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Chapter 8 Legal issues relating to reinsurance 8/13

At first instance, the arbitration award was upheld on the basis that the underwriter’s continuing failure
to take the steps which he should have taken in the circumstances (or ‘blind spot’) was a state of affairs
which amounted to one ‘event’ out of which the losses eventually arose. The Court of Appeal disagreed.
The ‘blind spot’ was not a single event. It was not limited in time nor was it causative of a loss, save on
each of the 32 occasions when the underwriter’s failure manifested itself and his ignorance gave rise to
an occurrence of negligence, which led to a claim and a loss under the original policy.
Evan, LJ, proposed his three-prong test for determining an event:

• a common factor which could properly be described as an ‘event’;
• which satisfied the test of causation; and
• was not too remote for the purposes of the clause.
In Kuwait Airways v. Kuwait Insurance (1996), the loss of 15 aircraft belonging to Kuwait Airways,
following the invasion of Kuwait, was held to be a single event as there was unity of time, location,
cause and intent.

Rix, J, said that:
an ‘occurrence’ (which is not materially different from an event or happening, unless perchance the
contractual context requires some distinction to be made) is not the same as a loss, for one occurrence
may embrace a plurality of losses. Nevertheless, the losses’ circumstances must be scrutinised to see
whether they involve a degree of unity to justify their being described as, or as arising out of, one
occurrence. The matter must be scrutinised from the point of view of an informed observer placed in the
position of the insured…In assessing the degree of unity regard may be had to such factors as cause,
locality and time and the intentions of the human agents.

Later, in Scott v. Copenhagen Re (2002), attempts to aggregate that loss with a British Airways aircraft,
which was grounded on invasion but destroyed during allied bombing the following year, failed on the
basis of lack of unity of time and cause.
In Mann v. Lexington (2001), rioting took place at a number of locations in Indonesia over the course of a
couple of days in May 1998, and it was held that damage to various stores proceeded from separate Reference copy for CII Face to Face Training
occurrences and not from a single occurrence.
In American Centennial v. INSCO (1996), the latter sought to aggregate losses arising from claims against
the auditors, and 14 directors and officers, of a failed US Savings and Loan company (S&L). The collapse
of S&L was held not to be a relevant ‘event’. It was not causative of INSCO’s losses which arose out the
acts or omissions of the auditors, directors and officers, rather than the subsequent collapse of S&L.

In Axa Re v. Field (1996), the main issue was whether ‘one originating cause’ in errors and omissions
policies should be construed as being synonymous with ‘one event’ in an excess of loss reinsurance
contract which potentially responded to losses arising under the original policies.
Lord Mustill observed that:

in ordinary speech, an event is something which happens at a particular time, at a particular place, in a Chapter
particular way… A cause to my mind is something altogether less constricted. It can be a continuing state 8
of affairs; it can be an absence of something happening.

In summary, the meaning of event or occurrence is as follows:
• A unifying factor allowing a number of individual losses to be aggregated and treated as a single
happening.
• An event is what has happened as opposed to the reason for what has happened. It is something that
happens in a particular time, at a particular place and in a particular way.
• The individual losses must be sufficiently closely connected to the event by reference to the unities of
time, locality, cause and motive.
• The individual losses must have a causal connection to and must not be too remote from the
aggregating event.
• The assessment is objective, to be made from the perspective of the informed observer and is a matter
of intuition and common sense.
Before leaving this section, we should mention ‘sole judge’ clause as another route to aggregation in
which the reinsured reserves the right to decide, or is expressed as the sole judge, as to what
constitutes, for example, each and every loss and/or one event.