AGGREGATION AND ALLOCATION Özlem Gürses Rob Merkin

Functions of aggregation clauses 1) Define the temporal coverage 2) Determine how many deductibles the assured has to bear 3) Determine the financial ceiling of the policy

Aggregation clauses “event” “accident” “happening” “occurrence”

Accident: each instance of individual loss Event is what has happened as opposed to the reason (underlying cause) for what has happened Event or occurrence is a unifying factor that allows a number of individual losses to be aggregated Originating cause: underlying reason for a series of losses

Claim There may be an aggregate limit on the sum insured for all claims or there may be a deductible to be borne for each claim The claim must relate to loss arising from an insured peril as opposed to an uninsured or excluded peril Policy may be written on a claims made, or claims made and notified basis

A loss, occurrence or series of occurrences? Kuwait Airways Corp v Kuwait Insurance Co SAK (No.1) [1996] 1 Lloyd's Rep. 664 In August aircraft belonging to the Kuwait Airways Corporation, (KAC) were flown out of Kuwait by the victorious Iraqis KAC: each taking of an aircraft from Kuwait airport was a separate occurrence. The insurers: all the aircraft were lost altogether on the first day of the invasion as one single occurrence.

A loss, occurrence or series of occurrences? Aioi Nissay Dowa Insurance Co Ltd v Heraldglen Ltd [2013] EWHC 154 (Comm) Were the 9/11 attack on the Twin Towers of the World Trade Center caused by one or more occurrences or series of occurrences “arising out of one event” for the purpose of applying policy limits and deductibles in four retrocession excess of loss reinsurances

Dawson’s Field Four planes in total were hijacked as part of a planned and co-ordinated operation. One of the four aircraft was detained in Cairo, was subsequently blown up The other three aircraft were blown up together as one operation when no progress had been made in the negotiation of the hijackers' demands

A plurality of loss or damage can properly be described as one occurrence depending on  the position and viewpoint of the observer and  involves the question of degree of unity in relation to cause, locality, time, and, if initiated by human action, the circumstances and purposes of the persons responsible.

The “unities” doctrine. Unity of time Unity of location Unity of cause Unity of intent

Dawson’s Field There was one occurrence, one event, one happening The blowing up of three aircraft in close proximity more or less simultaneously, and as a result of a single decision to do so without any one being able to approach the aircraft between the first explosion and their destruction.

Kuwait Airways The aircraft were all lost on 2 August 1990 and accordingly there was unity of time; There was unity of location; There was unity of cause, for, whichever of the insured perils was appropriate – war and allied perils – it operated alike to all aircraft There was unity of intent

. An "occurrence" (which is not materially different from an event or happening, unless perchance the contractual context requires some distinction to be made) is not the same as a loss, for one occurrence may embrace a plurality of losses The losses’ circumstances must be scrutinized to see whether they involve such a degree of unity as to justify their being described as, or as arising out of, one occurrence.

American Airlines Flight 11 Flight from Boston to Los Angeles The hijacking began at 8:14 or shortly thereafter. 8:26am it changed course 8:46am Flight 11 crashed into the North Tower of the WTC 10:28am the North Tower collapsed

United Airlines Flight 175 Boston to Los Angeles The aircraft departed at 8:14 8:51am the flight deviated from its assigned altitude, 8:58am the flight took a heading towards New York City, 9:03am flight 175 struck the South Tower of the WTC. 9:58am the South Tower collapsed in ten seconds

Unity of time: a period of 134 minutes in the case of Flight 11 and 72 to 76 minutes in the case of Flight 175, two occurrences, two events Unity of location: each tower was a separate building, albeit connected by a single mall. They did not stand or fall together. Unity of cause: two separate causes, were two successful hijackings of two separate aircraft Unity of intent: A plan cannot be an occcurrence

Cause Axa Reinsurance v Field [1996] 1 WLR 1026 “arising from one originating cause” “arising out of one event”. An event is something which happens at a particular time, at a particular place, in a particular way A cause is less constricted. ‘Originating’ the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate

“All claims or series of claims (whether by one or more than one claimant) arising from or in connection with or attributable to any one act, error, omission or originating cause or source, or the dishonesty of any one person or group of persons acting together, shall be considered to be a single third party claim for the purposes of the application of the Deductible”

“Originating cause or source” Standard Life Assurance Ltd v Ace European Group [2012] Lloyd's Rep. I.R. 655 Eder J: the words “or source”, as an explicit alternative to “cause”, can only have been included to emphasise yet further the intention that the doctrine of proximate cause should not apply and that losses should be traced back to wherever a common origin can reasonably be found. “arising from or in connection with or attributable to”

In every case the originating cause of the complaint has been that Standard Life marketed the Fund as a safer investment than was in fact the case a series of claims falling within the very wide wording of Clause 2 of the Policy and subject to a single deductible.

Tokio Marine Europe Insurance Ltd v Novae Corporate Underwriting Ltd [2013] EWHC 3362 (Comm) “Occurrence” is then defined in the Master Policy wording to mean “any one Occurrence or any series of Occurrences consequent upon or attributable to one source or original cause.” The Thailand floods of 2011, resulting from prolonged heavy rain which caused a river to burst its banks and to flood much of the country.

Allocation scenario Athena Inc, manufacturers of a hangover remedy, Ouzo-Out, are insured against product liability for the years 2011 and 2012 by Zeus Insurance. In 2013 the insurers are Persephone Insurance. The policies are written on an injury sustained basis. In 2014 claims are made against Athena for side effects caused by Ouzo-Out. It is impossible to determine in which year the injuries occurred.

Allocation questions? Which insurer does Athena claim against, and in which year? If Athena claims against Zeus alone, does Zeus have a contribution claim against Persephone? How does Zeus allocate payments to Athena against its reinsurers in the two years of its reinsurance coverage?

Allocation authorities Fairchild v Glenhaven [2002] UKHL 22: victim can claim for damage in any year if causation can’t be shown Trigger Litigation [2012] UKSC 37 Phillips v Syndicate 992 Gunner [2002] EWHC 1084 (Comm): assured can sue in any year of coverage, and each insurer is 100% liable, probably without a right of contribution International Energy Group v Zurich [2013] EWCA Civ 39: each insurer is 100% liable for the loss MMI v Sea Insurance [1998] Lloyd’s Rep IR 421: outwards reinsurance – presumption of regular losses Teal v Berkley [2013] UKSC 57: losses must be presented in order