1.          Paragraphs (1) and (2): Event, occurrence, catastrophe, disaster, calamity, accident

C1        In the PRICL, the notions of “occurrence”, “catastrophe”, “disaster”, “calamity” and “accident” are equated with the notion of “event” (regarding the term “catastrophe”, cf. UnipolSai Assicurazioni SpA v Covea Ins Plc [2024] EWCA Civ 1110 [129]). For example, whenever a contract refers to the unifying factor of “catastrophe”, which is often the case in Cat XL reinsurance, the parties agree on an aggregation pursuant to paragraph (1). Thus, a natural catastrophe, such as a hurricane, may be considered an event for the purpose of paragraph (1).

2.          Individual losses

C2        Paragraph (1) applies where first-party insurance policies are reinsured. In the context of aggregation of losses, the relevant individual losses to be aggregated are those suffered by the primary insured and not by the reinsured for compensating the primary insured (cf. UnipolSai Assicurazioni SpA v Covea Ins Plc [2024] EWCA Civ 1110 [127]).

C3        Paragraph (2) applies where third-party insurance policies are reinsured. In the context of aggregation of losses, the relevant individual losses to be aggregated are those suffered by the primary insured each time his liability towards a third party is triggered under the governing law and not by the reinsured for compensating the primary insured.

3.          Causation

C4        There must be a causal link between the relevant event on the one hand and any losses to be aggregated on the other (see William 3.38 et seq.). If the parties agree on an aggregation per event, any losses that can be considered a direct consequence of an event are aggregated. This involves a two-step analysis.

C5        First, the relevant event for the aggregation of losses must be determined. Depending on whether first-party (a) or third-party (b) insurance policies are reinsured, the process of determining the relevant event differs. Secondly, each loss must be tested to determine whether it can be considered a “direct consequence” of this event (c).

a.          Paragraph (1): Event – Determination of an instance of materialized peril

C6        In determining the relevant event in cases where first-party insurance policies are reinsured, regard must be had to the purpose and scope of the reinsurance coverage and in particular the perils reinsured against. Under the PRICL, an event is considered to be an instance of materialized peril reinsured against.

C7        In the context of insurance and reinsurance, a peril or risk is the uncertainty arising from the possible occurrence of a given event that may cause injury, loss or destruction (see Glossary of Insurance and Risk Management Terms, International Risk Management Institute Inc under the search term “risk”).

C8        Reinsurance policies regularly specify the perils reinsured against. Depending on the type of reinsurance involved, such perils may include illness, fire, windstorm, tempest, flood, earthquake, hail, terrorist attack and theft.

C9        For natural perils, such as windstorm, tempest, flood, earthquake, hail or illness, it is expedient to resort to scientific data in order to determine the number of instances in which a peril has materialized.

C10     By contrast, in most cases, scientific data will not be available to determine the number of instances a man-made peril has materialized. Whether a man-made peril has materialized in one or multiple separate instances must be determined from the perspective of reasonable parties at the time the scope of coverage – i.e. the perils reinsured against – was negotiated.

Illustration

I1.         Reinsured A takes out reinsurance for a first-party property insurance policy against the peril of windstorm. Two separate named windstorms cause damage to different buildings. Thus, the peril reinsured against materializes in two separate instances, which therefore constitute two separate events.

I2.         Reinsured A takes out reinsurance for a first-party property insurance policy against the peril of snowstorm. Heavy snowfall occurs and causes a “substantial snow accumulation” on the house’s roof. Due to the weight of the ice and snow, a part of the roof collapses on 1 March. On 17 March, another section of the same roof collapses. No new snowfall occurred between 1 and 17 March. The snowstorm can be considered the relevant event. Thus, the peril materializes in one sole instance (facts based on Newmont Mines Ltd v Hanover Ins Co, 748 F2d 127 (2d Cir 1986)).

I3.         Reinsured A takes out aircraft hull reinsurance for a fleet of 22 aircraft against the peril of war. Iraq invades Kuwait and hijacks 15 of the 22 aircraft and flies them to Iraq. In the course of the actions that follow the invasion, some of the aircraft are destroyed. As Iraq’s invasion of Kuwait can be considered an act of war, it marks the relevant event (facts loosely based on Kuwait Airways (No 1) [1996] 1 Lloyd’s Rep 664).

