Aggregation clauses are commonly used in professional liability policies and can have a substantial impact on the recoverable damages in a claim. The Supreme Court considered the proper construction of the aggregation clause in the Law Society’s Minimum Terms and Conditions (“the Minimum Terms”) in AIG Europe v Woodman  UKSC 18 and in so doing also provided useful guidance on the approach to be taken to the construction of aggregation clauses more generally.
Solicitors created trusts for two property developments, one in Turkey and one in Morocco. The investors in the property developments were the beneficiaries and the solicitors were the trustees. The funds initially advanced by the investors in the case of each scheme were to be held by the solicitors in an escrow account and were not to be released until the amount in the trust was sufficient to cover the investment. The solicitors were subsequently sued by the investors for having released the investment funds prematurely – the developers having been unable to complete the developments and having been wound up. The claims brought against the solicitors totalled more than £10m.
The solicitors had professional liability insurance which incorporated the Minimum Terms. The policy limited the insurer’s liability to £3m in respect of each claim and included the following aggregation clause:
2.5 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 and 2.3:
(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 insurer sought a declaration that the investors’ claims were one claim for the purposes of that clause.
The Decision at First Instance
The matter came before Teare J at first instance who accepted that all of the claims arose from similar acts or omissions but held that they were not in a series of related matters or transactions. His reason for rejecting that proposition was his finding that in order for transactions to be related they must have been conditional or dependent on each other. As the transactions between the developers and the various investors were not mutually dependent he found that they were not related and the claims could not be aggregated. Teare J gave permission to appeal.
The Court of Appeal
The Court of Appeal allowed the appeal and accepted the submission made on behalf of the Law Society that there must be an ‘intrinsic relationship’ between the transactions. The Court did not determine the issue but remitted the case to the Commercial Court with guidance that:
There must be a relationship of some kind between the transactions relied on rather than a relationship with some outside connecting factor, even if that extrinsic relationship is common to the transactions. Thus transactions which all take place with reference to one large area of land in a particular country might be related transactions if they refer to or (perhaps) envisage one another, but if the relevant transaction is the payment of money out of an escrow account which should not have been paid out of that account, the fact of geography is too remote; what will be intrinsic will depend on the circumstances of that payment.
The Supreme Court
The insurer’s position before the Supreme Court (as below) was that all of the investors’ claims against the solicitors fell within the aggregation clause meaning that their total liability was limited to £3m. The trustees’ primary case was that none of the claims fell to be aggregated with any other. Their secondary position was that the Turkey transactions and the Morocco transactions could not be aggregated with one another so that there were two pots of £3m available.
Lord Toulson gave the Judgment of the Supreme Court, and set out the approach to be taken in construing aggregation clauses. The Court’s judgment noted that such clauses could operate in favour of insurers (by limiting the insurer’s exposure) or in favour of the insured (by limiting the applicable deductible) and that as such they are “not to be approached with a predisposition towards either a broad or narrow interpretation”. In respect of the Minimum Terms it was further noted that these had been set by the Law Society who, as a regulator, were seeking to balance protection of the public against cost and availability of insurance for practitioners.
The Court held that the approach to be taken was not to look at the transactions from one viewpoint or another but to come to an objective view of them in the round. The Court considered that:
The transaction involved an investment in a particular development scheme under a contractual arrangement, of which the trust deed and escrow agreement were part and parcel, being the means designed to provide the investor with security for his investment. The transaction was principally bilateral, but it had an important trilateral component by reason of the solicitors’ role both as escrow agents and as trustees, and the trust deed created a multilateral element by reason of the investors being co-beneficiaries.
The Court held that the claims of each group of investors did arise from acts or omissions in a series of related transactions. The investors in the Turkey and Morocco developments respectively had been investing in a common development which was a (broadly) standard scheme intended to provide the developers with the capital for the development. As such the claims concerning each group of investors fell to be aggregated.
However the Court was not persuaded that the claims concerning the Turkey and Morocco developments fell to be aggregated with one another. Although the Court considered that there was a striking similarity between the transactions there was not enough for the transactions entered into by each group of investors were related to each other. Whilst the Court noted that the development companies were part of the same group and the projects had a similar structure, they were ultimately separate and unconnected projects relating to different sites and investors.
The Supreme Court’s decision makes clear that the proper approach to construing aggregation clauses is an objective one taking in the transactions in the round. The construction is not to be approached with any predisposition towards either a narrow or broad approach. The Court expressly acknowledged that the application of such clauses would always be extremely fact sensitive but set out the broad approach to be adopted. In respect of the Minimum Terms the Court set out the nature of the relationship required between transactions for them to fall within the aggregation clause and rejected the Court of Appeal’s approach of requiring an ‘intrinsic relationship’ as being unsatisfactory. Whether claims are related for the purposes of aggregation clauses is not a straightforward question but the Supreme Court has provided useful guidance to the approach to be adopted, which will be of assistance to practitioners whether they are dealing with the Minimum Terms or aggregation clauses more generally.
 It is notable that there were some investors who had transferred their investment from one development to another but their position was not addressed by the Court.