30 May 2017Supreme Court decision helps define professional indemnity policy terms
The case of AIG Europe Ltd vs Woodman & Ors  UKSC 18 has clarified how the term ‘a series of related matters and transactions’ is defined in a legal sense. The Supreme Court defined that there must be some inter-connectedness or dependence between matters or transactions – it is not enough to simply have an ‘intrinsic’ relationship.
While this ruling does provide useful guidance on how the phrase a “series of related matters or transactions” can be interpreted, it is important to understand that this particular judgement is specific to the facts of this case and that the application of any aggregation clause is sensitive to the facts. It does however also mean that law firms are at a financial risk if insurers refuse coverage for multiple clams with high aggregate values – so you should always carefully check your indemnity limits.
The case dealt with over 200 individuals who had claimed damages from International Law Partnership LLP (ILP) and their PI insurer, AIG, after their investment in two holiday resort developments in Turkey and Morocco failed. Some investors chose to switch their investment from the failed Turkey development to the Marrakech one, which then also failed.
AIG were facing claims of more than £11 million from the individual investors but successfully argued that the policy’s aggregation clause limited their exposure to two separate claims of £3 million – the amount which the insurer’s liability was limited to for each claim. The Supreme Court conclude that ‘all Claims against any one or more Insured arising from one act or omission, one series of related acts or omissions, the same act or omission in a series of related matters or transactions or similar acts or omissions in a series of related matters or transactions will be regarded as one Claim.’
Originally the commercial court and the Court of Appeal had settled on different interpretations of the phrase “in a series of related transactions”, however the Supreme Court rejected these, instead settling on the most straightforward definition of the phrase, meaning that the transactions were only related if they were conditional or dependent on each other. As the two holiday resort developments were not related to each other they could not be aggregated.
The Supreme Court also ruled that the test for aggregation will always be dependent on the wording and the facts of the case, however as so few cases of this type have been ruled to date, the ruling will be pivotal in how PI claims are grouped in future.