Aggregation under the Solicitors’ Minimum Terms

In August 2021 the Court of Appeal dismissed an appeal by an insurer contending that multiple claims resulting from numerous thefts by a dishonest solicitor should be aggregated into a single claim. The decision in the case of Baines and others v Dixon Coles & Gill and others (6 August 2021) is an indicator for the narrow scope in which insurers are able to aggregate claims against them, specifically, the aggregation clause within the SRA Minimum Terms and Conditions of Professional Indemnity Insurance (MTC).

Background

In March 2017, Mrs Linda Box, one of three equity partners at the law firm Dixon Coles & Gill (DCG) was found to have misappropriated over £4 million from the firm’s clients by dishonestly making unauthorised payments from their accounts over a period of 13 years. After pleading guilty to 12 offences of dishonesty, including theft, fraud and forgery, Mrs Box was sentenced to seven years in prison and the firm was forced to close.

DCG held an insurance policy with HDI Global Specialty SE (HDI) with a limit of £2 million for “any one claim”, as per clause 2.1 of the MTC. The policy also contained an aggregation clause pursuant to clause 2.5 which provided that all claims arising from one series of related acts or omission will be regarded as one claim, meaning that losses can be aggregated where they are connected by one of the factors within this clause:

“2.5:

(a) 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.”

As a result of Mrs Box’s embezzlements, and in order to remedy DCG’s breach of the SRA rules, Mr Gill and Mrs Wilding as innocent partners made a claim under their policy with HMI so that the losses to the client accounts could be rectified.

The Court at First Instance

In October 2020, two actions were brought against DCG by the Bishop of Leeds and the Leeds Diocesan Board of Finance and four charities as the residuary beneficiaries of the estate of Mr Ernest Scholefield. HDI was subsequently joined into both actions. The issue was whether the two separate parties’ claims could be aggregated: if they were separate, each one would attract its own £2 million indemnity limit to be paid out by HDI. If the claims could be aggregated, Mr Gill and Mrs Wilding would be liable for personal claims made by the other victims of the theft.

HHJ Saffman handed down a single judgment in which it was decided that the two claims could not be aggregated as “any one claim” for a lack of a unifying element with the claims of the other clients. The argument that Mrs Box’s dishonesty was the connecting cause of the loss was rejected, as the unrelated, individual thefts led to the separate losses. HDI would cover each claim separately with the £2 million limit applying to both actions.

The Appeal

In July 2021, HDI appealed against the decision on both actions. The appeal focussed on clause 2.5(2) of the MTC: “claims… arising from one series of related acts or omissions” which HDI argued was applicable because Mrs Box’s conduct of multiple thefts over a substantial period constituted a “series of acts and omissions”. It was again put forward that Mrs Box’s dishonest conduct relating to the clients’ accounts was the unifying and thus aggregating factor.

The Court of Appeal raised Lord Hoffman’s analysis in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd [2003] that related to the mis-selling on pensions and the aggregation point under 2.5(2) of the MTC. The case was not applied, as it was held that Mrs Box’s acts of theft were all distinct, unconnected acts, and not a series of related acts.

Lord Justice Nugee also provided commentary on the case of AIG Europe Ltd v Woodman [2017], another instance where the aggregation analysis was directly applicable. This case involved a solicitors firm, which was alleged to have insecurely released investors’ funds into two overseas development schemes. It was held that all the claims within each development scheme should be aggregated respectively, but not all together. The Court of Appeal however did not consider that this case should be applied: there was no connecting element between Mrs Box’s thefts, and the fact that they were made by the same person was not a strong enough link to permit aggregation.

Comment

This case is unusual and interesting because it is not often that aggregation clauses in solicitors’ professional indemnity policies are disputed. It therefore offers useful guidance on the particular clauses of the MTC as mentioned above.

As a result of the judgment, the ability for primary insurers to aggregate claims under the condition that all claims arose from “one series of related acts or omissions” has been significantly reduced, despite the fact that in AIG Europe Ltd v Woodman, the Supreme Court recognised that when applying the “related acts”, this is a “fact-sensitive exercise”. However, although specific to acts of theft, Baines and others v Dixon Coles & Gill and others demonstrates that courts may take a restrictive approach when considering more broadly the connecting factors relating to the MTC clauses.

If you wish to discuss any of the issues outlined in this article, then please contact Emily Osborne, Rowena Matterson or another member of the Litigation and Dispute Resolution Team.