Court of Appeal judgement on Professional Indemnity Insurance

The Court of Appeal has recently handed down judgment in the case of AIG Europe Ltd v OC320301 LLP and others [2016] EWCA Civ 367 affecting numerous professional indemnity insurance (PII) policies. 

The ruling, which alters the scope of an aggregation clause, not only affects solicitors' PII policies, but may also affect other insurance policies with similar clauses. Georgina Squire, Head of Dispute Resolution at solicitors Rosling King LLP, assesses the impact of this judgment on the solicitors’ PII market and the insurance market generally.

Insurance is a cornerstone of society. The Court of Appeal has seemingly reduced the scope of aggregation clauses but, in doing so, has left an aura of uncertainty.  The case has now been remitted back to the Commercial Court to apply the Court of Appeal’s decision. 

Under the Law Society Minimum Terms and Conditions of Professional Indemnity Insurance (the “MTC”), claims can be aggregated if they are “one series of related acts or omissions”.  Here, “series” is the operative word, and its interpretation is the root of the ongoing dispute.  The Court of Appeal determined that it meant a connection between the claims, thus putting the facts of each separate claim at issue.  The Appeal Judges established that connections between the claims should be intrinsic, and emphasised that the remoteness of these connections was the central issue. 

The Court of Appeal’s judgment does not make the “intrinsic connection” test altogether clear.  It appears to suggest that aggregation will not occur simply because multiple transactions have been conducted by the same firm or solicitor, or because they are within the same geographical location.  Although the Court of Appeal’s “intrinsic connection” test attempts to assist, each claim must be evaluated on its own wording and facts.  Therefore, until the new test is applied by the Courts in future cases, the precise implications of the ruling remain uncertain.

Solicitors may wish to assess the wording of the aggregation clause in their policy to check how similar it is to the MTC wording.  Applying this decision depends on the nature of the policy holder’s business.  If the business regularly deals with multiple high value matters with a connecting internal factor, policyholders should assess whether their maximum level of cover is adequate as a series of claims may now risk aggregation. 

The final ruling in this matter is expected to have far reaching effect.  It is likely that most if not all PII policies will be affected. PII providers, brokers and insured entities would do well to revisit their policy wording to ensure that the aggregation clause is suitable for their business needs. Whilst policy reviews would be prudent ahead of the next renewal, clarity in this area will be lacking until a final decision is handed down following the appeal.