As clear as mud: interpreting judicial guidance of aggregation clauses
The Commercial Court decision in Simmons v Gammell has offered fresh insight into the issue of aggregation.
Claims were brought by employees of the Port Authority of New York, the owners of the World Trade Center. The employees’ claims arose out of injuries or respiratory damage suffered during the clean-up of the 9/11 attacks, arguing that the port authority was negligent in failing to provide adequate equipment or training. This decision refers to a dispute between the port authority’s insurers and its reinsurers.
The policy stated that reinsurers would provide cover for each and every loss in excess of US$1 million, with “loss” defined as “loss, damage, liability or expense or a series thereof arising from one event”.
The reinsured sought to argue that the numerous individual claims were sufficiently linked by the 9/11 attacks as a single “event” to justify aggregation under the reinsurance policy and trigger cover.
The reinsurers’ position was that the attacks were too remote and that the negligence of the port authority constituted a “continuing state of affairs” rather than a single “event”. Accordingly, reinsurers argued that the claims should not aggregate and reinsurance cover was not available.
The dispute went to arbitration, and the arbitrator found in favour of the reinsured. The reinsurers appealed the decision to the Commercial Court. The court rejected the appeal, supporting the arbitrators’ decision that the claims aggregate.
At first blush, the court’s decision contradicts the same court’s decision in AIOI v Heraldglen . That case concerned very similar facts and policy wording in 2013 – in this case, the definition of loss was “each and every loss or accident or occurrence or series thereof arising out of one event”. AIOI concerned a whole account aviation catastrophe excess-of-loss reinsurance contract. The Commercial Court upheld the arbitrators’ decision that the 9/11 attacks should be considered two separate occurrences arising out of two separate events for the purpose of the reinsurance cover.
Looking at the decisions more closely, they can be distinguished. The cases sound several notes of caution to bear in mind when considering the complex issue of aggregation.
Firstly, these two cases highlight the important point that aggregation is highly fact-specific. In Gammell, it would be impossible to ascertain how or when the employees of the port authority might have first suffered respiratory damage whilst working at Ground Zero (or later), or from which of the two towers the dust that affected them might have originated.
Conversely, the AIOI losses stemmed directly from the two planes that hit the towers, and are therefore more easily distinguishable as two separate events (which is in line with the market’s general approach to claims arising out of the 9/11 attacks).
Secondly, the court was not in either case required to consider the relative merits of the legal arguments presented by the reinsurers or the reinsured. The appeals, under s.69 of the Arbitration Act 1969, merely required the court to decide on the much narrower question of whether the arbitrators had erred in their application of the law.
Thirdly, these two decisions should also be viewed in light of the court’s repeated support of the arbitration process and their reticence to interfere with arbitrators’ decisions.
The lesson to be learned from these cases is that if insurers wish to take a particular position on aggregation then it will be possible to find a judicial decision which supports that position.
Insurers should be aware, however, that an opposing authority also exists which means that the matter is likely to be contested.