Given the amount of litigation which reinsurance generates – and not only in the London market – it seems invidious to isolate a few representative cases. Whilst some commentators have sought to comment on new developments, decisions in 2000 continued to provide salutary lessons to reinsurers on age-old problems.

The meaning of what constitutes an occurrence once again exercised the minds of the English judiciary when they were asked (at first instance and in the Court of Appeal) to consider what an occurrence was where property damage cover was given to a chain of Indonesian supermarkets1. The facts, in themselves, were straightforward; the interpretation of the policy was not.

A chain of supermarkets in Indonesia owned by PTR was insured by PTA, an Indonesian insurer. The claimants (the reinsurers) reinsured a percentage of the risk in London and retroceded a percentage to the defendants. The sum insured under the reinsurance was limited to IDR30,000m each and every loss, each and every location. The terms of the retrocession were evidenced by cover notes providing that the sum insured was US$5m per occurrence but in the annual aggregate separately for flood and earthquake. Both reinsurance and retrocession contained a deductible of 2.5% subject to minimum IDR25m each location any one occurrence.

A number of stores some distance apart were damaged by rioting over two days in 1998. PTA paid claims in relation to each of the stores and the reinsurers did the same. The defendants claimed the losses should be treated as a single occurrence for the purposes of the retrocession, to which the $5m limit applied.

On a trial of preliminary issues, it was held that the words “per occurrence” were words of aggregation and that the losses did not necessarily constitute more than one occurrence just because they were at different times and in different locations.2 The dissatisfied claimant reinsurer appealed this decision where it was held:

  • in relation to the terms both of the reinsurance and of the retrocession, the word “occurrence” was not meant to cover more than one location. The very fact that the stores that were the subject of the insurance were at different locations indicated that the word “occurrence” was not intended to have the consequences that the defendant was trying to suggest; and

  • the word “occurrence” was not to be given a wide interpretation. The losses in this case were caused by rioters over a large area and at different locations over a couple of days. In the absence of either unity of time or unity of place, it was difficult to see how damage caused in such a way could ever be attributed to a single “occurrence”.

    As a practical observation, had there been a flood or earthquake, the retrocessionaire would have been entitled to aggregate the losses under an express policy term. Had the retrocessionaire wished to achieve the result, clearer language was needed (which appears rather self-evident in this case).

    The problems surrounding what constituted an “occurrence” were revisited in October in Lloyds TSB General Insurance Holdings Ltd & Others v Lloyds Bank Group Insurance Co Ltd.3

    The insured was involved in providing personal pension plans to members of the public. Many investors made claims against the insured alleging that they had not been given the best advice and had been wrongly advised to take out personal pension plans rather than to remain in or join their occupational schemes. The insured in turn sought to recover under insurance policies issued by its insurers. These policies contained a deductible set at £1m or £2m, an amount considerably in excess of the individual investors' claims, most of which did not exceed £15,000. For the purposes of the policy deductible, a series of third party claims arising from a single act or omission, or from a series of related acts or omissions should be considered as a single claim. Thus, the insured argued that the investors' claims all resulted from its failure to properly train and equip its sales staff to give best advice. Insurers argued that the investors' claims all resulted from unrelated failures by the sales staff to give the best advice in each case. Accordingly, the issue before the court was to decide whether the investors' claims should be aggregated so as to be subject to a single deductible.

    The court held that the claims resulted from a single act or omission of the insured's management, or from a related series of acts or omissions. They were, therefore, considered to be a single third party claim, subject to a single deductible, and the claims resulted from a failure on the part of the management to provide the training required to enable representatives to give proper advice. Unless a policy provided otherwise, it was presumed that insurance was intended to provide cover where an insured peril was the dominant, efficient or real cause of the loss and not otherwise.

    It appears that the court took a fairly common-sense approach to interpreting the policy wording in this case. It was certainly not swayed by the technical arguments put forward. Given that the claims all appear on their faces to relate to the same course of mis-selling, it does not come as much of a surprise that the court was inclined to aggregate the claims and thereby bring the level of claims above the level at which the deductible was set.


    In a judgment which had its genesis in the judicial debate on “occurrences” and “events”, the Court of Appeal revisited an old favourite, Kuwait Airways Corp v Kuwait Insurance Co4. All followers of the Kuwaiti litigation will know that KIC insured the national airline of Kuwait, KAC, against war risks. When Iraq invaded Kuwait it removed aircraft belonging to KAC together with spares and equipment. The insurance cover limit was US$150m for spares and equipment and US$300m for aircraft. KAC made a claim under the policy and eventually brought proceedings against KIC, successfully obtaining summary judgment and an interim award of US$150m in relation to the claim for spares and equipment. The argument here was how to determine the extent and amount of interest payable on the award.

