Aggregation clauses: AIG Europe Limited v Woodman & Ors

13 April 2017


The UK Supreme Court recently handed down its decision on an appeal concerning a professional indemnity policy’s aggregation clause. The issue in dispute was over precisely what was meant by the phrase “in a series of related matters or transactions”, and whether it served to aggregate underlying claims.


The plaintiffs in the underlying proceedings had made investments in overseas property developments in Turkey and in Morocco, through a UK property company called Midas International Property Development Plc. The investments were managed through trusts. Solicitors were retained in relation to the loan and purchase agreements, and also in relation to escrow agreements between the investors, developers and solicitors. The purpose of the escrow arrangement was to retain the investors’ funds until the value of the assets was equivalent to the investments (the “cover test”).

During 2007 and 2008, the solicitors released payments in tranches, until the Financial Services Authority stepped in to prevent the developers receiving any further funds. By that time, however, all the escrow funds had been paid out.

The 214 investors, having lost more than £10 million on the failed investments, sued the solicitors for misrepresentation, negligence and breach of fiduciary duty – in essence, for failing to adhere to the cover test and otherwise to ensure adequate security was in place for the investments.

The solicitors’ PI insurance had a £3m limit for any one claim and policy incorporated the SRA minimum terms and conditions (the “MTC”), including an aggregation clause. The issue in dispute in this case was whether, pursuant to clause 2.5(a)(iv) of the MTC, the investors’ claims were capable of being aggregated. Clause 2.5 was in the following terms:

The insurance may provide that, when considering what may be regarded as one Claim…

  1. all Claims against 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;


  1. all Claims against one or more Insured arising from one matter or transaction

will be regarded as One Claim.

Parts (iii) and (iv) of the clause had been added after House of Lords decision in Lloyds TSB General Insurance Holdings Ltd & Lloyds Bank Group Insurance Co Ltd 2 (Lloyds TSB) where it had been decided that for acts or omissions to be related, they had to arise from a single source or unifying set of circumstances, and where, as in that case, there were many separate instances of a breach of regulatory rules, there was no aggregation within the meaning of the policy.

First instance

In March 2014, the insurer commenced proceedings seeking declarations that the investors’ claims arose from “similar acts or omissions in a series of related matters or transactions”, such that there was one Claim, meaning its liability was capped at £3 million. It argued that the underlying claims arose from the release of funds arising out of investments in the Midas business. In support, counsel for the insurer relied on the Australian High Court decision of Distillers v Ajax Insurance Co Ltd.3 However, Teare J concluded that both the aggregation clause and the factual background in that case were different such that it did not assist, and held that the underlying claims were not to be aggregated, effectively because they were not dependent on one another.

Court of Appeal

The Court of Appeal focused on the issue of the degree of connection, and concluded that the first instance decision that the underlying claims were to have been “dependent” on one another in order to be aggregated “went too far”. After quoting an excerpt from the judgment of Lord Justice Hoffmann in Lloyds TSB, the Court of Appeal held:

Lord Hoffmann made the important point that the necessary unifying factor must be expressed or implied by the sentence in which the words (such as “a series of related … transactions”) are used. This is one of those cases where in our judgment it is necessary to imply the unifying factor from the general context because the express language (“a related … transaction”) is both itself imprecise and deliberately avoids the available wide formulations. It is for this reason that we have concluded that the relationship must be an intrinsic relationship between the relevant transactions.

Not only did the Court of Appeal decline to uphold the Commercial Court’s decision, but it also decided not to adopt either of the competing constructions proposed by the parties to the action. Instead, the Court decided that the factual inquiry that would have to be undertaken would be “whether there was a series of matters or transactions which were intrinsically, rather than extrinsically, related”. Otherwise, beyond that, the matter was subject to the findings of the “trier of facts”.

Supreme Court

Lord Toulson delivered the Supreme Court’s decision, dismissing the Court of Appeal’s formulation as being too narrow. With respect to part (iv) of the aggregation clause, he held:

The absence of further prescription is not particularly surprising, considering the very wide range of transactions which may involve solicitors providing professional services. Determining whether transactions are related is therefore an acutely fact sensitive exercise. To borrow the language of Rix LJ in Scott v Copenhagen Reinsurance Co (UK) Ltd [2003] Lloyd’s Rep IR 696, para 81, it involves “an exercise of judgment, not a reformulation of the clause to be construed and applied”.

Notwithstanding that there had not yet been a trial of the facts in the underlying claims, it was possible to identify the matters or transactions, namely the transactions entered into which constituted a common development, the investors pooling their funds for the developer to be in a position to build, and the characterisation of the investors as co-beneficiaries under a trust.

Further, rather than identify the question of aggregation from the point of view of any one party, it was preferable to “objectively tak[e] the transactions in the round”. On that basis, the Court was able to conclude that the claims of the investor groups arose from acts or omissions in a series of related transactions. However, the claims arising from each of the developments in Turkey and Morocco were not capable of further aggregation to constitute one single Claim.


As is apparent from the Supreme Court’s judgment, the question of how aggregation clauses may operate is one which is fact-specific, both as to the terms of the clause under review and the policy from which it came, and the facts of the underlying claim.

There is clearly no easy answer to interpreting aggregation clauses, as each one requires careful consideration of the factual circumstances of claims and underlying proceedings, as well as assessing whether it is possible to identify a “unifying factor”4 sufficient to invoke the aggregation clause.

It remains to be seen whether this reasoning of the UK Supreme Court will have an impact on any similar disputes in Australia, although it seems likely that a similar common-sense rationale would be applied depending as ever on the policy wording and the facts or claims in issue.

This article was written by Ailbhe Kirrane, Partner and Arjunan Thangarajah, Solicitor.

1AIG Europe Limited v Woodman (and other Respondents) [2017] UKSC 18
2[2003] 4 AER 43
3(1974) 130 CLR 1
4See Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Company Ltd [2003] UKHL 48

Subscribe to HWL Ebsworth Publications and Events

HWL Ebsworth regularly publishes articles and newsletters to keep our clients up to date on the latest legal developments and what this means for your business.

To receive these updates via email, please complete the subscription form and indicate which areas of law you would like to receive information on.

Contact us