(Re)insurance Weekly Update 11- 2017

A summary of recent developments in insurance, reinsurance and litigation law.

AIG v Woodman: The Supreme Court has unanimously allowed the claimant insurers' appeal in interpreting "similar acts in a series of related transactions"

http://www.bailii.org/uk/cases/UKSC/2017/18.html

The earlier decisions in this case were reported in Weekly Updates 31/15 and 13/16 (referred to as AIG v OC320301). The case concerns two holiday resorts developed by Midas: one was in Turkey, the other was in Morocco. The developments were financed by private investors. A trust was established for each development. The developers' solicitors were the trustees and the investors were the beneficiaries. The funds advanced by the investors were initially held by the solicitors in an escrow account and were not to be released to Midas until the value of the assets held by the trust were sufficient to cover the investment to be protected, applying a "cover test" set out in the trust deed. When Midas was wound up the investors brought two claims against the developers' solicitors: one relating to each of the development sites. It was alleged that the solicitors failed properly to apply the "cover test" before releasing funds to the developers, resulting in the funds being released without adequate security. The investors' claims amounted to more than £10 million in total. However, the developers' solicitors' professional indemnity insurance was subject to a limit of indemnity of £3 million in respect of each claim.

The insurers issued proceedings against the solicitors for a declaration that the investors' claims should be treated as one claim on the basis that the claims arose from "similar acts or omissions in a series of related matters or transactions".

At first instance, Teare J. held that although the claims arose out of "similar acts or omissions", they were not part of "a series of related matters or transactions" because they were not dependent on each other. The Court of Appeal rejected this "inter-dependence" test. Instead, it concluded that the matters or transactions in question had to have an "intrinsic relationship" with each other in order to be "related".

The Supreme Court has now allowed the appeal from that decision. It held that the "intrinsic relationship" test was neither necessary nor satisfactory. Lord Toulson, giving the leading judgment said that: "Use of the word "related" implies that there must be some inter-connection between the matters or transactions, or in other words that they must in some way fit together, but the Law Society saw fit, after market negotiation, not to circumscribe the phrase "a series of related matters or transactions" by any particular criterion or set of criteria".

In determining whether the transactions in question could be aggregated, Lord Toulson began by identifying the matters or transactions in question. In doing so, he disagreed with the Court of Appeal's view that the relevant transaction in question was simply "the payment of money out of an escrow account which should not have been paid...