Court of Appeal examines aggregation issues in insurance contracts in England and Wales

An important component of any insurance policy is the aggregation clause that governs whether underlying losses are grouped together to form a single claim.

Aggregation clauses are crucial in determining how many deductibles will be applied to any claim and the available limit of liability. There has been a renewed focus on their interpretation in cases arising out of the recent Covid-19 pandemic.

The most recent decision on aggregation clauses has been the Court of Appeal's ruling in Various Eateries Trading Ltd v Allianz Insurance Plc.

Business interruption dispute

The claimant is the operator of a chain of Italian restaurants which were forced to close during the Covid-19 pandemic. The claimant sought to recover under its business interruption (BI) insurance policy issued by the defendant insurer.

The claimant alleged that it had suffered BI loss of more than £16 million as result of the closure of its restaurants. One of the issues in the case was whether these losses should be aggregated under the policy. If the losses were aggregated, the claimant would recover only £2.5 million under the policy.

The aggregation clause in the policy aggregated losses "that arise from, are attributable to or are in connection with a single occurrence”. The judge, at first instance, found that the initial outbreak of Covid-19 in China was a single occurrence that was too remote a cause to be relevant. Accordingly, the insured's losses (of around £16 million) could not be aggregated to reduce the payout under the policy to £2.5 million.

The Court of Appeal's decision

The Court of Appeal rejected the insurers' appeal making the following points:

• Whether a cause of loss is too remote to allow it to aggregate depends on the causal link required by the insurance policy. "Arising from" and "attributable to" require a significant causal link but only a weak causal link is needed for "in connection with".
• As a guideline but not a rule, if the occurrence of the loss depends on a series of contingencies, which may or may not occur after an event, that may suggest that the event is too remote from the loss.

Here, the outbreak in China had a sufficient causal relationship to the insured's losses to satisfy the loose causal requirement. However, the judge had been entitled to conclude (and the Court of Appeal agreed) that the outbreak was too remote from the loss.

It was not the initial outbreak that caused the insured's loss but the government's response to the outbreak in the UK and the closure of the insured's restaurants. So, the "loss suffered by [the insured] as a result of the closure of its restaurants was remote in time and place from the initial animal to human infection(s) in Wuhan".

Osborne Clarke comment

The judge in this case had recognised that the application of an aggregation clause can benefit either the insured or the insurer, depending on the of the policy wording and the losses. Accordingly, they are "therefore to be construed in a balanced fashion without a predisposition towards a narrow or a broad interpretation".

This case highlights the importance of focusing not just on the wording of the clause itself but also on the remoteness principle, which imposes a distinct requirement of a lack of remoteness between the aggregating event and the losses.

Here, a large number of intermediate events and occurrences had to take place between the first establishment of Covid-19 in the human population in the China, the spread of the disease to the UK and then the governmental response which then had an affect on the insured's business. As a result, the aggregation clause could not be relied on by the insurers.