9/11 Reinsurance Aggregation: When do losses arise from one event?

The prevalence of reinsurance arbitrations means that relatively few decisions on the construction of aggregation clauses come for decision before the courts.  Aggregation remains a major issue in settlement of insurance and reinsurance claims and so judicial guidance on the meaning and application of common clauses is always welcome.  Andrew Burns QC examines the latest judgment from the Commercial Court.

The dispute in Simmonds (Lloyd’s Syndicate 994) v Gammell (Lloyd’s Syndicate 102) [2016] EWHC  2515 (Comm) was between two Lloyd’s Syndicates participating in an excess liability insurance programme for the Port of New York at the time of the 9/11 attacks.  The issue was whether respiratory claims made against the Port of New York following the attacks on the World Trade Centre were to be aggregated as losses ‘arising from’ that ‘event’.

After the WTC attacks, there was a massive clear-up operation by the Port of New York which owned the WTC site.  As a result 10,000 police officers, firefighters, rescuers and construction workers made respiratory disease and injury claims alleging that they had been negligently exposed to the dust without proper protective equipment. 

In order to claim the loss had to exceed the reinsurance excess of US$1 million “each and every loss” at which point there was a limit of indemnity of US$1.5 million available to the reinsured.  Loss was defined as “loss, damage, liability or expense or a series thereof arising from one event.”  If the respiratory claims could be aggregated as one loss then the reinsurers became liable.

When reinsurers refused to pay, the matter was referred to arbitration to examine whether there was a significant causal connection between the respiratory claims and the WTC attacks so that they could be said to arise from one event within the meaning of the policy.  The market arbitrators, by a majority, decided that the losses did arise from the WTC attacks and could be aggregated.  The reinsurers appealed with permission to the Commercial Court.

Sir Jeremy Cooke looked at whether the arbitrators had correctly applied the law as explained in Caudle v Sharp [1995] LRLR 433, KAC v KIC [1996] 1 Lloyd’s Rep 664 (including the unities guidelines) and Scott v Copenhagen Reinsurance [2003] Lloyd’s Rep 696 on the meaning of “arising from”.  He also had regard to the classic definition of ‘event’ by the House of Lords in Axa v Field [1996] 1 WLR 1027 (“… an event is something which happens at a particular time, at a particular place, in a particular way”).  He noted that (from the perspective of an informed observer) there must be a common factor which could properly be described as an event, such event must satisfy the test of causation and not be too remote for the purposes of the insurance.

The reinsurers argued that the arbitrators erred in failing to find that it was the negligence that was the common factor in the respiratory claims, not the WTC attacks.  The Court dismissed this referring to Caudle for the proposition that the arbitrators were looking for a ‘significant’ causative link and not the proximate cause.

Sir Jeremy Cooke relied on the test for arbitration appeals in The Chrysalis [1983] 1 Lloyd’s Rep 503 noting that arbitrators had to ascertain the facts, ascertain the law and then reach a decision which normally involved an exercise of judgment, with an appeal only lying against the second stage.  Only if the arbitrators had applied the wrong test in law or had reached a conclusion that no reasonable arbitrator properly directed could reach could the Commercial Court interfere.

He held that not only was the award a non-perverse exercise of judgment, but it was “obvious” that the dust which was inhaled by the respiratory claimants resulted from the attack and destruction of the WTC.  The reinsurers’ suggestion that in a liability policy the causative act for the purposes of aggregation must be an event involving or connected to the negligence which gave rise to the liability was rejected.  The ‘event’ was the WTC attacks.  That may have been completely disassociated from the negligence, but was still an event from which the losses arose, in the sense that there was a significant link between the WTC attack and the dust from it which caused the respiratory injuries.

The decision reminds us that aggregation clauses which use the words “arising from” look for a causal link which is wider and looser than the proximate cause, but which must still be a significant link in order to avoid being too remote.  If a remote or weak causal link was sufficient then aggregation clauses would be meaningless because everything could be aggregated - there would always be some event (e.g. the ice age) from which a chain of events, occurrences or losses originally arose.   However where an event has some causal link to the eventual losses, which cannot be dismissed as insignificant or irrelevant, then that ‘significant’ causal link is sufficient to aggregate losses under an ‘arising from’ insurance or reinsurance wording.

Andrew Burns QC appeared for the reinsured, Lloyd’s Syndicate 102, instructed by DLA Piper.

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