BRITISH INSURANCE LAW ASSOCIATION lunchtime lecture. Friday 11 December 2015 The Old Library, Lloyd s Building

Transcription

1 BRITISH INSURANCE LAW ASSOCIATION lunchtime lecture Friday 11 December 2015 The Old Library, Lloyd s Building TO AGGREGATE OR SEPARATE? Aggregating Professional Indemnity claims after AIG Europe v. OC Jeremy Nicholson QC, FCIArb jnicholson@4pumpcourt.com 4 Pump Court, Temple, London EC4Y 7AN

2 Index: 1. INTRODUCTION 2. APÉRITIF ON AGGREGATION 3. AGGREGATION IN PI INSURANCE 4. AGGREGATION UNDER SRA MINIMUM TERMS 5. AIG EUROPE v. OC WHAT DOES IT TELL US? ANNEX CASELIST 1 1. INTRODUCTION Scope of talk: Aggregation of claims by third parties against professionals for the purposes of Professional Indemnity insurance policies. 2. APÉRITIF ON AGGREGATION 2.1 Starting-point: Dependent on express terms Approach to interpretation is same as for contracts generally: ascertaining meaning which contract would convey to a reasonable person having all the background knowledge available to the parties at the time etc. 2 No special principles for aggregation provisions in theory. 2.2 Themes from caselaw on aggregation provisions: Wide scope for different views; 4 because of importance of: fact and degree first impression Previous decisions give very little guidance; because of importance of particular wording & context Minute scrutiny of wording 5 1 see Caselist for references to cases on aggregation and claims cited below 2 under the line of authority from Prenn v. Simmons [1971] 1 WLR 1381 through Investors Compensation Scheme v. West Bromwich BS [1998] 1 WLR 896 to Arnold v. Britton [2015] UKSC 36, A.C going back to Philadelphia National Bank in as illustrated by Haydon v. Lo & Lo, Kuwait Airways, and Lloyds TSB General Insurance 5 e.g. Lloyds TSB General Insurance; Standard Life Assurance v Oak Dedicated ~ 1 ~

3 2.2.4 Typically dependent on unification by reference to specified features; so classification of features, + degree to which they indicate unification, likely to be crucial Assessment of classification + unification generally a question of fact and degree. 3. AGGREGATION IN PI INSURANCE 3.1 Main focus generally on claims by third parties: rather than occurrences or loss. So starting-point is identifying the claim(s) in general, not to be equated with cause of action, but to be assessed broadly and robustly, and by reference to relief claimed, communication of claim, and the true facts Spectrum of different types of aggregation provision: ranging from very narrow (e.g. claims arising from one matter or transaction) to very wide (e.g. claims arising from one original cause). 3.3 Need to avoid preconception for or against aggregation of particular claims, and instead to give effect to wording Need to look at wording as a whole. 3.5 Balanced interpretation? Cf: Provision for no or insignificant excess Contra proferentem principle. 4. AGGREGATION UNDER SRA MINIMUM TERMS 4.1 Basis: Solicitors Act 1974, s.37 Solicitors Indemnity Insurance Rules: now issued by SRA on behalf of Law Society Appendix 1: Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors (the Minimum Terms ). 4.2 Requirement for qualifying insurance to provide that Minimum Terms prevail (currently clause 4.12). 4.3 Overall purpose of scheme: to ensure solicitors are financially able to compensate clients. 8 6 see in particular West Wake Price and Haydon v. Lo & Lo 7 emphasised in Lloyds TSB General Insurance, per Lord Hobhouse at 31, and by other commentators 8 Swain v. Law Society [1983] 1 AC 598 ~ 2 ~

4 4.4 Aggregation : all claims arising from one act or omission, or one series of related acts or omissions (corresponding to current clause 2.5(a)(i) & (ii)). 4.5 Then Lloyds TSB case in 2003 in House of Lords: If a series of third party claims shall result from any single act or omission (or a related series of acts or omissions) 4.6 Negotiations between Law Society and qualifying insurers: tension between width of aggregation, and limit of indemnity, excess, and premium 4.7 Aggregation from 2005 (under clause 2.5): 9 The insurance may provide that, when considering what may be regarded as one claim for the purposes of [limits re sum insured and defence costs in clauses 2.1 & 2.2]: (a) (b) 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 and all claims against one or more Insured arising from one matter or transaction will be regarded as one claim. 4.8 What has happened from 2005 on aggregation provisions: No useful reported cases until August 2015 But range of major disputes Various arbitration awards Godiva Mortgages v. Travelers Insurance Company due for trial in 2015 until resolved. 5. AIG EUROPE v. OC AIG Europe Ltd v. OC LLP (formerly the International Law Partnership LLP) and ors [2015] EWHC 2398 (Comm), [2016] Lloyd's Rep. IR Plus 7: 5.1 Claims: 2 actions against solicitors on behalf of 214 investors arising from failed scheme by UK company (Midas) for development of holiday homes on 1 site in Turkey and 1 site in Morocco. 9 with first letter of Claim and Claims capitalised in earlier versions ~ 3 ~

