Aggregation and Allocation

1. Aggregation and Allocation Rob Merkin Universities of Exeter and Auckland Norton Rose Fulbright

2. Functions of aggregation clauses • An aggregation clause determines how many deductibles the policyholder has to bear • An aggregation clause fixes the maximum sum insured under the policy • Impossible to construe contra proferentem: prima facie definitions depend upon context; argument may vary depending upon whether the issue is deductible or maximum sum recoverable

3. Aggregation clauses: use and • First party property policies: all forms • Liability policies: all forms • Excess of loss reinsurance: aggregation of individual losses required to trigger coverage under policy, either all losses or losses arising from an aggregating event • Aggregating words: accident; event; occurrence; originating cause; happening; loss; claim

4. Successive losses and aggregation Scenario: assured is covered for $500,000 any one event. Policy limit $1,000,000. Succession of earthquakes • Assured suffers three consecutive partial losses of $500,000 in the same policy period: MIA 1908, s 77(1) • Assured suffers partial loss of $500,000 followed by a total loss in the same policy period before repairs can be effected: MIA 1908, s 77(2), but see Ridgecrest v IAG [2013] NZCA 231 • Assured suffers partial loss of $500,000, policy then expires before repairs are effected and there is a total loss soon after

5. Accident and loss • Accident • South Staffordshire Tramways v Sickness & Accident Assurance [1891] 1 QB 402: injury to each passenger • Loss • Mitsubishi v Royal London [1994] 2 Lloyd’s Rep 249: one loss for 94 uses of defective component

6. Event and occurrence: principles • Lord Mustill in Axa v Field [1996] 3 All ER 517: “an event is something which happens at a particular time, at a particular place and in a particular way” • Must be capable of being described as “event” • Test by unities of time, place, means and intention • Cross-check by common sense • Need for causal link between the individual losses sought to be aggregated • Distiguish “what” (event) from “why” (cause)

7. Event and occurrence: liability • Propensity to act negligently not an event • Caudle v Sharp [1995] LRLR 433: underwriting • QBE v MGM [2003] QSC 27: plumbing • Windsurf v HIH [1999] QCA 360: carpet • Visy v Siegwerk[2013] FCA 231: defective component

8. Event and occurrence: property • Distinguish event from state of affairs • Mann v Lexington [2001] Lloyd’s Rep IR 231: riots • KAC v KIC [1996] 1 Lloyd’s Rep 604: Kuwait • Scott v Copenhagen [2003] Lloyd’s Rep IR 603: Kuwait • Aioi v Heraldglen[2013] EWHC 155 (Comm): WTC

9. Originating cause • State of affairs or blind spot • Cox v Bankside [1995] 2 Lloyd’s Rep 43 • European Group v Standard Life [2012] EWCA Civ 1713 • Pacific Dunlop v Swinbank[2001] VSCA 74

10. Series clauses, hours clauses I • Distillers v Ajax (1974) 130 CLR 1:“all occurrences of a series consequent on or attributable to one source or original cause” • Pacific Dunlop Ltd v Swinbank[2001] VSCA 40: “a series of Occurrences arising from a common cause or condition” • Visy v Siegwerk[2013] FCA 231: “continuous or repeated exposure to substantially the same general conditions” • QBE v MGM [2003] QSC 27: “continuous or repeated exposure to substantially the same conditions”

11. Series clauses, hours clauses II • Lloyd’s TSB v Lloyd’s Bank [2003] Lloyd’s Rep IR 623: a series of third party claims [resulting] from any single act or omission (or a related series of acts or omissions)” • Beazley v Travellers [2011] EWHC 1520 (Comm): “continuing series of related events “ • Each loss by earthquake shall constitute a single [event] ... if more than one earthquake shock shall occur within any period of seventy-two hours such earthquake shall be deemed to be a single earthquake”

12. Allocation • Kakakure Ltd, manufacturers and exporters of a universal remedy, are insured against product liability for the years 2010 and 2011 by Allrisks. In 2012 the insurers are Somecover. The policies are written on an injury occurring basis. In 2013 claims are made against Kakakure for side effects caused by the products. It is impossible to determine in which year the injuries occurred. • Which insurer does Kakacure claim against, and in which year? • If Kakacure claims against Allrisks alone, does Allrisks have a contribution claim against Somecover? • How does Allrisks allocate payments to Kakacure against its reinsurers in the two years of its reinsurance coverage?

13. Allocation authorities • Fairchild v Glenhaven[2002] UKHL 22: victim can claim for damage in any year if causation can’t be shown • 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