The Court of Appeal has closed the gaps in interpreting the MTC and insurers should expect tougher aggregation challenges

The Court of Appeal handed down a judgment on 6 August that is undoubtedly sending waves through the professional liability market. In Baines v Dixon Coles & Gill Civ [2021] EWCA 1211 the Court declined to aggregate separate claims arising from a solicitor’s course of dishonest conduct over a number of years.  The judgment closes the gaps in the interpretation of clause 2.5 of the Minimum Terms and Conditions of insurance (MTC) –  often a breeding ground for satellite litigation.

The appeal was brought by the insurers for Dixon Coles & Gills (HDI) who argued that the two claims made against the firm concerning acts of theft of client money by a former partner, Mrs Box, should be aggregated together under the policy. Furthermore, HDI contended that the claimants’ claims should be aggregated with third party complainants who HDI had already paid out. Thus if HDI succeeded, there would be no indemnity cover out of which to pay the claimants’ claims. This is because the insured had a limit of £2m of indemnity per claim. HDI had already paid out up to £2m to cover losses of former clients of the firm who had suffered at the hands of Mrs Box, meaning that if all the claims concerning Mrs Box’s wrongful conduct were aggregated as one claim, the claimants would not be entitled to any indemnity cover and could only look to the former partners of the firm to compensate them for their considerable losses.

The Court of Appeal had to consider whether the claims arose out of one series of related acts or omissions and accordingly whether the claims should be aggregated as one claim under the policy which adopted clause 2.5 of the MTC. The policy stated:

“All Claims against any one or more Insured arising from:

1. one act or omission;
2. one series of related acts or omissions;
3. the same act or omission in a series of related matters or transactions;
4. similar acts or omissions in a series of related matters or transactions;

will be regarded as one Claim”

HDI argued that the claims fell into Limb (2) above (claims arising from one series of related acts or omissions). HDI argued that the acts of theft all formed part of one series of dishonest conduct which took place over a number of years, predominantly from 2010-2015. The High Court had dismissed HDI’s argument, concluding that the separate acts of theft were not related; being committed by the same person and concealed by the same process was not enough. What caused the loss was not Mrs Box’s underlying dishonesty but the individual thefts themselves. The Court of Appeal upheld the Judge’s findings but refined the position further following analysis of two key authorities on aggregation Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] UKHL 48 (“Lloyds TSB”) and AIG Europe Ltd v Woodman [2017] UKSC 18 (“AIG”).

In Lloyds TSB Lord Hoffman held that for there to be a series of related acts there must be some unifying factor which connects them to each other. However, it is not sufficient that the only unifying factor are the resultant claims themselves. There has to be a common causal relationship between the acts. Lord Hoffman held: “It can only mean that the acts or events form a related series if they together resulted in the claims”. The Court of Appeal endorsed this reasoning and held at paragraph [59] that for aggregation purposes under Limb 2: “[…] it is not enough that claims A, B and C result from acts A, B and C respectively and that the acts are related; what needs to be shown is that claims A, B and C each result from the series of acts A, B and C”. The Court of Appeal therefore rejected HDI’s argument based on the decision in Lloyds TSB.

The Court of Appeal then went on to consider AIG where claims were brought against developers in two separate overseas developments. In each case the claims were based on the allegation that the solicitors had released the funds collected from the investors to the developers without adequate security. The acts or omissions alleged were therefore similar, and the question was whether the matters or transactions were related. The Judge’s view in that case was that each of the claims of the investor should be aggregated with the claims of the other investors in the same development (on the basis that they arose in a series of related transactions). The Court of Appeal in Baines emphasised that the question of whether matters or transactions are related (Limbs 3 and 4) is a different question to whether acts or omissions form a related series (Limb 2). It is an important distinction. The Court of Appeal was at pains to point out that the requirement in Limb 4 for there to be a series of related matters or transactions prevents a situation where the scope for aggregation of acts repeated in different settings is so wide to be almost limitless.  This fortified the Court of Appeal’s view that Limb 2 does not allow the aggregation of all claims arising from repeated similar acts of negligence or dishonesty. Accordingly the claims arising from Mrs Box’s repeated theft in different settings over many years did not fall to be aggregated under Limb 2.

There was a further ground of appeal concerning the client account funds which the Court of Appeal did not substantively deal with as it did not impact on the overall decision.

The corollary of the judgment is that insurers will be braced to face tougher challenges on aggregation where multiple claims are made against the insured. The court will apply a laser focus to the underlying causal relationship between the acts or omissions. Inventive arguments that seek to unify claims based on their existence will no longer wash. The court will be concerned with the position at the time of the transaction or act of negligence, not the manner in which claims subsequently arose or are advanced.

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