I4.         Reinsured A takes out reinsurance for an aviation hull insurance against the peril of hijacking an airplane. On 11 September 2001, two airplanes are hijacked at different airports and flown into the New York Twin Towers. Thus, the peril insured against (hijacking) materializes in two separate instances. Each hijacking marks a separate event.

I5.         Reinsured A takes out reinsurance for property damage, including insurance against the peril of “an act for terrorist purposes”. On 11 September 2001, two airplanes are hijacked at different airports and flown into the New York Twin Towers. The hijackers did so in execution of a dastardly plot to turn each aircraft into a guided missile, each directed at one of the two signature Towers of a single property complex. It is certainly disputable whether the plot to hijack two aircraft and turn them into guided missiles can be considered one single “act for terrorist purposes”. In fact, the peril of “act for terrorist purposes” is quite openly formulated. If at the time the contract of reinsurance was negotiated, the parties would have considered the happenings in question as one act for terrorist purposes, the attacks would constitute one single event for the purposes of Article 5.2 (facts based on Aioi Nissay Dowa Ins Co Ltd v Heraldglen Ltd [2013] EWHC 154, 21).

C11     If a contract provides for all-risks coverage, the materialization of any unnamed peril that triggers the contract is to be considered a relevant event for the purpose of aggregating losses under paragraph (1). Similarly, in case a contract covers both named and unnamed perils, the materialization of any unnamed peril may constitute the relevant event within the meaning of paragraph (1). In such cases, any losses that directly result from the event furthest in the chain of causation may be aggregated under paragraph (1).

Illustration

I6.         Reinsured A takes out all-risks property reinsurance. An earthquake occurs and causes Losses 1 and 2. At the same time, the earthquake triggers a tsunami which causes Losses 3 and 4.

As no peril is named in the contract, the materialization of any peril is to be considered an event under paragraph (1). Consequently, both the earthquake and the tsunami may constitute events. As the earthquake is the event furthest away from Losses 3 and 4, it is the relevant event for the purpose of aggregation. Consequently, Losses 1 and 2 are to be aggregated with Losses 3 and 4.

b.          Paragraph (2): Event – Act, omission or fact triggering liability

C12     Where third-party liability insurance policies are reinsured, the act, omission or fact for which the primary insured is held liable under the applicable law is deemed the relevant event for the purpose of the aggregation of losses under the PRICL.

Illustrations

I7.         Reinsured A provides professional liability insurance to a managing agent of a syndicate at Lloyd’s. This managing agent underwrites 32 insurance contracts. After discovering that the agent has negligently underwritten these contracts, members of the syndicate bring an action in negligence against the managing agent. Reinsured A indemnifies the managing agent for the losses he incurs due to his legal liability towards the members of the syndicate. A then seeks to recover from its Reinsurer B claims it has met under the original professional liability insurance.

Only the underwriting of each contract in negligence triggers the managing agent’s liability. Thus, each instance of underwriting constitutes a separate event (facts based on Caudle v Sharp [1995] CLC 642 (CA)).

I8.         Reinsured A provides liability insurance to a port. Equipment stored at the port is vandalized through a series of individual acts of pilferage. The owner of the equipment brings an action against the port for not putting in place an adequate system to protect the goods from pilferage and vandalism.

The port’s failure to put in place an adequate system of protection from pilferage and vandalism does not itself trigger its liability. Rather, the port’s liability is triggered with each act of vandalism it fails to avert. Therefore, each failure to adequately avert an act of vandalism constitutes a separate event under the PRICL (facts based on Municipal Mutual Ins Ltd v Sea Ins Co Ltd [1998] CLC 957, 966 et seq.).

I9.         Reinsured A provides professional liability insurance to a wholesaler of birdseed. The latter buys birdseed from his manufacturer. One batch of birdseed is contaminated. The wholesaler sells portions of the contaminated batch to eight different customers, each of whom loses their birds.

