‘Swings and roundabouts’: clarifying the ability to aggregate claims

The Right Reverend Nicholas Baines, Lord Bishop of Leeds v Dixon Coles & Gill [2021] EWCA Civ 1211

The English Court of Appeal recently considered whether claims brought against a law firm for the systematic fraud of one of its partners should be aggregated for the purposes of the limit of indemnity in the firm’s insurance policy.  The English High Court’s judgment, upheld on appeal, was that the claims should not be aggregated and that each attracted a separate limit of indemnity. 

Background

Dixon Coles & Gill (DCG) had three equity partners, Linda Box, Julian Gill and Julia Wilding.  In December 2015, Mr Gill discovered that Ms Box had made unauthorised payments from the firm’s client account.  Ms Box was confronted and was subsequently required to leave the partnership after she admitted the offending.  She was also reported to the Solicitors Regulatory Authority and the Police.  Ms Box’s fraud amounted to millions of pounds, the majority of which occurred between 2010 and 2015, with some offending having occurred as early as February 2002.

Ms Box was sentenced to 7 years’ imprisonment after pleading guilty to thefts of over £4 million and the firm shut its practice in January 2016.  Victims of the offending brought two proceedings against the two remaining equity partners of DCG.  The first was brought by Lord Bishop of Leeds and the Leeds Diocesan Board of Finance and the second was by residuary beneficiaries under the will of Ernest Scholefield.  The claimants were all former clients of DCG.  The offending broadly followed the same pattern whereby Ms Box would regularly pay large sums of money from the clients’ accounts to pay the personal expenses of herself and her family. 

The issue

The Court of Appeal looked to whether the two proceedings could be aggregated to one claim, such that the indemnity available was subject to a £2 million limit.  The relevant aggregation clause provided:

(a)    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

(b)    all claims against one or more insured arising from one matter or transaction will be regarded as one claim.

“Claim” was defined as “a demand for, or an assertion of a right to, civil compensation or civil damages or an intimation of an intention to seek such compensation or damages”.

The High Court had previously concluded that the proceedings could not be aggregated, as they lacked sufficient commonality to be considered ‘related’ in terms of the aggregation clause.  On appeal, it was argued by the insurer that one limit of indemnity applied as both thefts formed part of an extended course of dishonesty through the use of the firm’s client account and that, either:

• the proceedings could be aggregated as they were ‘a series of related matters or transactions’; 

• alternatively, the proceedings were a single ‘claim’ in terms of the policy.    

Aggregation

The Court considered two leading cases, Lloyds TSB General Insurance Holdings Limited v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43 and AIG Europe v Woodman [2015] EWHC 2398 (Comm), on the application of the concept of “related” matters or transactions. 

In Lloyds TSB, around 22,000 claims had been brought against the insured for the mis-selling of pension schemes. The aggregation clause in the relevant policy provided that a series of claims resulting from a single act or omission or “related series of acts or omissions” were to be treated as one claim.  The Court there held that aggregation was not possible, as each breach of the pension selling rules was separate because the act or omission which gave rise to liability in respect of each claim was different from the acts or omissions giving rise to the other claims. 

As part of its judgment, the Court in Lord Bishop noted the reaction of the market to Lloyd’s TSB was one of surprise, the dominant belief having apparently been that the concept of a “related” series of acts allowed insurers to aggregate similar claims, and that the decision had narrowed the effect of many other comparable clauses. 

Applying Lloyds TSB to the present case, the Court considered that the clause would only be satisfied if the two claims arose out of both thefts.  As this was clearly not the case, it concluded that they could not be considered a series of related acts or omissions. 

The Court also considered Woodman and confirmed it did not impact on this conclusion.  In that case, the insured firm of solicitors faced claims by investors in relation to two property developments.  In each claim the allegations were broadly the same – that the firm had released investors’ funds without adequate security.  There, in considering the question of whether the two claims were “related” such that they could be aggregated under the relevant policy, the Court held that there must be “some inter-connection” between the transactions so that they fit together in some way.  Accordingly, claims in relation to one development constituted one claim but could not be aggregated with the claims in relation to another development, noting that:

“If insurers were permitted to aggregate all claims arising from repeated similar negligent acts or omissions arising in different settings, the scope for aggregation would be so wide as to be almost limitless.”

Interestingly, Phillips LJ raised the possibility that, owing to the co-mingling of the defalcated funds in a client account, there could be an argument that the failure to account for each client’s funds arose from the shared deficiency in the client account.  However, given the point was not raised in the grounds of appeal, or otherwise advanced by the appellant, it was deemed not to be appropriate to determine it.

A single claim? 

The argument that both proceedings constituted a single claim under the policy was swiftly dismissed.  The firm had notified the systematic thefts at one time to the insurer, and, under the relevant legislative instrument, a deficiency in the client account was treated as a civil liability, irrespective of whether there had been an accompanying demand.  The Court noted that multiple claims can be made by an insured on insurers from the same set of facts.  It was satisfied that the issue in the present case was whether, with respect to each proceeding, the partners had an entitlement to be indemnified. 

The decision

The Court therefore concluded that the claims were not sufficiently inter-connected, such that neither the aggregation clause applied, nor was the policy definition of claim broad enough to unify the proceedings.  Consequently, separate £2 million limits applied to each of the claims.   

Comment (Morgan Fee )

Aggregation can have significant consequences for insurers.  Depending on the nature of the underlying claims, it can be advantageous to insurers to aggregate the limit of indemnity, or to maintain that multiple claims arise, each with a separate excess.  While in this case the lack of relatedness led to an outcome disadvantageous to the insurer, had there been a multiplicity of small-value claims, the application of the same principles could have advantaged the insurer as each individual claim may not exceed the excess.  

So, with aggregation, often it’s ‘swings and roundabouts’.  Sometimes the principle leads to greater indemnity, sometimes less. 

When considering claims-made policies, the Court will often look to distil the essence of a liability, focussing often on the elements necessary to establish a cause of action rather than the form or factual origins of the claim.  Given the uniqueness of the background giving rise to any particular claim, and the importance of subtleties in the wording, the interpretation of an aggregation clause will often require a careful analysis.  Caution needs to be had when looking to apply an authority to fresh circumstances. 

Some of the more difficult areas include multiple errors, or distinct losses alleged against an insured in one demand or proceeding.  Increasingly class actions can have unforeseen implications for the aggregation of limits or excesses under an insurance policy.  

One thing is clear: the interpretation of aggregation clauses will typically be complex and highly dependent on the underlying facts.  How these principles will be applied in different factual scenarios will continue to be a matter of great importance to insurers and insureds alike.   

Morgan Fee is an Associate at Fee Langstone