Aggregation of losses - construing (re)insurance policies

Summary

In WRBC Corporate Member Ltd v AXA XL Syndicate Ltd & Ors, the court considered reinsurance treaty wording and held that, properly construed in the context of aggregation wording, “event” meant the measures taken by the authorities which caused the losses by requiring the cancellation of conferences and similar events during the Covid pandemic.

Background

WRBC Corporate Member Ltd (WRBC) was reinsured for six classes of business, including contingency cover, under two multi-line excess of loss reinsurance treaties (the Treaties). WRBC had settled claims by its insureds in multiple jurisdictions (a number of US states and the UK) relating to events (such as conferences and exhibitions) which had been cancelled because of measures imposed by the relevant authorities during the Covid pandemic. WRBC sought to recover, under the contingency cover, a total of 174 individual losses.

The Treaties, with materially identical wording, limited cover to “each and every loss, any one risk, or each and every loss or series of losses arising out of one event” in excess of US$1m. A dispute arose as to how this provision should be construed for the application of the deductible, and as to the scope of aggregation.

WRBC’s position was that the relevant “event” was the relevant measure - or group of measures - taken in each jurisdiction that caused the underlying conferences etc. to be cancelled. On that basis, losses within each jurisdiction aggregated and exceeded the US$1m deductible.

By contrast, Reinsurers argued that the word “event” in the phrase “arising out of one event” was not a causative event (such as a Covid-related measure which restricted or prohibited large gatherings) but, instead, imported the definition of “Any One Event” (AOE) contained in the Class Definition section of the Treaties for contingency cover, namely: “any one Conference or Exhibition or convention or any other ‘Event’ accepted by the Reinsured including the period of installation or dismantling and arrangements directly connected with the ‘Event’”. This would mean that “event” in the limits clause meant the cancellation of each individual conference, and, without aggregation, that most of the 174 losses would not exceed the US$1m deductible.

Approach to construction

The court first had to construe the limits clause and determine the meaning of “event”.

On both a textual and a contextual analysis, the court preferred WRBC’s construction, holding that “event” in the limits clause meant the event which caused the relevant losses rather than importing the AOE definition. The causative event would therefore be the relevant measure, or group of measures, taken in each jurisdiction which caused the underlying conferences (etc.) to be cancelled.

The principles

Starting with the essential principles from the Supreme Court’s decision in the FCA Test Case, the court noted that its task was to identify the objective meaning “by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean”. As the parties advanced competing constructions of the Treaty wording, the court also noted the following points from the authorities:

• where the wording is unambiguous the court should apply the clear language without invoking commercial common sense retrospectively;
• where a contract adopts clauses from other contracts without ensuring consistent use (as is common in insurance - so called “pick and mix” drafting), definitions in one part of the policy will not necessarily apply elsewhere;
• the history of a contract may form part of the factual matrix for construing its terms; and
• a corrective construction is appropriate only where the language is otherwise clear and the issue is whether the parties could really have intended the consequences of that language.

A textual analysis

Even without recourse to contextual matters, Waksman J held that WRBC’s interpretation of the word “event” was “clearly to be preferred” - i.e., “event” referred to a “causal event leading to the losses claimed”. The court’s reasoning included that:

• the limits clause did not use the defined term AOE, nor were the words “one event” capitalised;
• there were some types of contingencies for which applying the AOE definition to the limits would make no sense;
• while the limits clause expressly referred to the definitions section for “risk” (the “Any One Risk” definition), it did not do so for “event”; and
• “Arising out of one event” is a very familiar expression in contracts of (re)insurance (there is a wealth of case law that deals with this point) and it was used for all of the six classes of business reinsured. Even on reinsurers’ case, “event” was to be used “in its normal causal sense” for the other classes of business reinsured. Given this extensive use of “event” in a causal sense—especially with the words “arising out of”—no specific definition was required elsewhere: “the fact that there is elsewhere an expression using the word ‘event’ does not negate the ‘potency’ of the expression in its usual causal form”.

In context

That conclusion was supported by the wider context. The court reviewed documents and witness evidence concerning the history, form and content of the Treaties from 2015 onwards. In the Treaties’ previous wordings, placing submissions and other communications, the court found extensive support for the view that “event”, as used in the limits clause, meant a causative event.

The court rejected the submission that the corrective principle should apply because the AOE definition had been carried over from earlier Treaty wordings in error: it was not clear and unambiguous that the AOE definition was intended to govern the limits clause.

Aggregation

The court was then asked to consider whether each loss (i) arose “out of one event”; and (ii) could be aggregated for the purposes of the deductible. WRBC sought to argue that there was one aggregating event (i.e. announcement or restrictive measures, some in combination) per jurisdiction.

It was common ground that, in principle, a measure affecting the viability of a conference or other event insured by WRBC within its contingency business could constitute an “event” for aggregation under the limits clause.

The parties also agreed, in the light of relevant case-law, that:

1. there must be a “significant”, rather than merely “weak”, causal connection between the event and the cancellation giving rise to the loss;

2. the event need not be the only or proximate cause; and

3. it must be shown both that the necessary causal link exists and that the event is not too remote from the cancellation.

Referring to a body of authority, the court noted that where the unifying factor is an “occurrence” (largely synonymous with “event”), the courts will consider the degree of unity “in relation to cause, locality, time, and, if initiated by human action, the circumstances and purposes of the persons responsible” from the perspective of an “informed observer in the position of the insured” (Various Eateries, Scott v Copenhagen).

The court recognised that a number of measures may collectively constitute a single occurrence or event (Stonegate) but noted that it “depends on the nature of those measures and their factual context”. Also noting that the measure which immediately precedes the relevant cancellation is not necessarily the event which caused it, the court considered the nature and sequence of the measures taken by the authorities and the causal link for each jurisdiction. Where an insured or loss adjuster had referred to a particular measure, that was seen as a “strong pointer” as to whether that measure was an “effective cause”.

For losses incurred in England, the court followed Butcher J’s findings in Stonegate, holding that each of the measures relied on by WRBC (from the 16 March COBRA meeting and government announcement to the 26 March Health Protection (Coronavirus, Restrictions) (England) Regulations 2020) constituted a single aggregating event; each measure was to be treated as a single “occurrence”, albeit taking place in quick succession.

The court then reviewed the claims and identified the effective cause of cancellation in each case, rejecting losses where it was clear from the documents that the effective cause was something other than Covid restrictions. The vast majority of the 174 claims were allowed, most of which aggregated with other claims in the same jurisdiction.

Commentary

This decision provides us with another useful summary of the law as it relates to construction and aggregation in insurance contracts, this time in a reinsurance context. The court considered a range of relevant authority, including the series of Covid BI decisions that have preceded it (as considered in, for example, our reviews of insurance law developments during 2023, 2024 and 2025), and noted that the phrase “arising out of one event” is “a classic term for aggregation of losses by reference to the cause of the losses” (citing Popplewell J in Sky UK Limited v Riverstone). It remains to be seen whether either party will appeal this decision, so we will monitor developments with interest.