The birdseed has not been contaminated by the wholesaler, so the contamination cannot be said to trigger his liability. Rather, it is the sale of the contaminated goods to his customers that triggers his liability. Therefore, each of the eight sales can be considered a separate event under the PRICL (facts based on Maurice Pincoffs Co v St Paul Fire and Marine Ins Co, 447 F2d 204 (5th Cir 1971)).

I10.      Reinsured A provides professional liability insurance to a chemical manufacturer that has operated in locations throughout the US since the early 1900s. In the 1980s, federal, state and local governments, as well as a number of private parties, commenced environmental actions directed at more than 150 of the manufacturer’s plant and disposal sites throughout the country.

The manufacturer’s deficient corporate environmental policy did not itself trigger his liability. Rather, each act of pollution at each different site triggered the manufacturer’s liability. Therefore, each act of pollution constitutes a separate event under the PRICL (facts based on Travelers Cas and Sur Co v Certain Underwriters at Lloyd’s of London, 96 NY2d 583 (NY 2001)).

I11.      Reinsured A provides professional liability insurance to Primary Insured C – an insurance company. Several of Primary Insured C’s underwriters mis-sell pensions for which they are held liable. They are found to have done so due to their lack of proper training.

Primary Insured C and its underwriters did not incur liability until they mis-sold pensions to their customers. Hence, each act of mis-selling is to be considered a separate event. By contrast, the underwriters’ lack of training did not itself trigger their or their employer’s liability and can, thus, not constitute an event for the purposes of paragraph (2) (facts based on Countrywide Assured Group Plc v Marshall [2002] EWHC 2082 (Comm) [13] (Morison J)).

I12.      Reinsured A issues a policy of insurance covering the liabilities of 14 directors, officers and employees of an American financial institution. The institution collapses and a claim is made against all 14 of the directors and officers, each of whom is alleged to be personally liable for negligence or other fault in the handling of the institution’s affairs.

The relevant events are the acts or omissions of the directors, officers and auditors, not the subsequent collapse of the institution. Therefore, it is not possible to aggregate all of the individual losses resulting from the collapse of the institution (facts based on American Centennial Ins Co v INSCO Ltd [1996] WL 1093224).

C13     A primary insured’s omission may only be considered an event if the omission itself directly triggers the primary insured’s liability (pure omission). By contrast, dormant omissions do not themselves trigger the insured’s liability but require some further positive act or event. So long as the negligent individual remains passive, no actionable harm ensues in such cases (Louw & Tompkinson 11).

Illustrations

I13.      A solicitor is required to issue a writ which he fails to do before the deadline. The omission to file the writ itself, without any requirement of positive action, causes the loss. Hence, the solicitor’s failure can be considered a pure omission and is consequently an event according to paragraph (2) (facts based on Forney v Dominion Ins Co Ltd [1969] 1 WLR 928).

I14.      An underwriter underwrites multiple contracts without researching a particular risk. He does not incur any liability for the failure to research the risk. Rather, his state of ignorance becomes relevant only if he undertakes the further positive acts of underwriting the insurance contracts. Thus, the omission to research said risk must be considered a dormant omission which does not amount to an aggregating event (facts based on Caudle v Sharp [1995] CLC 642 (CA) 649). By contrast, each positive act of underwriting a contract is to be considered an event.

C14     Equally, a fact giving rise to the primary insured’s liability can be considered an event. Any happening that directly triggers the primary insured’s liability in the absence of any fault may be considered such a fact.

Illustration

I15.      Without any fault on the part of the driver, one of a car’s tyres blows out, resulting in a multi-person accident on a highway. The materialization of the operational risk of driving a car triggers the car owner’s strict liability. Hence, even in the absence of any negligent act or omission on the part of the driver, the car owner becomes liable to indemnify third parties involved in the accident. For the purposes of aggregating losses, the fact that the accident happened is to be considered the relevant event.

C15     In paragraph (2), it is stated that any act, omission or fact “for which the primary insured is or allegedly is liable” may constitute an event for the purpose of aggregating losses. This clarification ensures that aggregation is possible even where the primary insured’s liability cannot be evidenced by court verdict or arbitral award. In fact, whenever a reinsured incurs liability towards a primary insured, the losses may be aggregated, provided that all the losses fall within the reinsurance cover.

c.          Direct consequence

C16     It is not appropriate to aggregate every loss that arises from the same event. Rather, losses are to be aggregated only if they are a direct consequence of the relevant event, i.e. an instance of materialized peril reinsured against or an act, omission or fact triggering liability.