5 5.2 Alleged breaches of duty centreing on failure to arrange effective security before paying over investments but details differing between the 2 sites. 5.3 Aggregation provisions overridden by clause Excess, subject to annual aggregate of 22,500, of 7,500 applying to: Loss arising from all Claims alleging the same Wrongful Act 5.5 Insurers sought declaration that aggregation into 1 claim under clause 2.5 (a)(iv): similar acts or omissions in a series of related matters or transactions 5.6 Trustees for investors rejected any aggregation; or in the alternative contended aggregation into 1 claim for each of the 2 sites 5.7 Held by Teare J.: Neutral interpretation appropriate Similar acts or omissions: i.e. failure to provide effective security and thus apply 'cover test' - real or substantial degree of similarity required, and found [ 30 & 31] But not in a series of related transactions: wording pointed to transactions dependent on each other, and terms of these transactions not conditional or dependent on each other [ 40-42] Therefore no aggregation, and declaration refused. 6. WHAT DOES IT TELL US? 6.1 Stay tuned - appeal fixed for March Pending outcome of appeal: persuasive authority of some weight on interpretation of clause Confirms minute scrutiny of wording. 6.4 Supports reluctance to find unifying features at high level unless very wide wording. 6.5 Illustrates sympathy for protecting individual clients? 6.6 How will it be approached in the Court of Appeal, or beyond? 4 Pump Court Jeremy Nicholson QC Temple London EC4Y 7AN (updated 22 February 2016) ~ 4 ~

6 ANNEX: LIST OF CASES RELEVANT TO AGGREGATION 1. Philadelphia National Bank v Price (1938) 60 Lloyd s Rep. 257 (CA) 2. West Wake Price & Co. v Ching [1957] 1 WLR 45 (QB) 3. Australia and New Zealand Bank Ltd v Colonial and Eagle Wharves Ltd [1960] 2 Lloyd s Rep. 241 (Comm. Court) 4. Forney v Dominion Insurance Ltd [1969] 2 All ER 831 (QB) 5. Trollope & Colls Ltd v Haydon [1977] 1 Lloyd s Rep. 244 (CA) 6. Rigby and anor v Sun Alliance & London Insurance 7. Thorman and ors v. New Hampshire Insurance Co. (U.K.) Ltd [1980] 1 Lloyd s Rep. 359 (Comm. Court) [1988] 1 Lloyd s Rep. 7 (CA) 8. Caudle v Sharp [1994] 3 Re. Lloyd s Rep. 89 (Comm. Court); [1995] 1 Re. Lloyd s Rep. 389 (CA) 9. Cox v Bankside Members Agency Ltd [1995] 2 Lloyd s Rep. I.R. 437 (Comm. Court) 10. Kuwait Airways Corporation v Kuwait Insurance Co. SAK [1996] 1 Lloyd s Rep. 664 (Comm. Court) 11. AXA Reinsurance (UK) Ltd v Field [1996] 1 WLR 1026 (HL) 12. Haydon and ors v Lo & Lo [1997] 1 WLR 198 (PC) 13. Hamptons Residential Ltd v. Field [1997] 1 Lloyd s Rep. 302 (Comm. Court); [1998] 2 Lloyd s Rep. 248 (CA) 14. Municipal Mutual Insurance Ltd v Sea Insurance Ltd 15. Citibank NA and ors v Excess Insurance Company Ltd 16. Kuwait Airways Corporation and anor v. Kuwait Insurance Co. S.A.K. and ors [1998] 7 Lloyd s Rep. I.R. 421 (CA) [1999] 1 Lloyd s Rep. I.R. 122 [1996] 1 Lloyd s Rep. 664 (Comm. Court); [1999] 1 Lloyd s Rep. 803 (HL) 17. Mann and Holt v Lexington Insurance Co [2000] 2 Lloyd s Rep. 250 (Comm. Court); [2001] 1 Lloyd s Rep. 1 (CA) ~ 5 ~

7 18. Countrywide Assured Group plc and ors v Marshall and ors 19. Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co. Ltd 20. Scott v Copenhagen Reinsurance Co (UK) Ltd 21. Mabey & Johnson Ltd v Ecclesiastical Insurance Office plc (No. 2) 22. Midland Mainline Ltd v Commercial Union Assurance Co Ltd 23. IF P & C Insurance Ltd v Silversea Cruises Ltd 24. Standard Life Assurance Ltd v Oak Dedicated Ltd and ors 25. AIG Europe Ltd v. OC LLP (formerly the International Law Partnership LLP) and ors [2002] EWHC 2082 (Comm), [2003] 1 Lloyd s Rep. I.R. 195 [2003] UKHL 48, [2003] Lloyd s Rep. I.R. 623 [2003] EWCA Civ 688, Lloyd s Rep. I.R. 696 [2003] EWHC 1523 (Comm), 1 Lloyd s Rep. I.R. 10 [2003] EWHC 1771 (Comm), [2004] Lloyd s Rep. I.R. 22 [2003] EWHC 473 (Comm), [2004] 1 Lloyd s Rep. I.R. 217; [2004] EWCA Civ 769, Lloyd s Rep. I.R. 696 [2008] EWHC 222 (Comm), Lloyd s Rep. I.R. 552 [2015] EWHC 2398 (Comm), [2016] Lloyd's Rep. IR Plus 7 ~ 6 ~