Why aggregation matters in insurance contracts in England and Wales

An important component of any insurance policy is the aggregation clause which 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 the interpretation of such clauses in cases arising out of the recent Covid-19 pandemic.

The most recent case to look at this issue is World Challenge Expeditions Limited v Zurich Insurance (2023).

The aggregate clause in the policy

The insured is a travel company which had a statutory obligation to refund the customer in full when it cancelled trips following the imposition of travel restrictions at the start of the pandemic. As a result, it repaid more than £10 million to customers and sought to recover this amount from its insurers.

The policy had a cancellation sub-limit of £100,000 "for loss and expense arising out of any one event", with "event" being defined as a "sudden, unforeseen and identifiable occurrence" with provision for separate occurrences to be treated as a single occurrence where they arose from or were attributable to one source or original cause and occurred within a 10 mile radius and 72 hours of that source/cause.

The insured argued that the multiple refunds to customers should not be aggregated – and so the £100,000 limit did not apply – because these were all separate occurrences which did not fall within the policy definition of an "event".

The ruling

Dias J, referring to other recent decisions which have arisen in the wake of the pandemic, summarised the law on aggregation for policies containing "event" and "occurrence" aggregation language, as follows:

• When deciding if there has been an event (or occurrence), it is important to look at matters from the perspective of "an informed observer in the position of the insured".
• The so-called "four unities" identified in previous case law regarding event/occurrence aggregation (which take into account a unity of intent, cause, timing and location in order to determine whether there has been one event/occurrence) should not be applied mechanistically.
• Ultimately, the question is one of "judgment based on all the relevant facts and the purpose of the clause".

The meaning of an event was narrower here than normal because of the added definition which referred to the need for it to be "sudden" and "unforeseen". The multiple decisions to cancel did not meet that criteria on the facts of the case: they were arrived at over a period of time, taking into account a number of interrelated factors and were not based on any particular travel restrictions at the time. Furthermore, a plan or decision cannot amount to an event or occurrence.

Osborne Clarke comment

Although the decision in this case went in favour of the insured, it is not necessarily a "pro-insured" decision. There will be times when an insured will want to argue that an aggregating event has occurred: for example, where it wishes a deductible only to be applied once.

Conversely, an insurer may not want to argue that an aggregating event has occurred, where, for example, multiple losses below a deductible limit arise.

While there is now considerable case law on the issue of aggregation, this case is also a reminder that the question will often be case-specific and turn on the individual facts. 

It is also a reminder that, while there is considerable law around specific aggregation terminology, such as event, occurrence and originating cause, those rules may be modified by the specific provisions of the policy.