C17     Therefore, the test under the PRICL is whether the causal link between the event and the individual losses is sufficiently strong for the losses to be considered the event’s direct consequences. The notion of “direct consequence” under the PRICL is not to be conflated with the concept of a proximate or efficient cause under English or US law.

C18     A loss may be considered an event’s direct consequence if it can be regarded as an inevitable result of the relevant aggregating event. A loss may not be considered the direct consequence of the relevant event if an independent, intervening factor decisively contributes to the occurrence of the loss, thereby breaking the chain of causation.

C19     This does not, however, mean that the relevant event, i.e. an instance of materialized peril or an act, omission or fact triggering liability, is necessarily the last happening immediately preceding the occurrence of the loss. Rather, an event may lead to a further happening which then results in losses. If an event inevitably results in a further happening (which may, but need not, constitute the materialization of another peril reinsured against), then any individual losses which result directly therefrom shall be deemed to have arisen directly from the aggregating event. The reason for this is that the chain of causation between the event and the losses remains unbroken.

Illustration

I16.      Reinsured A takes out reinsurance for a first-party property insurance policy against the perils of earthquake and tsunami. An earthquake occurs and causes Losses 1 and 2. At the same time, a tsunami is triggered by the earthquake. Losses 3 and 4 arise from the tsunami.

Each loss must be tested individually. In particular, it must be determined whether Losses 1–4 can be considered direct consequences of the relevant event, i.e. the earthquake. Losses 1 and 2 occurred due to the earthquake, whereas Losses 3 and 4 resulted from the tsunami which, in turn, was triggered by the earthquake.

As the tsunami was an inevitable consequence of the earthquake, Losses 3 and 4 may be considered direct consequences of the earthquake. Hence, Losses 1–4 are to be aggregated, even though the earthquake did not immediately precede Losses 3 and 4.

C20     The chain of causation between the relevant event and a loss can be considered broken if there is a decisive intervening factor. This factor must be independent of the relevant event, i.e. the materialization of the peril reinsured against (paragraph (1)) or the act, omission or fact triggering liability (paragraph (2)). Such a factor may take the form of an omission to prevent the event by a person who was under a duty of care to avert the resulting losses. In such a case, the test is whether the losses would not have occurred, had the person acted in compliance with their duties (conditio cum qua non). Such an omission may occur before or after the relevant event.

Illustrations

I17.      Reinsured A takes out reinsurance for a first-party property insurance policy against the perils of earthquake and fire. An earthquake occurs and causes Losses 1 and 2. At the same time, a tsunami is triggered by the earthquake and results in a short circuit because the electric cables have not been insulated according to the standards required. The short circuit causes a fire from which Losses 3 and 4 arise.

The lack of proper insulation of the electric cables can be considered an intervening factor sufficient to break the chain of causation. Losses 3 and 4 cannot be considered direct consequences of the earthquake. Thus, Losses 3 and 4 are not to be aggregated with Losses 1 and 2.

I18.      Reinsured A takes out reinsurance for a first-party property insurance policy against the perils of earthquake and fire. An earthquake occurs and causes Losses 1 and 2. At the same time, a tsunami is triggered by the earthquake and results in a short circuit. All of the electric cables had been insulated in accordance with the standards required but broke as a result of the earthquake. The short circuit results in a fire which causes Losses 3 and 4.

As the short circuit and the resulting fire can be considered inevitable consequences of the earthquake and the tsunami, neither can be considered a decisive intervening factor. Losses 3 and 4 are to be aggregated with Losses 1 and 2.

I19.      Primary Insured C negligently injures a company’s Director D who must subsequently be hospitalized. Treatment costs result in Loss 1. Due to the absence of Director D, Deputy Director E is in charge. The latter makes some unfortunate decisions which result in Losses 2 and 3.

