claims across the developments could not generally be aggregated. Transactions of crossover investors who entered one investment and then switched to the other would obviously be related, although the court had heard no argument on the precise consequences.

7. The matter was to be remitted to the Commercial Court or transferred to the Chancery Division, subject to written submissions. The parties were also invited to make submissions on costs within 28 days.

1. United Kingdom Supreme Court: The insurer’s appeal was allowed unanimously. The Court of Appeal’s “intrinsic relationship” formulation was rejected. The matter was to be remitted to the Commercial Court or transferred to the Chancery Division following written submissions.
2. Court of Appeal: [2016] EWCA Civ 367. The court allowed the insurer’s appeal, held that related transactions required an intrinsic rather than extrinsic relationship, and remitted the action to the Commercial Court.
3. Commercial Court: Teare J, reported at [2016] Lloyd’s Rep IR 147, held that transactions had to be conditional or dependent upon one another. He found that the investors’ transactions did not satisfy that requirement and dismissed the insurer’s action.