Aggregation: narrowed further following Baines & Anor -v- Dixon Coles & Gill Go Back
In August 2021 the Court of Appeal considered an aggregation dispute arising from clause 2.5 of the Solicitors Minimum Terms and Conditions (“MTC”) for professional indemnity insurance.
The judgment in Baines & Anor -v- Dixon Coles & Gill (A firm) & Ors  EWCA Civ 1211 (“Baines”) has provided important guidance on when multiple claims can be aggregated to form one claim under the solicitor firm’s professional indemnity insurance policy. It significantly reduces the scope for aggregation and will be a cause for concern to insurers of primary layers in the solicitors’ professional indemnity insurance market. It will, however, be welcome news to insureds facing multiple claims and to their excess layer insurers.
The appeal was brought by the insurers of Dixon Coles & Gill, a three-partner firm. Client money was stolen at various times by one of the partners, Mrs Box. Mrs Box stole various sums from the firm’s client accounts, over an extended period and on a vast scale. There was no suggestion that the other two partners were aware of the thefts.
The primary £2m limit of indemnity had been paid out by the insurer (to reinstate certain client accounts) and the insurer then claimed the individual thefts aggregated. There were no excess policies in place.
If the primary insurer succeeded in aggregating the claims, the innocent partners would be subject to personal claims by the remaining clients who were victims of the thefts.
The aggregation clause in the firm’s professional indemnity insurance policy followed the provisions of clause 2.5 of the MTC and stated that, when considering what may be regarded as one claim for the purpose of the limit of indemnity in the policy, all claims against any one or more insured arising from:
- one act or omission;
- one series of related acts or omissions;
- the same act or omission in a series of related matters or transactions;
- similar acts or omissions in a series of related matters or transactions;
will be regarded as one Claim.
The appeal related to 2.5 (2) (the second limb above) and insurers argued that the claims were “one series of related acts or omissions” because the thefts were a series of acts and omissions which all formed part of an extended course of dishonest conduct by Mrs Box on multiple occasions and over many years. It was argued that the aggregating factor was the dishonest way that Mrs Box treated her firm’s client accounts.
Decision of the Court of Appeal
The Court of Appeal held that the claims could not be aggregated under 2.5 (2). The Judgment involved a detailed analysis of Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd  UKHL 48 (“Lloyds TSB”) which involved pension mis-selling and similarly related to whether claims could be aggregated under a clause with the same wording as 2.5 (2) of the MTC.
The Court of Appeal decided that Lloyds TSB did not apply, as submitted by insurers, and stated that for claims to aggregate: “it is not enough that act A causes claim A, act B causes claim B and act C causes claim C. What is required is that claim A is caused by the series of acts A, B and C; claim B is also caused by the same series of acts; and claim C too.“
This means that simply because Mrs Box was acting dishonestly by stealing from the client accounts, those acts in and of themselves were not “a series of related acts”. They were separate acts of dishonesty. Without an ingredient to tie those thefts together, the separate thefts did not aggregate.
The Court of Appeal also provided helpful guidance on the case of AIG Europe Ltd v Woodman  UKSC 18 (“AIG v Woodman”) which, although an aggregation dispute, related to clause 2.5 (4) (the fourth limb) of the MTC and whether claims could be aggregated because they arose from “similar acts or omissions in a series of related matters or transactions“.
AIG -v- Woodman involved claims brought against a firm of solicitors by investors in two different overseas development schemes, but which involved the same developer. 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 were similar, and the question for the court was whether the transactions were related. The Supreme Court held that each investor’s claim should be aggregated with the claims of other investors in the same development (on the basis that they arose in a series of related transactions). However, they did not aggregate with the claims of the investors in the other development. Aggregation was therefore applied on a “per development” basis.
The Judge in Baines did not allow claims to aggregate simply because they arose from repeated dishonest acts. The Judge required some nexus to bind those acts together. Simply because the thefts were made by the same person across the firm’s client accounts did not mean there was a sufficient connection to aggregate the claims.
It is rare to see aggregation disputes arising from solicitors’ professional indemnity policies reach court, so this case provides helpful guidance on clauses 2.5 (2) and 2.5 (4) of the MTC. This case fills a void left unanswered by AIG v Woodman and is useful to both claimant and defendant solicitors alike.
The Judgment in Baines has significantly narrowed the potential to aggregate claims under clause 2.5 (2) of the MTC. It also raises interesting observations on whether an insurer can aggregate following repeated similar acts of negligence – for example, by a solicitor (or other professional) “cut and pasting” the same advice multiple times. The Court of Appeal’s obiter remarks are helpful to insureds seeking to argue against aggregation and this decision makes it far more likely that insurers will be challenged if they attempt to aggregate multiple claims as one.
It will also be interesting to see how this decision impacts the solicitors’ professional indemnity renewal market this month and whether, in an already hard market, premiums will be increased even further by insurers offering cover.
There is every prospect that the decision may be referred to the Supreme Court and we shall be watching closely to see how this area of law develops.
Jenny Hutchinson (Consultant Solicitor) and Michael Howard (Partner) are professional negligence and insurance coverage solicitors. They bring negligence claims against a wide range of professionals, advise on complex insurance coverage disputes and bring claims against insurers to challenge insurance decisions.
This post is intended to provide guidance of a practical nature but does not contain legal advice or advice as to what action you should or should not take specific to your insurance needs or those of your business, or with regard to any particular situation.