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Aggregation clause explained

23 March 2017

AIG Europe Limited v Woodman (and other Respondents) [2017] UKSC 18

Yesterday, in the case of AIG Europe Limited v Woodman, the Supreme Court gave clarity to the application and interpretation of the MTC wording used for aggregation clauses which allows insurers to aggregate claims on the basis of “a series of related matters or transactions”.

The facts

AIG provided professional indemnity insurance to a firm of solicitors, International Law Partnership (ILP). 214 investors brought claims (the Underlying Claims) against ILP arising out of their investments in holiday resorts in Turkey and Morocco. Separate trusts were created to hold a charge over each development and the investors funds were held by ILP on an escrow account. ILP were not to release the funds to the developers unless the value of the security held in the trust was at least the same as the value of investments (the Cover Test). ILP authorised the release of investment funds before the property deals had completed. The property deals subsequently fell through and the investors claimed to have lost their investment (a collective £10m although on average each claim was approximately £46,000). The investors alleged that this loss was due to ILP’s failure to apply the Cover Test when electing to release the funds.

AIG argued that the Underlying Claims should be aggregated to form one claim because they arose from “similar acts or omissions in a series of related matters or transactions” under 2.5(a)(iv) of the MTC. The trustees argued that none of the claims should be aggregated or, in the alternative, the aggregation should apply per location resulting in two claims.

Commercial Court ruling: ‘dependent transactions’

At first instance, Teare J held that all the Underlying Claims arose from a similar act or omission – that being ILP’s failure to apply the Cover Test. However, he rejected AIG’s submission that the claims were a series of related matters or transactions, on the basis that the individual transactions were not mutually dependent on each other. He said: 

“… the most natural meaning of the phrase “a series of related matters or transactions” in the context of a solicitors’ insurance policy is in my judgement a series of matters or transactions that are in some way dependent on each other.”

AIG appealed against the addition of ‘dependent’ to MTC 2.5(a)(iv).

Court of Appeal ruling: ‘intrinsic relationship’

The CA gave consideration to the true construction of the words “in a series of matters or transactions” and rejected the notion that the transactions needed to be dependent on each other because there can be connected claims without them being dependent on each other.

The CA, held that the true construction of the aggregation clause required an intrinsic relationship between the transactions and not simply an extrinsic relationship with a connecting third factor (in this case the same solicitor or the same geographical area).

AIG again appealed to the Supreme Court in respect of the CA’s additional requirement for an intrinsic relationship.

Supreme Court decision: ‘inter-connection’

It was unanimously agreed in a judgment led by Lord Toulson SCJ, to allow AIG’s appeal.

Lord Toulson SCJ rejected all notions of ‘dependent transactions’ and ‘intrinsic relationships’ used by the lower courts which he felt were elusive and unhelpful descriptors of related transactions. Instead, Lord Toulson SCJ said:

“related” means some inter-connection between the matters or transactions, or in other words that they must in some way fit together." [para 22]

Viewed objectively, the claims by the Morocco investors were considered a series of related transactions and separately, the claims by the Turkey investors were considered a series of related transactions. This was because the transactions fitted together as:

  • there was a common underlying objective to execute a particular development project. The investors knew their money was to be provided in combination with other investors to provide the developers with the capital
  • legally they fit together as each investor was a co-beneficiary to a common trust or standard scheme to execute one property development transaction.

However the Supreme Court held the two development projects were unrelated because despite having a similar legal structure, they related to two different sites and there was a different deed of trust for each site with security over different assets.


The application of aggregation clauses has always required a “unifying factor” or “an aggregating factor”. This decision has provided some useful pointers as to what those aggregating factors could be. Fundamentally it seems that such factors need to be something other than the negligent act itself. So ILP’s failure to apply the Cover Test properly was not an aggregating factor. For insurers, the starting point will be to objectively consider the relationship between the relevant matters or transactions in order to identify their interconnection.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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