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Law firms avoid ‘dangerous precedent’ as High Court clarifies PII rules in landmark dispute against insurer AIG

A client of City-based law firm Royds has been granted a landmark ruling over an insurance-related dispute against insurer AIG with the High Court clarifying the Solicitors’ Minimum Terms of Cover rules.

The High Court ruling found that hundreds of liability claims brought by individuals could not be aggregated into a single claim if they were independent of each other although arose from similar acts or omissions.

The case AIG Europe Ltd v OC320301 LLP & Ors concerned over 200 individuals – represented by Royds – who had invested their money in holiday property schemes in Turkey and Morocco but had subsequently lost that money as a result of alleged negligence of the now defunct International Law Partnership LLP.

AIG turned to Mayer Brown on the dispute and argued that the limit of indemnity for all claims under their policy should be capped at £3m, as outlined by the Solicitors’ Minimum Terms of Cover (MTC), approved by the Law Society in 2005. It would have meant that the hundreds of claims could be aggregated into one claim with AIG on the hook for £3m. However under the High Court’s ruling the liability of the claims will be worth their individual value – totalling £11m.

Commenting on the decision, Richard Woodman, a partner at Royds, said the case was very important as not only did it directly affect clients’ ability to recover losses, but an adverse finding could have put law firms at financial risk.

‘If AIG had been successful, then the claims would have been aggregated and the maximum recovery would have been limited to £3m, when in fact over £11m was lost in total. We are obviously delighted therefore, that the argument was rejected by the Judge. Today’s result is also welcome news for the legal profession, as AIG’s interpretation of the Minimum Terms of Cover would have set a very dangerous precedent and placed law firms at financial risk if insurance firms had refused to cover multiple claims with high aggregate values.’

Royds instructed Tom Leech QC, of Herbert Smith Freehills, and Edward Risso-Gill of Thomas More Chambers while Ben Hubble QC, Carl Troman and Peter Morcos of 4 New Square instructed by Mayer Brown, acted for AIG Europe.