Aggregation – solicitors’ professional indemnity insurance: an update on Baines v Dixon Coles & Gill
- In April, we filmed a webinar/podcast in which we discussed the case of Baines v Dixon Coles and Gill  EWHC 2809 (Ch) (aka Guide Dogs for the Blind v Box), a judgment from late 2020 which was one of the few to deal with aggregation in solicitors’ professional indemnity policies and which followed the important Supreme Court decision in AIG Europe Ltd v Woodman  USKC 18. We explained that in our view the Baines decision confirmed the need for something more than mere similarity between a number of wrongs committed by the same solicitors for the SRA Minimum Terms and Conditions (“MTC”) aggregation clause to bite.
- On 6th August 2021 the Court of Appeal handed down its judgment in the appeal against the High Court decision we gave our talk about. We thought, therefore, that we ought to provide this updating note to set out whether the Court of Appeal had confirmed, overturned (or indeed had done something else with) the rationale of HHJ Saffman (sitting as a High Court Judge) at first instance.
The MTC aggregation clause
- Paragraph 2. 1 of the MTC provides that the minimum limit for “Any one claim” (exclusive of defence costs) must be at least £3million for any solicitors’ firm which is a limited corporate body i.e. a company or LLP or £2 million for a solicitors’ firm which is an unlimited company, ordinary partnership (not LLP) or sole practitioner.
- Paragraph 2. 5 of the MTC provides:“One claim
The insurance may provide that, when considering what may be regarded as one claim for the purposes of the limits contemplated by clauses 2.1:
(a) all claims against any one or more insured arising from:
(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) similar acts or omissions in a series of related matters or transactions
(b) all claims against one or more insured arising from one matter or transaction will be regarded as one claim.”
The original decision in Baines
- For those who did not catch our webinar/podcast, Baines concerned separate claims brought by clients of a solicitors’ firm. The claims arose from the misappropriation of various funds totalling around £4million by a partner (Linda Box, former Diocesan Registrar for the Diocese of Wakefield)(“B”) in the three partner firm of Dixon Coles and Gill, which had PII cover with a limit of indemnity of the minimum level (for an ordinary partnership) being £2million per claim. The other two partners were Mr Gill and Mrs Wilding, who maintained they were entirely innocent of the dishonesty perpetrated by B.
- In summary, it was found that the claims could not be aggregated for the purposes of a professional indemnity insurance claim. They did not arise from one act or omission, nor was there sufficient interconnection between the thefts perpetrated by B to bring them within the term “series of related acts or omissions” for the purposes of paragraph 2.5(a)(ii) of the MTC (‘Limb 2’).
- In the first set of proceedings, church representatives (C1) brought a claim for the recovery of funds misappropriated by B. In the second set of proceedings, four charities (C2) claimed sums due to them from an estate administered by the firm. B’s equity partners (G and W) discovered that B had dishonestly misappropriated over £4 million of client money. Evidence included a ledger (the red ledger) entitled “The Bishop of Wakefield Fund” in which B had recorded transactions apparently for C1’s benefit, but which they did not recognise. There was also another client account ledger entitled “The Bishop’s Trust” which was said to contain spurious entries, and details of conveyancing transactions apparently made on C1’s behalf but with no record of what had happened to the money. B had engaged in ‘teeming and lading’ by moving money between accounts to hide the fraud. G and W denied liability for B’s misappropriations other than those connected to the conveyancing transactions. C1 sought summary judgment for an account from G and W by virtue of their positions as equity partners. They also applied for an interim payment. C2 were beneficiaries under a will of which B and G were executors. B had administered the estate and misappropriated legacies payable to C2. G and W claimed under the firm’s professional indemnity insurance, which provided for cover of £2 million. If the misappropriations were classed as one claim, any excess over that amount would have to be met by G and W personally to the extent that they were liable for B’s wrongs. If the two claims were separate, each would attract its own £2 million indemnity limit pursuant to an aggregation clause in the policy.
