Condoning dishonesty and considering aggregation in Axis Specialty Europe SE v Discovery Land Company

Professional indemnity policies for firms of solicitors authorised by the SRA must reflect the Minimum Terms and Conditions ("MTCs"). Case law interpreting the MTCs remains scarce, as disputes typically resolve through arbitration. Axis Specialty Europe SE v Discovery Land Company LLC & Ors [2024] EWCA Civ 7 provides valuable clarification on coverage for claims involving dishonesty and claim aggregation.

The MTCs allow insurers to exclude liability to indemnify a person to the extent that civil liability or defence costs arise from dishonesty or a fraudulent act or omission "committed or condoned by that person", subject to important exceptions protecting innocent insureds. The Axis appeal examined what constitutes "condoning" dishonest conduct, in a case involving two partners, one of whom had misappropriated client funds.

The Court held that "condone" conveys "acceptance or approval" and does not require an overt act — condoning frequently occurs silently through conduct. What must be condoned is "the dishonest behaviour which formed an essential part of the chain of events which led to the claim". Condoning requires some knowledge or awareness of the behaviour, which can develop after the event, and those with a duty to act on discovering such behaviour are more likely to be found to have condoned it through inaction.

On aggregation, the Court applied AIG v Woodman [2017] UKSC 18. The MTC clause allows claims to be treated as one where they arise from similar acts or omissions in a series of related matters or transactions. The Court focused on what makes acts "similar", holding that substantial or real similarity must exist, assessed by examining the substance of each claim rather than by any formulaic test.

In Axis, although both claims involved misappropriation of client money from closely connected entities, the Court found insufficient similarity: one involved straightforward misappropriation of funds transferred for a specific purpose, the other arranging an unapproved loan and misappropriating its proceeds. Nor were the acts part of an interconnected series. The claims therefore did not aggregate.

The decision confirms that condonation and aggregation both require careful, fact-sensitive, case-by-case analysis — there is no simple binary test — but provides welcome additional guidance for those evaluating coverage.