One or many?

One or many?

Interpretation of aggregation clauses in liability insurance policies is a tricky subject.?At times, the legal interpretation swings in favour of the insurer and at other times it goes in favour of the insured.?

The following are two cases where interpretation of aggregation clause in the policy was done in a court of law.?

  1. Baines v Dixon Coles & Gill (DCG). . Click here for my LinkedIn post on this case.?
  2. Spire Healthcare v Royal & Sun Alliance : Here are the links to the Article & Judgement?

Case 1 went in favour of the insured where the court held that the events or acts were “unrelated” so aggregation did not apply and therefore cumulative limit for single claim was also not applicable. There was no unifying factor between the acts eventhough the acts were similar. Similarity does not mean the acts were related.?

Case 2 went in favour of the insurer. In this case, the court held that various acts of misconduct of a medical practitioner have to be aggregated together into one. Differentiation between the acts based on the nature of negligence committed is not warranted since all such acts were committed by the same person.?

Why the divergent decisions in the two cases?

Let’s see the wordings of the aggregation clause used in the insurance contracts:?

Case 1:?

All Claims against any one or more Insured arising from:

  1. one act or omission;
  2. one series of related acts or omissions;
  3. the same act or omission in a series of related matters or transactions;
  4. similar acts or omissions in a series of related matters or transactions;

will be regarded as one Claim.

Case 2:?

The total amount payable by the Insurer in respect of all damages costs and expenses arising out of all claims during any Period of Insurance consequent on or attributable to one source or original cause irrespective of the number of Persons Entitled to Indemnity having a claim under the Policy consequent on or attributable to that one source or original cause shall not exceed the Limit of Indemnity stated in the Schedule.

Now, the following is my theory around this.?

The construction of the aggregation clause in Case 1 is based on the “act or omission”. Event, occurrence, act or action are all words describing WHAT HAS HAPPENED. So there is a need to establish a relationship between the events for them to be aggregated.?

However, in Case 2, the aggregation clause is constructed on the basis of “source or original cause”. The question is WHY and not WHAT HAS HAPPENED. So the aggregation is underpinned not by the occurrence or the event, but the reason for such an event or occurrence. As long as the causation is same or similar, the events will be unified for aggregation purposes.?

So do cause based aggregation clauses work better than event based clauses? Tell me what you think.

Narendra Babu

Regional Underwriting Head at The New India Assurance Co. Ltd.

3 年

Whether we choose the cause based or event based approach the impact will be on rhe type of policy. In a CGL policy the event based approach will lead aggregation of limits. In a policy like a product liability policy the cause based approach will lead to more aggregation of limits as liabilities from a particular defect will aggregate into one claim.? In an Employer's Liability policy, both accidents as well as intermittent exposure are covered. Aggregation might be possible in both the cases. The insurer may not have a choice of either of the two as the intermediary may develop a hybrid wording incorporating the features of both the wordings which may be favourable to the insured.? The underwriting caveats for the insurer will be to impose an annual limit and an anti stacking clause.?

Ritvik Srivastava

Senior Manager Financial Lines Business | Post Graduation in Insurance Business Management

3 年

Dear Sir, can we say here that the causa proxima principle is more by the book or the rule applied here in the second case study as the why is being duly identified and then the series of chain of events and the why which is the dominant effect has been given the due consideration it ought to have. I guess the why theory works because the main thread if we pull the rest of the pieces will fall into their places and we can see the single or individual cause and effect of such instances that has resulted in the claims

S N Roy

Senior Corporate Trainer, Independent Director, Rainmaker, International Consultant, Subject Matter Expert, Author

3 年

Cause-based analysis works for the insurer. Incidentally, through oversight, in the first para, you have mentioned insurer and insurer, instead of insured and insurer. Please edit.

Ayushman Banerjee

Relationship Manager at United India Insurance Co. Ltd.

3 年

Cause based analysis is preferable as Insurance is all about case to case analysis..

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