Aggregation and Professional Indemnity Insurance – AIG v Woodman & Others

By Richard Gledhill
The Old Bailey reflected on a window

In this month’s bulletin, we highlight the Supreme Court’s decision in the above case, one that has a bearing upon the operation of the Solicitors’ Minimum Terms and Conditions (MTC) wording in bringing some clarity to the subject. In turn, we consider the impact this decision may have on the Professional Indemnity Insurance (PII) market.

We’d firstly offer our thanks to Chris Stanton and Rachel Blair from Hill Dickinson’s professional negligence team for providing us with a very concise and speedy precis immediately after the decision and which we set out below.

So, as you may be aware, on 22nd March, the Supreme Court handed down its judgment, allowing AIG’s appeal on the application of the aggregation clause wording in the MTC.


Midas, an international property development company, sought investors to fund the development of two-holiday resorts in Turkey and Morocco. Midas instructed solicitors (‘ILP’) to create a mechanism for financing the two developments. A trust was created for each development to hold the security for the investors over the development of land. The trust also held the investors’ funds in an escrow account. The solicitors were the initial trustees.

Midas failed to complete the purchase of the two sites and the developers became insolvent. The developments were not finished. The investors’ funds were released by the trustees without adequate security.

Legal proceedings were brought by 214 investors against ILP, claiming £10M. It was alleged that ILP failed to properly apply the cover test before releasing funds to the developers, resulting in the investors having inadequate security.

AIG accepted that for matters or transactions to be related, there must be some identifiable substantive link or connection between them; and that mere similarity was not enough.

The Legal Proceedings

ILP had professional indemnity insurance with AIG. The policy was limited to £3M cover for each and every claim, as defined by the MTC. AIG sought a declaration that the investors’ claims all arose from ‘similar acts or omissions in a series of related matters of transactions’, within the meaning of the MTC, and therefore fell as one claim under the policy.

AIG’s fall-back position was that the investments in the two developments in Turkey and Morocco constituted two separate claims, each with a single limit of indemnity.

At first instance, Teare J rejected the argument that all the claims arose from similar acts or omissions. He applied a test that the transactions must be conditional or dependent upon one another in order for the claims to be aggregated. AIG appealed.

The Court of Appeal rejected the contention that the transactions had to be dependent upon one another to be aggregated. It introduced the test that there must be an intrinsic relationship between the transactions; rather than an extrinsic relationship with a third factor. AIG appealed.

The Supreme Court’s Judgment

AIG accepted that for matters or transactions to be related, there must be some identifiable substantive link or connection between them; and that mere similarity was not enough.

In the lead judgment, with which the other Lord Justices agreed, Toulson LJ confirmed that a neutral approach to the aggregation clause was required; and that the scope for aggregation was limited to situations where there was a ‘real connection’ between the transactions, rather than simply a similar type of act or omission.

Toulson LJ accepted that determining whether transactions are related is acutely fact sensitive. The starting point is to identify the relevant matter or transactions. Toulson LJ rejected the concept of an intrinsic relationship as unnecessary and unsatisfactory. Instead, he described the test of whether they were ‘related’ as requiring ‘some inter-connection between the matters or transactions, or in other words they must in some way fit together’.

Applying this principle to the facts, Toulson LJ found that the transactions arising from the Turk-ish development were connected because:

  • The common underlying objective was to execute a specific development project in Turkey;
  • A common trust was established to provide funding for the Turkish development;
  • The investors were all investing in a standard scheme; and
  • The investors were all co-beneficiaries under a common trust.

The claims arising from the Turkish development were, therefore ‘related’.

Toulson LJ found that the same principles applied to the Moroccan development. The Court then looked at whether the two developments themselves were related. Toulson LJ viewed the two developments as being very similar. The two development companies were related and the legal structure of the two development projects were similar. However, that was not sufficient.

Toulson LJ found that the two development projects were separate and unconnected, relating to different sites in different countries; different groups of investors; different deeds of trust; and different assets. It was held that the two developments could not be described as ‘related’.


The Supreme Court held that the claims arising from the Turkish development constituted one claim; and those arising from the Moroccan development a second claim. Each claim has a separate £3M limit of indemnity. In effect, the Supreme Court has upheld AIG’s fall-back position of two claims.


The Supreme Court has removed the concept of an intrinsic relationship, which was confusing to insurers and policyholders alike.

The Court has held that aggregation requires some interconnection between the matters or transactions which are the subject of the claim. In order to aggregate, the matters or transactions must ‘fit together’ in some way.

Recognising that each case must be determined on its own facts, as specialist PII Brokers we do feel that the decision has provided welcome clarity for insurers, brokers and policyholders on the aggregation test. Fitting together is an easier test to understand and apply than an intrinsic or extrinsic relationship.

In turn this will allow for a more confident approach from Qualifying Insurers when considering the exposures faced as your own policy falls due for renewal and whilst this decision on its own cannot set in stone the circumstances in which aggregation may apply, nonetheless the previous Court of Appeal decision, of course, could have led to a significant increase in the levels of PII premiums charged had this not been overturned.

By virtue of the Supreme Court’s decision, we suspect that current market conditions will remain for some time yet, Insurers perhaps being of the opinion that it restores the ‘as you were’ position, with no adverse impact upon Insurer appetite or capacity.

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As always, we would ask that you do not hesitate to contact us should you wish to discuss the case and its possible impact upon the PII market further or of course your own requirements in terms of Professional Indemnity, Crime, Cyber or Management Liability Insurances.