The company is under a duty to organize its affairs appropriately. It is under a specific duty to ensure that the company is able to operate in case of Director D’s absence. Thus, the company’s failure to hire a capable deputy director can be considered an intervening factor sufficient to break the chain of causation. Losses 2 and 3 cannot be considered the direct consequence of the Primary Insured C’s negligent act. Thus, Losses 2 and 3 are not to be aggregated with Loss 1.

I20.      Reinsured A takes out reinsurance for a landowner’s third-party liability insurance policy. An airplane flies into a building, thereby injuring some of the landowner’s employees (Losses 1–10; workers’ compensation claims) for which the primary insured becomes liable. In the time after the accident, there is a massive clean-up operation by the landowner. Evidence shows that the clean-up workers have been negligently exposed to asbestos during the clean-up operations. The workers’ exposure resulted in Losses 11–50 for which the primary insured is equally liable (respiratory claims). Consequently, the landowner is liable for Losses 1–50.

The respiratory losses did not arise from the same event as the workers’ compensation claims, i.e. the airplane accident. This is so because the landowner is under a duty of care to protect the clean-up workers from injuries by providing them with adequate protective equipment. The landowner’s failure to provide such protection can be considered an intervening factor sufficient to break the chain of causation between the airplane accident and respiratory claims. Therefore, the workers’ compensation claims are not to be aggregated with the respiratory claims (facts based on Simmonds (Lloyd's Syndicate 994) v Gammell (Lloyd’s Syndicate 102) [2016] EWHC 2515 (Comm)).

C21     Similarly, an intervening factor sufficient to break the chain of causation may be constituted in a happening which occurs independently of the event reinsured against and which inevitably results in the corresponding losses (conditio sine qua non). Such a happening may occur before or after the relevant event.

Illustrations

I21.      Reinsured A takes out all-risks reinsurance for a first-party property insurance policy. A bushfire spreads and causes Losses 1 and 2. At the same time, it destroys vegetation on a slope so that the ground is unable to absorb larger amounts of water. Eight months later, during extraordinarily heavy rainfalls, a landslide occurs, resulting in Losses 3 and 4.

The materialization of the peril of fire constitutes the event within the meaning of paragraph (1). Losses 3 and 4 occurred due to a combination of the destroyed vegetation and the heavy rain. The bushfire alone would not have caused Losses 3 and 4, which means that the instance of heavy rain may be considered a decisive intervening factor independent of the relevant event. Therefore, Losses 3 and 4 are not to be aggregated with Losses 1 and 2.

I22.      Reinsured A takes out all-risks reinsurance for a first-party property insurance policy. A vessel spills a significant amount of oil into the sea near the coast. Some days later, a windstorm occurs, blowing some of the spilled oil into a river. Due to the strength of the windstorm, it eventually causes a flood. Losses 1 and 2 arise from the destructive force of the flood. Furthermore, in the course of the flood, some of the oil pollutes nearby agricultural land, resulting in Losses 3 and 4.

The flood constitutes the event within the meaning of paragraph (1). Losses 3 and 4 occurred due to a combination of the oil spillage and the flood. Hence, Losses 3 and 4 would not have occurred had there not been an independent oil spillage. Therefore, Losses 3 and 4 are not to be aggregated with Losses 1 and 2.

I23.      Reinsured A takes out reinsurance for a professional liability insurance policy. A vessel owner negligently spills a significant amount of oil into the sea near the coast, resulting in the pollution of two coastal villages located some distance apart and thereby triggering liability (Losses 1 and 2). The spilled oil is carried towards the two different locations due to the prevailing wind conditions in the area.

The vessel owner’s negligent act alone has caused Losses 1 and 2. The prevailing wind condition in the area cannot be considered a decisive intervening factor independent of the relevant event (negligent spillage of oil). Therefore, Losses 1 and 2 are to be aggregated.

I24.      Reinsured A takes out reinsurance for a professional liability insurance policy. A vessel owner negligently spills a significant amount of oil into the sea near the coast, resulting in the pollution of the coastal area and thereby triggering liability (Losses 1 and 2). Some days later, an unusually heavy windstorm occurs, blowing some of the spilled oil into a river and eventually causing a flood. In the course of the flood, some of the oil pollutes nearby agricultural land, resulting in Losses 3 and 4.

