EDWARD RISSO-GILL IN SUPREME COURT INSURANCE DECISION

Edward  Risso -Gill

AIG Europe Limited v OC320301 LLP [2015] EWHC 2398 (Comm); [2016] Lloyd’s Rep I.R. 147; [2016] EWCA Civ 367]; [2016] Lloyd’s Rep IR 289; [2017] UKSC 18

 

This insurance dispute concerned underlying claims against the Defendant solicitors whose insurance was provided by the Claimant, AIG. The solicitors were engaged by a property development company to assist with projects in Turkey and Morocco. Investors funds were to be held by the solicitors until sufficient security had been provided by the developer (“the Cover Test”). When funds were released the investors became beneficiaries under a trust. Two separate trusts were established, one for Turkey and one for Morocco. When the developer failed, the 214 investors brought claims against the solicitors for their lost investments, alleging that the security was flawed, the Cover Test had been misapplied and the money should not have been released.

 

The solicitors professional indemnity insurance with AIG had a limit of £3 million per claim. The total underlying claims were over £12 million. Clause 2.5 of the Law Society’s Minimum Terms and Conditions for solicitors’ professional indemnity insurance governed the aggregation of claims (“Clause 2.5”). In these proceedings AIG sought a declaration that all the underlying claims were to be treated as one claim under limb a) iv) of Clause 2.5, because they arose out of “similar acts or omissions in a series of related matters or transactions”. This would have limited the ‘pot’ on which the underlying claimants would ultimately rely for recovery to £3 million.

 

On behalf of the underlying claimants, the trustees, including Richard Woodman of Royds Withy King, joined the proceedings to defend AIG’s claim. They were represented by Edward Risso-Gill, led by Tom Leech QC of Herbert Smith Freehills.

 

Teare J held that the acts or omissions giving rise to the claims were not related as they were neither conditional nor dependent on one another.

 

The Court of Appeal held that to be related the transactions did not need to be dependent on one another. However it held that it was necessary to imply some unifying factor in the phrase “related…transactions” and that there had to be some “intrinsic connection” between the relevant matters or transactions, rather than a connection with some external factor.

 

The Supreme Court held that the word “related” did imply some inter-connection between matters or transactions “or in other words that they must in some way fit together”. It noted that the Law Society had not sought expressly to limit the meaning of “related” by reference to any particular set of criteria. The Court held that the requirement for an intrinsic relationship was neither “necessary nor satisfactory”. Applying Clause 2.5 involved a fact sensitive inquiry, not a reformulation of the clause. The transactions were to be examined objectively, in the round. Clause 2.5 was not be applied from the perspective of the insured, or any other party. In applying limb a) iv) of Clause 2.5, the transactions in Turkey “connected” with each other and “fitted together” and the same was to be said for those in Morocco. However  the case for aggregating the claims in both developments was much weaker. The development projects “were separate and unconnected”.

 

The Supreme Court’s decision provides welcome guidance on the application of limb a) iv) of Clause 2.5. It is apparent that the matters or transactions and the connections between them must be carefully identified and examined, in order to assess whether the connections are significant.