- HHJ Saffman found (perhaps unsurprisingly) that the claims did not arise from ‘one act or omission’ under paragraph 2.5(a)(i) MTC (as had been argued by the insurers). The separate acts of theft giving rise to the claims took place over a period of years, even though they all had the same objective of stealing money. Although there was a common dishonest motive, dishonesty was a state of mind not an act or omission. Also, each misappropriation was a separate breach of the SRA Accounts Rules r.7. The reference in r.7.2 to “breaches” indicated that multiple misappropriations constituted multiple breaches. The way in which Box concealed her activities, by teeming and lading, was not a unifying factor sufficient to make them ‘one act’.
- Whether there was a sufficient connection between acts for them to be classed as a ‘series of related acts or omissions’ was a fact-sensitive matter, AIG The thefts from the claimants did not have a sufficient interconnection or unifying factor with any other claims to bring them within the term “related series of acts or omissions” in Limb 2, AIG followed. The financial losses suffered by C1 and C2 were caused by separate thefts from each of them and there was no basis on which to aggregate the claims.
- The court also referred to the claimants’ argument that, when determining whether different matters form a series of related matters for the purpose of aggregation, the ‘acid’ test was whether any one client could plead a complete claim against the firm without referring to another act, matter or transaction from which a different claim arises. In HHJ Saffman’s view, this test had much to commend it and was clearly consistent with AIG and fitted comfortably with the decision in Lloyds TSB General insurance v Lloyds Bank Group Insurance Co UKHL 48 (the House of Lords decision which had prompted the current wording of the MTC and which was followed in AIG v Woodman).
The appeal in Baines in relation to aggregation
- No appeal was pursued in relation to HHJ Saffman’s decision on the insurers’ Limb 1 argument, though the Court of Appeal’s decision confirms (see paragraph ) that the claims did not arise from one act or omission for the purposes of the MTC aggregation clause. The bishop’s claim arose from theft from a particular fund and had nothing to do with the separate theft from the deceased’s estate in the charities’ claim. B’s dishonesty was not an ‘act’ as such, in any event.
- As to Limb 2, the question, which was a fact-sensitive one, was whether the thefts were a series of acts which were ‘related’ because they formed part of an extended course of dishonest conduct on multiple occasions over many years. There was nothing to suggest that there had been any break in B’s conduct and the thefts were underpinned by the dishonest way in which she had treated the client account. However, she also stole in other ways, including diverting proceeds from the sale of an investment to herself. While the acts were related to her continuing dishonesty, that was not enough. The unifying factor requirement would only be satisfied if each of the bishop’s claim and the charity claimants’ claim arose from a combination of both thefts. Neither claim arose from a related series of acts. As noted above, B’s dishonesty was not itself an act. The acts were her individual thefts. It could not be said that each of the claims arose from a series of B’s thefts. It was not sufficient that the thefts had the same underlying origin or cause in her dishonest treatment of clients’ money.
- In reaching this decision, the Court followed both the Lloyds case and the AIG v Woodman case, noting that in the Lloyds case the rationale was that the insurers had chosen a narrow unifying factor in which to base aggregation (an act or omission constituting the cause of action, rather than say an underlying cause) and that the position was analogous in the present case: B had committed separate thefts constituting separate causes of action, and her dishonesty insofar as it was a common underlying cause lay ‘upstream’ of the matters which could be caught by Limb 2. For a series of acts or omissions to be ‘related’, “it is [not] enough that one act should have resulted in one claim and another act in another claim…. It can only mean that the acts or events form a related series if they together resulted in each of the claims” (paragraph , quoting from Lord Hoffmann at paragraph  in Lloyds). The distinction between Limb 2 and the clause in Lloyds, that the words ‘related series of acts or omissions’ were in parenthesis in the latter clause but not in the former, did not matter, the principle would be the same either way. Nor did the difference between the nature of the insuring clauses between that in the MTC and that in the Lloyds policy matter to the principle.
