The meaning of 'similar' and 'related' in aggregation cases

The case of AIG Europe Limited v OC320301 LLP and others [2015] EWHC 2398 (Comm) has set guidance for the interpretation of solicitors' indemnity insurance. The judgment is the first to consider the Solicitors Regulation Authority (SRA) minimum terms and conditions (MTC) and clause 2.5 relating to aggregation.

Aggregation clauses have a dual purpose: on the one hand, they operate to limit an insurer's exposure by treating a number of claims as one claim for the purposes of the limit of indemnity; on the other hand, many small claims below the policy excess may be aggregated in the insured's favour as one claim exceeding the policy excess.

In this case, the International Law Partnership faced claims by 214 claimants who were investors and prospective buyers of properties in Marrakech and Turkey. The insurers, AIG Europe Limited, sought to aggregate the claims as one and declined to indemnify the firm for losses above their limit of indemnity. Before the underlying claims as to liability were heard, AIG sought a declaration 'that the underlying claims are to be considered a single "claim"'.

Degree of similarity

AIG's claim was heard on 28-29 July 2015 and the judgment was handed down on 14 August. In his judgment, Mr Justice Teare found against the insurers and that there was no aggregation. Three important principles arise from the judgment:

• First, the MTC takes priority over any alternative wording. The parties agreed, and Teare J found, that the appropriate wording was that of the MTC. This is a logical conclusion given that the terms of the MTC provide that they are to prevail over inconsistent policy wording;

• Second, Teare J found that the 'requisite degree of similarity must be a real or substantial degree of similarity as opposed to a fanciful or insubstantial degree of similarity'. This doesn't answer Teare J's own question as to the level at which similarity must be considered. An additional analysis, providing clarity, would be to state that similarity must be judged at the level of the act or omission which was the proximate cause of the loss; and

• Third, Teare J considered the meaning of the words 'related matters or transactions'. He found that for a relationship to exist, there must be codependency between transactions. This is a narrow view, but it is more appropriate than an argument that a relationship arises through similarity or connection (most things of the same nature may be connected by various degrees of separation; therefore such an argument is too vague to have practical application). A broader view is that relationships between matters arise through commonality in the work the solicitor is instructed to do and transactions where there is a connection between the terms of the 'deals'.

The fact that this wording (introduced in 2005) has only now been considered may suggest that it is rarely applied (ignoring any unknown arbitrations or claims which have settled). Therefore, it is too early to comment on the effect this judgment will have on insurance premiums generally, or those of high-risk practices.

Solicitors, potential claimants, clients of law firms, and secondary-level insurers may welcome the certainty of this judgment as it encourages insurers not to cease funding the defence of claims before coverage issues are determined.

Michael Colledge is a senior associate at Russell-Cooke and a contributor to The Law of Legal Services published in August 2015