1. Allocation and aggregation
“Real Life” Issues

2. Introduction – Practical issues
Allocation
To what extent can the reinsurer challenge the allocation methodology adopted by the reinsured in relation to settlement of the original liabilities?
Which policy period (or periods) respond to a loss where it is unclear exactly when the loss or damage occurred?
Which order should losses be presented and which layer of coverage should they be allocated to?
Aggregation
Interpretation of the policy language
Follow the fortunes clauses
Differences in governing law

3. Product liability
Large pharmaceutical company faced with class action for side effects arising from a drug it sold over a 10 year period.
Captive insurer
Settlement agreed for $1billion with no admission of liability.
Reinsurance programme placed as “losses occurring”.
Generally the same reinsurers involved but participation varied from year to year.
Questions
To which year should the loss fall?
Should the fact that it is a settlement make a difference?
How can it be determined in which year the damage arose?

4. D&O programme
Insured faced with 1,100 claims from bondholders under its D&O Programme based in having received misleading advice.
Average claim per bondholder = £4,500
Total claim = £4.95million
Settled as a single loss by the Insurer but arising from bonds individually missold on the same basis.
Policy Wording contains no aggregation language but the Schedule states
“Limit - £5million, in the aggregate”
Reinsurance programme
1st Layer - £500k XS £500k
2nd Layer - £1million XS £1million
3rd Layer - £2million XS £2million
4th Layer - £1million XS £4million
Question – Who pays?

5. Unreported 9/11(Background)
Property damage claim(s)
$4.4bn claim brought by business and building owners surrounding WTC.
Settled by the airlines and their security companies for $1.2bn - the limit of their insurance.
Dozens of different layers of reinsurance impacted at different levels. Some multiple times through the same risk being unknowingly reinsured through multiple books.
One well publicised decision where appealed to the UK court but multiple arbitration claims in different jurisdictions under different governing laws went unreported or were settled.

6. 9/11 (Aggregation)
“each and every loss or accident or occurrence or series thereof arising out of one event.”
“each and every loss or accident or occurrence or series thereof arising out of one event, each aircraft .”
“All such losses sustained by the Reinsured which occur during any one period of 24 consecutive hours and within an area of radius 10 miles which arise from one of the perils stipulated in clause AVN.48B [War Hi-jacking and other perils].”
Question – How many losses was WTC and can they be aggregated?

7. 9/11 (Reinsuring Provisions)
Different Reinsuring provisions
Single proviso follow the settlements clause (e.g. LSW 343):
“Settlements hereunder in respect of …the Reinsured’s Excess of Loss acceptances are to follow those made by the Reinsured in all respects…”
Double Proviso clause (e.g. LSW 334)
“…All loss settlements by the Reinsured including compromise settlements and the establishment of Funds for the settlement of losses shall be binding upon the Reinsurers, providing such settlements are within the terms and conditions of the original policies and/ or contracts… and within the terms and conditions of this Contract.”
Does this change the answer on aggregation?

8. 9/11 - Allocation You are a Reinsurer.
You provide cover of $100million XS $50million under English law
Reinsured presents WTC losses of $100million on a one event basis.
Whilst you are still adjusting WTC losses a $5million Lion Air loss is presented in the same year.
You have reinsurance but the top layer will not respond to US losses.
What do you do?

9. Conclusion More questions than answers.
Commercial concerns at least as important as legal ones.