- There was also discussion of the slightly different judgment of Lord Hobhouse in Lloyds, in which he had given an example which he considered (but Lord Hoffmann doubted) would have been within the clause, namely a pension sales consultant providing the copies of the same document to multiple people, where the document contains misrepresentations about the merits of the pension scheme. Although that would involve discrete acts or omissions/causes of action that could be brought separately, Lord Hobhouse thought the connection of the underlying document sufficient. However, in Baines the Court of Appeal noted that no final view was reached by either Lord Hobhouse or Lord Hoffmann on that example, and in any event considered that it was not analogous to B’s thefts in the present case as the thefts whilst similar were not the ‘same act’ repeated many times.
- The Court of Appeal noted (see particularly ,  and ) that in AIG v Woodman the same conclusion had been reached in relation to the materially identical wording of Limb 4 (“series” and “related”, albeit Limb 4 is clearly intended to be wider than Limb 2 as it refers to “similar acts or omissions” in a series of “matters or transactions” not just “one series of related acts or omissions”).
- There was also discussion (at  to ) of the possibility of an aggregation argument based on the fact that thefts from a solicitors’ client account are from a mixed fund, and that the clients’ claims could on one conceptual analysis be said to arise from a combination of the thefts, as their claims would strictly be for an account against the solicitors as trustees and payment of compensation when the overall deficiency was established by the account. However, as that was not the basis on which the insurers had argued the case either at first instance or on appeal, the Court of Appeal decided it would not be appropriate to allow the appeal on that basis (which would have had the effect of overturning the summary judgment decision against the insurers, and allowing those arguments to be fully ventilated at trial).
- The Court of Appeal’s decision is unsurprising. It would have been highly unattractive to allow B’s pervasive general dishonesty to permit aggregation, and would have opened the door to aggregation on the basis of any underlying common factor even if not directly a component of the cause of action or not being a common causal factor in each and every claimant’s claim.
- However, the Court of Appeal’s judgment does have two facets which might give some hope to insurers wishing to aggregate:
- Firstly, regarding the discussion of Lord Hobhouse’s example of the pension sales consultant in Lloyds; and the apparent view that repeating exactly the same act might be enough to fall within Limb 2. Our concern about this facet is: what amounts to ‘repeating the same act’? The salesman might very well have provided the document in different ways at different stages of the sales process. The document might have altered very subtly over time but still be in large part the same. Furthermore, why does using the same document again and again make the claims related? They are just coincidental, surely, but not related to each other in any causal sense. Lord Hobhouse’s example was, with respect, not a helpful one;
- Secondly, regarding the client account point, the esoteric analysis seems conceptually attractive but could also result in injustice and inconsistency. So, if a trustee of multiple trusts with separate accounts commits multiple thefts, there will not be aggregation as between the beneficiaries’ claims but if a solicitor trustee operating the usual mixed find client account commits multiple thefts, there could be? The flaw, we would respectfully suggest, with the conceptual analysis is that the claims of the multiple claimants against a solicitor client account trustee are not in reality causally linked at the level which the aggregation clause contemplates – it is not the acts or omissions which are linked to one another – the link flows simply from the operation of the law in relation to mixed funds.
- Overall, it continues to be challenging for insurers to rely on the MTC aggregation clauses save in the scenario (such as partly occurred in AIG v Woodman) where the very mechanics of the underlying transaction or matter are such as to make the claimants’ claims causally related to one another. However, given the importance to insurers of limiting liability in what continues to be a precarious professional lines market, insurers may try and seize on the above two facets (or other novel arguments) to try and aggregate in MTC cases (and in relation to analogous clauses in other insurance policies).
- We hope you have found this article useful. Please do not hesitate to get in touch with the writers directly or through their clerks should you wish to discuss these issues further.
John de Waal QC
 In AIG v Woodman the Court of Appeal was concerned not with Limb 2 but with “a series of related matters or transactions” under paragraph 2.5(a)(iv) of the MTC (Limb 4’). As explained below, the decision of the Court of Appeal in Baines deals with both Limb 2 and Limb 4.
 There was a separate policy interpretation point which the insurers sought to appeal but which they did not succeed in, and which does not affect the analysis in relation to aggregation so we do not deal with it in this article.
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