Alongside Harry Redknapp and adverse weather, the unlikely hot topic of aggregation clauses in professional indemnity policies is hotly debated in insurance circles.
As the economic gloom shows no sign of letting up, claimants, whether large corporations, lenders or individuals, turn to recover their losses against professionals who advise them. Not good news for my ilk certainly, but this also has a worrying side effect for insurers.
Professional firms are looking at their PI policies to gauge how far their cover stretches where a professional's conduct - whether through negligence or dishonesty - has led to multiple claims against their firm.
The rising tide of claims by lenders against law firms arising out of the collapse of the property market can raise the prickly question of whether the insurer's payout should be limited per claim, or viewed alongside all related claims i.e. aggregated. The answer to this question can make a significant difference to an insurer's exposure, so getting your house in order is vital.
Faced with this scenario, solicitors and surveyors turn to their policy and the minimum terms and conditions for their respective professions and ask how many claims are being made against their firm. If the answer is ‘more than one', the next question - ‘Do the claims fall to be treated for the purposes of the policy as being one claim?' is skewed by the fact that the Minimum Terms for solicitors and surveyors define 'claim' differently.
For solicitors, ''One act or omission; one series of related acts or omissions; the same act or omission in a series of related matters or transactions; similar acts or omissions in a series of related matters or transactions'' are to be regarded as 'one claim'. Further, all claims arising from one matter or transaction will be regarded as one claim. Clear as daylight? Certainly room for debate.
The surveyors' wording uses the widest possible aggregation wording. It is by no means clear whether the effect will be to enable there to be aggregation of all claims arising from: ''a particular dishonest act or omission; or a particular course of dishonesty; or the dishonest conduct of the individual(s), regardless of whether the dishonest acts or omissions giving rise to the claims are connected in any way''.
Each case will turn very much on its own facts. The potential for dispute is obvious, not least if an insurer caps its payout on the basis of 'one claim'. This could lead to innocent partners being made bankrupt where there is insufficient cover - all down to the interpretation of just two words: 'one claim'.
It is little wonder that insurers carefully examine the facts of every case that fall under this scenario - a robust stance could secure a sizeable financial saving for insurers, but could likewise leave a firm (and its partners) financially insecure.
A high level judicial decision on fraud and aggregation should provide clarity. Considering the vast sums of money that could be at stake in these dark times, it may not be long before a lender challenges an insurer on their stance on aggregation where fraud is involved.
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