The High Court has recently considered the issue of aggregation in the context of client account thefts in Lord Bishop of Leeds and Ors v Dixon Coles & Gill (a firm) and Ors [2020] EWHC 2809 (Ch); concluding that numerous client account thefts by the same individual was not sufficient to enable insurers to aggregate the claims. This case concerned an attempt to aggregate claims on different grounds than in the AIG case and warrants careful consideration.
Background
Dixon Coles & Gill solicitors (“DGL”) was a long-established Wakefield practice. As has been widely reported, Mrs Box (“Box”), one of its 3 equity partners, misappropriated in excess of £4m from the firm’s client account over a number of years, such misappropriations being discovered by a fellow equity partner on Christmas Eve 2015. In 2017, Box was found guilty of fraud and imprisoned for seven years.
Two groups of former clients, the Leeds Diocese and various charity beneficiaries under an individual’s estate, brought civil proceedings against the remaining equity partners of DGL and their professional indemnity insurers, HDI Global Speciality SE (“HDI”), seeking to recover their losses.
The pertinent provisions of the HDI policy were a limit of indemnity of £2m and an aggregation clause which accorded with that set out in the SRA Minimum Terms & Conditions (“MTC”).
The potential recovery to the Claimants exceeded £2m and HDI sought to aggregate the claims in order to limit their overall exposure to this figure. The aggregation argument was structured on the basis that the claims in respect of the thefts carried out by Box arose from ‘one act or omission’,or alternatively ‘one series of related acts or omissions’. This reflected limbs (i) and (ii) of the aggregation provision in the MTC; the AIG case had concerned limb (iv), namely claims arising from “similar acts or omissions in a series of related matters or transactions”.
If aggregation applied the Claimants would be left seeking recovery of any sums in excess of £2m from the former partners of DGL / the SRA Compensation Fund. If aggregation did not apply, then each individual claim would attract its own £2m indemnity limit.
The Claimants issued applications for summary judgment as well as seeking a declaration that HDI were not permitted to aggregate the claims. The matter came before HHJ Saffman and judgment was handed down on 28 October 2020.
Decision
The litigation raised a number of issues and gave rise to a weighty 273-paragraph judgment, which also covered issues of vicarious liability and limitation, where the Defendants’ defences failed.
The first issue in considering aggregation is to identify the claims that have been made, for the purpose of the proper construction of the professional indemnity policy provisions. HDI argued that the obligation to make good a client account breach under the SRA Accounts Rules (“SAR”) was a single obligation and as such gave rise to a single claim. HDI also argued that if plural, any claims could be aggregated under limb (i), by reason of arising from one act or omission. This argument was heavily based on the obligation to restore a client account shortfall arising from a breach of SAR, the discovery of which is deemed a claim on the policy, under the MTC wording.
In doing this, HDI drew an analogy with the task facing a house-builder, which involved a number of steps but one “act” intended, namely the house-building. Applying long-established authorities[2], the court ruled that each individual misappropriation by Box represented a separate breach of SAR and, as such, did not constitute ‘one act or omission’.
The court commented, in particular:
“I really cannot accept that these are claims arising from one act or omission. I think Mr Pooles put it best himself in his analogy about the house builder. On any basis it is difficult to see how the actions of Mrs Box, perpetrated over a number of years can be seen to be one act. It is right that, with regard to building a house, several steps may be intended to result in that one act of building a house but this situation is much more analogous to the building of a whole housing estate. If I may put it thus, the acts intended to build 1 Acacia Avenue cannot sensibly be seen as acts intended to build 2 Acacia Avenue. The building of each house is a different act. There may be a single intention to build a housing estate in the same way that Mrs Box may have had the single intention of stealing as much money as possible but each house, and each theft, must, in my judgment, be a different act although they may be taken with a view to accomplishing one ultimate objective.”
In terms of whether aggregation was possible on the basis that the misappropriations were ‘one of a series of related acts of omissions’, the court applied the findings of Lord Toulson in AIG as to the proper meaning of the word “related”, for the purpose of limb (iv) of the aggregation clause, to its inclusion in limb (ii) of the clause. Accordingly, there needed to be some interconnection, such that the acts or omissions fitted together.
HDI had argued that processes of teeming and lading, common to large scale defalcations, made for an overarching and unifying connection between the thefts, such that they were all part of a series of related acts or omissions, being Mrs Box’s “determination to raid the client account”.
The court held that there was insufficient interconnection between the claims to aggregate. It was not Box’s dishonesty that was the cause of the loss (as dishonesty is a state of mind and not an act), but rather the losses were caused by the individual thefts by Box. The court also stated that just because the thefts were carried out by the same individual adopting the same method of concealment, it was not sufficient to ‘fit together’ thefts from various parties:
“Teeming and lading are not the acts that have to be related for the purpose of aggregation. What has to be related for the purpose of aggregation are the thefts themselves. Those, in my view, are the relevant acts. Teeming and lading was simply a way of concealing the thefts. …
I should add that if teeming and lading provided a unifying factor which would be absent but for teeming and lading this could well produce an absurd result. For example, it is clear that Mrs Box’s extensive teeming and lading (assuming it was extensive) would suggest that she was a fairly sophisticated thief who had a system for covering her tracks. However, suppose that she was not a sophisticated thief but was rather simply an opportunist who stole from her clients when the opportunity to do so arose. Suppose she had no system and that she took no steps to cover her tracks. Suppose for example that she simply hoped that her thefts would survive an audit or awkward questions from clients or did not care one way or another as long as she had the money there and then to fund her extravagant lifestyle. It would be absurd if the thefts by Mrs Box the opportunist lacking subtlety were not amenable to aggregation but thefts by the sophisticated Mrs Box were. That absurd position is avoided if the question of whether aggregation is possible depends on the relationship, if any, between the acts of theft per se.”
Conclusion
It remains to be seen whether HDI appeal the decision. As it stands, the decision is the sole reported decision on limbs (i) and (ii) of the MTC aggregation wording, and it leans heavily on the approach of the Supreme Court in AIG, both as to the meaning of relevant language, but also in the principles that the issues are highly fact-sensitive, and are not to be seen from the perspective of either Claimants or insured practice alone. Other, partial aggregation arguments were not addressed in the judgment.
The reluctance of the judiciary to look far “upstream”, coupled with a demanding approach as to relevant criteria being interconnected and fitting together, will no doubt be a cause for consternation for insurers. Aggregating claims is a key mechanism in being able to offer a product which involves an acceptable level of risk for insurers. A rogue partner or employee who misappropriates monies from more than one client account might have been considered by many insurers to be a scenario of a nature where claims may aggregate. It will be interesting not only to see whether the issue, which clearly addresses serious financial exposure, is ventilated by appeal, or if it leads to a will amongst insurers to re-examine again the applicable aggregation wording.
[1] Lloyds TSB General Insurance Holdings Limited v Lloyds Bank Group Insurance Co Ltd [2003] 4 All ER 43.
[2] West Wake Price & Co v Ching [1957] 1 WLR 45; Haydon v Lo & Lo [1997] 1 WLR 198.
