The High Court has defined the meaning of the ‘aggregation clause’ in solicitors’ professional indemnity insurance for the first time. The ruling prevented insurer AIG from aggregating a series of more than 200 property liability claims into a single claim to benefit from a £3m policy limit. Instead the insurer faces losses of up to £10m if the solicitor involved in the underlying claims is found to have been negligent.
Law firm, The International Law Partnership (TILP) acted for a property developer, Midas International, which was planning to build holiday homes in Turkey and Morocco. Over 200 people invested in the planned developments. When both developments failed and Midas went into liquidation the buyers issued negligence proceedings against TILP to recover their investments.
AIG, who provided run-off insurance to TILP after the firm ceased trading, sought a High Court declaration that all the claims could be aggregated into a single ‘claim’. This would enable it to benefit from the policy limit of £3m rather than paying all 214 claims. The case centred on the definition of the aggregation clause in the Solicitors Regulation Authority’s (SRA) professional indemnity insurance minimum terms and conditions (MTC).
AIG argued that the MTC allowed the investor’s claims to be aggregated as they were ‘similar acts or omissions in a series of related matters or transactions’. The judge, Mr Justice Teare, found against AIG. He concluded that to be ‘related’ that the transactions needed to be ‘dependent on each other’ and that this condition had not been met.
The case could have a profound impact on solicitors’ PI insurance believes James Burgoyne, Director- Claims & Technical, Brunel Professional Risks. “Insurers will be concerned that the narrow definition of the aggregation clause increases their risk exposure, and they may increase premiums or withdraw from the market,” he said. “On the other hand, solicitors firms, which were relying on the aggregation clause to combine a series of similar claims so that their total value exceeded their policy excess, may now find that they have to pay each claim individually. Notably, the judge has given leave for appeal, so I would be surprised if this position is the end of the matter.”