Two recent English court decisions, Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Insurance Company Limited (High Court, 5 October 2000) and Mann v Lexington Insurance Company (Court of Appeal, 11 October 2000) extend our understanding of the factors English courts will consider when determining what constitutes one claim for the purposes of insurance, reinsurance or retrocession cover incorporating deductibles and sum insured provisions. Once again, great emphasis is placed on the exact meaning to be attached to contractual phraseology in the context of the nature of the cover in question.
Lloyds TSB General Insurance Holdings Limited and Others v Lloyds Bank Insurance Company Limited
Abbey National Plc v Lee and Others
The claimants (“Lloyds TSB” and “Abbey National”) were companies involved in the provision of personal pension plans. They sought to recover, under their respective policies of insurance issued by the defendants (“Lloyds Bank Insurance Company” and “Lee”), losses sustained as a result of settling a number of pension mis-selling claims. Mr Justice Moore-Bick was required to consider, as a preliminary issue, whether each of the pension mis-selling claims could be aggregated together, so as to be treated as one single third party claim, subject to a single deductible.
At the time in question, the relevant regulatory body obliged the claimants to ensure their sales representatives gave potential investors what was described as “best advice”. This involved representatives assessing whether it was advisable for investors to give up their rights under an occupational pension scheme and invest in a personal pension plan. A large number of claims (amounting in total to several million pounds) were brought by investors who had invested in personal pension plans to their detriment, alleging they had not been given the “best advice”.
The insurance policies
Both Lloyds TSB's and Abbey National's insurance polices contained an aggregation clause in similar terms. The Lloyds TSB claimants were insured under a bankers composite insurance policy which provided that:
“If a series of third party claims shall result from any single act or omission (or a related series of acts and omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purpose of the application of the deductible”.
The deductible for the various policies was at least £1m, whereas each individual claim rarely exceeded £15,000. It was therefore crucial, if the claimants were to recover anything under their insurance polices, that the individual claims could be aggregated and treated as a single claim, to exceed the deductible.
The claimants submitted the individual claims resulted from a single act or omission (or alternatively a related series of acts and omissions) - that is, a failure on the part of management to train its representatives correctly and enable them to provide the “best advice”. This, they maintained, was the correct conclusion to be reached when one identified the “real” or “dominant” cause of the loss, as was the test previously approved by the courts (Yorkshire Dale Steamship Co v Minister of War Transport  A.C. 691)
By contrast, the defendants asserted that a more restrictive approach to causation applies in relation to contracts of insurance. They argued that each claim resulted from the failure of each individual sales representative to give the “best advice”, since this was the most “proximate” cause of the loss. Moreover, they maintained that the claimants' failure to train their representatives correctly did not cause any loss to third parties, it merely provided the opportunity for representatives to give incorrect advice, which caused the loss. Therefore, it was the defendants' case that the claims arose from numerous, unrelated acts or omissions which did not result in such claims forming a single claim within the terms of the aggregation clause.
Moore-Bick J held that the individual claims did originate from one single act or omission (or a related series of the same) and did, therefore, constitute a single claim (with a single deductible) as provided for by the aggregation clause of these polices.
In reaching this decision, the judge approved the argument advanced by the claimants that it is necessary to identify, in the absence of agreement to the contrary, the “dominant” cause of the loss. This can be determined by asking, as a matter of common sense, whether the third party claims resulted from a failure on the part of management to train its representatives correctly. In this instance, the judge had little difficulty in deciding that the claims did result from such omission. The intervention by sales representatives may have completed the loss, but was not its actual cause. The judge also considered that the words “result from” permitted claims to be aggregated by more remote causes than the words “caused by”, although he did conclude that the words used do not give much insight into the true meaning of the clause.
The judge dismissed the argument of the defendants that a more restrictive concept of causation applied in the context of insurance contracts. However, in any event, if it were correct to interpret the aggregation clause restrictively, the judge held that the claimants' failure to train their representatives was effectively the omission, which gave rise to each third party claim. It therefore was the proximate cause of each claim.
Mann & Another - and - Lexington Insurance Company
This involved an appeal by the DP Mann syndicate to the Court of Appeal on a preliminary issue concerning the interpretation of the aggregation provisions in the retrocession under which it was reinsured by Lexington. The primary insurer, P.T. Asuransi Central Asia, had issued policies covering a large number of stores in Indonesia. In May 1998, during the civil unrest which preceded the resignation of President Suharto, 22 stores were damaged - all in different locations and over a period of two days.
The cover note to the retrocession provided:
“Sum Insured: US$5,000,000.00 per occurrence but in the annual aggregate separately for flood and earthquake.”
“Deductibles: 2.5% of adjusted claim subject to minimum IDR25,000,000 each location, any one occurrence...”
The reinsurance provided that the sum insured was up to IDR30bn “each and every loss, each and every location”. The terms of the deductible were, however, identical to those of the retrocession. The primary insurance paid each of the claims in relation to each of the stores and the DP Mann syndicate did the same.
In what is by now a somewhat familiar dispute, the Lexington insisted that the losses should be treated as a single occurrence for the purposes of the retrocession. They argued that each of the individual losses was occasioned by the same episode of civil commotion deliberately orchestrated by members of the government. They also submitted that “per occurrence” was a term of aggregation and that as a question of evidence they should have the opportunity to establish that there was in fact one riot and that the one riot and the losses it caused constituted one occurrence to which the limit of US$5m applied.
