“One event or two?” What is the proper construction of the phrase “arising from one event” within the aggregation clause in a reinsurance contract?

Re MIC Simmonds v. AJ Gammell

The commercial court upheld an arbitration award and concluded that the arbitrators had correctly applied the test for the interpretation of an aggregation clause. The arbitrators had to decide what was the proper construction of the phrase “arising from one event” within the aggregation clause in a reinsurance contract.

The facts
The dispute centred around on whether or not claims made against the Port of New York (PONY) following the attacks on the World Trade Centre (WTC) were to be aggregated as liabilities arising from that event. The allegation was that PONY had failed to provide adequate protective equipment to around 10,000 rescue workers in the course of the clean-up operation causing respiratory conditions. The claims were settled and a claim was made on the excess of loss reinsurance programme.

The dispute
The arbitrators found that reinsurers were liable to indemnify the loss as the policy provided for cover for “loss, damage, liability or expense or a series thereof arising from one event”. As all claims could be aggregated together as losses or liabilities arising from one event, namely the attacks on the WTC which caused the destruction of the twin towers. The appellants argued that it did not. The argument was this: where the insured’s liability arises as a result of a continuing state of affairs, was this to be treated as a single event of negligence or does the relevant event only arise when the harm giving rise to the insured’s liability occurs? The appellants argued:

1. The failure to provide adequate protective equipment did not constitute one event, in other words, the attack on the WTC which was disassociated form the negligence which gave rise to the underlying claims could not be a single event for the purposes of the aggregation clause.
2. The respiratory claims arose from a continuing failure and there were therefore many events.
3. The attacks on the WTC were too remote to constitute an event.

Judgment
The court reviewed the relevant authorities and affirmed:

There are three requirements for a “relevant event” when considering a “series of losses and / or occurrences arising out of one event” for the purposes of aggregation, namely that:

1. there is a common factor which could properly be described as an event;
2. the event satisfies the test of causation;
3. it is not too remote.

The court agreed with the arbitrators that:

• The event in question here was identified as the attack on the WTC so the issue was whether the losses or liabilities arose from it.
• There was a sufficiently causal connection between the attack on the WTC and the losses that justified aggregation.
• The test is much less strict than that for a proximate cause. Here, although the attack on the WTC may not have been a proximate cause of the respiratory attacks, the causal link between them was clear and obvious, namely the link between the attacks and the inhalation of harmful and toxic dust.

Good news for policy holders? Yes, the court has taken a common sense approach in finding that the attacks on the WTC and the subsequent clean-up operation, was part and parcel of the same event for insurance purposes.

Pauline Rozario is a Consultant at Fenchurch Law.