    KAC submitted that interest should be awarded from the date of the invasion, as this was the date on which the cause of action arose. On a basic analysis this would be correct. After all, when a loss occurs under a policy this gives rise to the right to be indemnified (i.e. payment of damages). Thus, late payment of insurance monies will attract interest and here KAC claimed that the rate should be set at 1% above US prime rate. KIC argued that interest should run from the first date on which full particulars of the alleged losses were submitted to it. As regards the rate, it argued that the appropriate rate of interest was 0.5% above US six-month LIBOR5.

    It was held by the court, giving judgment for KAC, that interest should generally be payable from the date that the cause of action arose and so, in indemnity insurance, the date of loss, as it was from this date that the insured was deprived of the money to which it was entitled. In the circumstances it was not appropriate to impose a start date as the date from which the insurer would “honestly and reasonably pay” although, depending on the unique facts of each case, such considerations could be brought into account. Whilst the basic legal analysis accepts that interest should run immediately, the practicalities are such that insurers should be given a realistic period to investigate the matter. Where, for example, the insurers rejected the claim, one could conclude that they had sufficient information to come to this conclusion. Nevertheless, it is salutary to note that late payment, whilst not giving rise to a claim in damages, will still attract interest, which, given the sums involved in the Kuwait case, will be significant and will be in addition to the limits of liability.

    Back to back

    The familiar chestnut of what constitutes “back to back” insurance and the perils in local jurisdictions was addressed in Groupama Navigation et Transports & Others v Catatumbo Seguros.6

    The defendants, Venezuelan insurers, provided cover for a fleet of vessels on terms which included a guarantee of maintenance of class according to the standards and rules of the American Bureau of Shipping. Facultative reinsurance was obtained from the London market. The reinsurance slip provided that all terms, clauses, conditions and warranties were to be “as original” and also contained a warranty that existing class would be maintained.

    Two of the vessels in the fleet were subsequently damaged in a storm and the insured made a claim. An investigation of the matter revealed that the ships in question were not classed. The defendants were inclined to pay the claim as, under Venezuelan law, the cover was unlikely to be affected by the breach of warranty as it did not cause the loss.

    The reinsurers sought a negative declaration in the English court that they were not liable on the basis that they were discharged by breach of warranty in the reinsurance. As a preliminary issue, it was held that the reinsurance was “back to back” with the insurance cover and that the warranty as to class in the reinsurance was to be construed as co-extensive with the warranty in the original insurance.7

    The reinsurers appealed. On appeal it was held that in the case of proportionate reinsurance, in the absence of clear words to the contrary, the scope and nature of the cover provided was the same as the cover provided by the insurance, in accordance with the ruling in Vesta v Butcher. The differences in wording between the warranties in the insurance and the warranties in the reinsurance slip were insignificant and, therefore, reinsurers would not be liable unless the breach of warranty was the cause of the loss, as Venezuelan law provided.

    Ever since Vesta v Butcher, reinsurers not taking account of the underlying jurisdiction and the ramifications of the application of local laws do so at their peril. It often comes as a nasty surprise to reinsurers where local laws can, for example, change the fundamental nature of the policy. The use of the term “as original” has returned to haunt many a reinsurance underwriter.

    It can be seen from this brief (and highly selective) review that the same issues continue to recur, notwithstanding judicial pronouncements going back a

    significant time.


    1 Mann & Another v Lexington Insurance Co [2000] CLC 1409

    2 The judge also held that there would be a trial to determine whether there was one riot or several.

    3 QBD (Commercial Court) 5.10.00 New Law Online.

    4 QBD (Commercial Court) 19.4.00 New Law Online.

    5 As regards the interest rate, it was held that there was no reason to depart from the established principle that interest should be awarded at 1% above base rate, the analogous rate being US prime rate without addition.

    6 [2000] 2 Lloyd's Rep 350

    7 After Vesta v Butcher [1989] AC 852.

    John Barlow is a partner in Denton Wilde Sapte's Insurance and Reinsurance Group. His principal area of expertise is the insurance/reinsurance of financial institutions. He has extensive experience in dealing with disputes involving commercial crime bonds, D&O and credit indemnity policies. He also advises the London financial institutions insurance market on the development of new products.