The task for the court was to determine as a preliminary issue whether the losses necessarily constituted more than one “occurrence” within the meaning of the sum insured clause in the retrocession. In the High Court, the judge accepted Lexington's arguments that “per occurrence” was an “aggregation provision” and that the losses did not necessarily constitute more than one occurrence. Notably, the judge's view was very much influenced by the wording of the deductible “2.5%..... each location any one occurrence” which he described as “the other important clause”. He held that the clause necessarily contemplated that any one occurrence could cover more than one location and it was therefore consistent to apply the same interpretation in respect of the sum insured clause. DP Mann appealed.
A number of cases were cited in the Court of Appeal judgment, in relation first to the meaning of the word “occurrence” and second to the extent to which, in construing a retrocession or reinsurance policy, regard could be had to the terms of the underlying insurance. Kuwait Airways Corporation v Kuwait Insurance Co  1 Lloyd's Rep 664 was concerned with a war risks policy with the limit “any one occurrence any one location”. The question was whether the capture of 15 aircraft at Kuwait airport was one occurrence or 15. Whilst the court agreed with the observation in the Kuwait judgment that each case depends on its own terms and circumstances, the court also said that the comments made in that case were applicable to a general consideration of the meaning of the word occurrence in the insurance context. An “occurrence”, the court said, is not the same as a loss, for one occurrence may embrace a plurality of losses. Nevertheless, the losses' circumstances must be scrutinised to see whether they involve such a degree of unity to justify their being described as, or arising out of, one occurrence. In doing this, the court will look to see the extent to which there is unity of time, location, cause and intent. In the Kuwait case it was held that the “occurrence” in question was either the successful invasion of Kuwait or, at its narrowest, the capture of the fleet at Kuwait airport. On either view, those matters could appropriately be described as one “occurrence”.
The meaning of “occurrence” was also discussed in AXA v Field  2 Lloyd's Rep 233, when Lord Mustill made his now famous remark that “in ordinary speech, an event is something which happens at a particular time, at a particular place, and in a particular way”. However, that case was regarded as offering more assistance in what it had to say about construction of the reinsurance in relation to the underlying insurance. It concluded that there can be little doubt that, in proportionate reinsurance at least, there is a presumption that the policies are back-to-back so that where there is a provision in each policy (which may not correspond in all respects) regarding treatment of multiple losses, it is likely that the parties intended that they would operate in the same way: no significance can be attached to the fact that such provisions are not the same in the two contracts.
The decisions in Vesta v Butcher  AC852 and Groupama Navigation et Transports and Others v Catatumbo CA Seguros (20 July 2000) also supported this view. The court said that any departure from the normal understanding of the back-to-back nature of reinsurance would need to be spelt out in clear terms. Thus, in the absence of clear words to the contrary, it would be presumed that the scope and nature of the cover afforded by a reinsurance was the same as the cover afforded by the insurance (although the courts acknowledge that this does not necessarily apply to provisions relating to ancillary or procedural matters such as claims control, law, jurisdiction and arbitration). In finding against Lexington, the Court of Appeal said that the word “occurrence” must take its meaning finally from the surrounding terms of the policy, including the object being sought to be achieved by the retrocession. It is relevant that under the retrocession a share of the underlying premium was being accepted for a share of the underlying risk. Thus a presumption arose that the two contracts were intended to operate in the same way. The court also came to an opposite interpretation to the trial judge of the deductible which was identical in the two policies. It held that the wording of the deductible (“each location any one occurrence”) was clear in that a single “occurrence” could not apply to more than one location. The “occurrence” to which the sum insured was referring was the same occurrence to which the deductible was pointing, both in the reinsurance and the retrocession: an occurrence at a particular location.
On a more fundamental basis, however, the court remarked that on the facts of this case there was no unity of time nor location. The court held that even if the Lexington could show that there was one cause for the damage, and thus it resulted from one peril, this still did not make it one occurrence. It would be difficult to conceive of a situation in which if the properties were some distance apart, and if there was lack of unity of time, there could still be one occurrence by virtue of some other unifying factor. The word occurrence could not be given such broad a meaning.
The Lloyds TSB decision shows that when considering the meaning to be attached to aggregation provisions in policies of insurance, English courts will not confine themselves to an analysis of what the “proximate cause” of loss was. Provided that the losses which the policyholder seeks to aggregate are themselves proximately caused by an insured peril, the scope of aggregation of such losses can be determined by reference to broader principles of causation (depending, of course, on the exact wording used to enable aggregation to take place).
The Mann decision does not represent a departure from previous authorities in relation to the ingredients which make up an “occurrence”. To that extent, the decision - especially in its emphasis on the need for unity of place, time, cause and intent - shows that great care is required when reinsurances (whether proportional or non-proportional) are designed and placed. For instance, it is likely to create difficulties in the making of outwards reinsurance presentations where cover under an insurance policy does not require aggregation on an “occurrence” basis (instead, allowing aggregation, as was the case in Lloyds TSB, by reference to a single omission) but where the relevant reinsurance is written on an “occurrence” or “event” basis and an all-embracing “occurrence” or “event” cannot be identified. By way of illustration, can it be said that there is a single “occurrence” which binds together the various pension mis-selling losses considered in Lloyds TSB? Questions such as this highlight the need for aggregation language in reinsurance contracts which contemplates the likelihood that a reinsured will be called upon to settle losses arising from numerous separate occurrences and clearly provides appropriate aggregate cover for such losses.
Fergus Broderick, James Crabtree and Michelle Waddington are all members of the Insurance and Reinsurance Group of London law firm Pinsent Curtis.