Losses 3 and 4 occurred due to a combination of the oil spillage and the flood. Hence, the vessel owner’s negligent act alone would not have caused Losses 3 and 4, which means that the flood may be considered a decisive intervening factor independent of the relevant event (negligent spillage of oil). Therefore, Losses 3 and 4 are not to be aggregated with Losses 1 and 2.

C22     If an intervening factor contributes to the occurrence of a loss but cannot be said to be decisive for the occurrence of the loss, such intervening factor cannot prevent this loss from being aggregated with other losses resulting from the relevant event. For instance, the common circumstances in place at the time the peril reinsured against materializes (e.g. a prevailing wind which spreads the fire to adjacent properties) or the triggering of the primary insured’s liability are generally not considered decisive intervening factors, although they may contribute to the occurrence of losses.

Illustrations

I25.      Reinsured A takes out reinsurance for a first-party property insurance policy against the perils of tsunami and fire. A tsunami occurs and causes Losses 1 and 2. At the same time, the tsunami causes a short circuit, resulting in a fire that spreads rapidly because of the prevailing wind conditions. Losses 3 and 4 occur.

As the short circuit can be considered an inevitable consequence of the tsunami, Losses 1–4 are to be aggregated. The fact that Losses 3 and 4 only occurred due to the prevailing wind conditions does not make such conditions an independent and decisive intervening factor.

I26.      Reinsured A takes out reinsurance for a portfolio of personal liability insurance policies. Primary Insured C negligently sets fire to a building, resulting in Loss 1. Due to the prevailing wind conditions in the area, the fire spreads, causing Losses 2 and 3.

Losses 2 and 3 can be considered a direct consequence of the Primary Insured C’s negligent act. The commonly windy weather cannot be considered a decisive intervening factor that breaks the chain of causation. Therefore, Losses 1–3 are to be aggregated.

I27.      Reinsured A takes out reinsurance for a portfolio of personal liability insurance policies. Primary Insured C negligently sets fire to a building, resulting in Loss 1. Shortly thereafter, an unusually heavy windstorm arises, causing the fire to spread. Losses 2 and 3 occur.

Losses 2 and 3 occurred due to a combination of the fire and the uncommon windstorm. Hence, Primary Insured C’s negligent act alone would not have caused Losses 2 and 3, which means that the windstorm may be considered a decisive intervening factor independent of the relevant event (negligently setting fire). Therefore, Losses 2 and 3 are not to be aggregated with Loss 1.

4.          Sublimits

C23     Contracts of reinsurance typically include not only coverage limits but also sublimits. A sublimit defines the limit of liability for a particular peril where the contract provides coverage against a multitude of perils; for a specific reinsured asset where reinsurance is taken out for a range of different assets; or for a specific location where the reinsured assets are located at multiple sites.

C24     Under the PRICL, aggregation is dealt with on each level of limits, i.e. total coverage limits and sublimits. Thus, event-based aggregation of losses is subject to any coverage limits specified in the contract.

Illustrations

I28.      There is reinsurance coverage per occurrence with a total coverage limit of USD 40 million. The contract states a USD 20 million sublimit per occurrence for the peril of tsunami.

An earthquake occurs and causes losses amounting to USD 30 million. The earthquake further directly results in a tsunami, causing tsunami losses amounting to USD 30 million. The event caused damage totalling USD 60 million. Both earthquake and tsunami losses can be considered direct consequences of the earthquake, so that generally all of the losses can be aggregated.

In order to respect the different sublimits, however, it is necessary to test whether the aggregate tsunami loss is within the tsunami cover limit. This is not the case. USD 20 million of the tsunami losses are covered by the sublimit specified for tsunami losses, while the remaining USD 10 million of the tsunami losses are not.

Another necessary test is whether the aggregate loss that results from the event is within the total coverage limit. Losses caused by the tsunami can be considered losses caused by the earthquake. Therefore, all the tsunami losses covered are aggregated with the earthquake losses. They amount to USD 50 million (USD 20 million tsunami losses and USD 30 million earthquake losses). The total coverage limit is USD 40 million, meaning that the remaining losses amounting to a further USD 10 million are not covered.

I29.      Reinsured A takes out aviation reinsurance for a public liability insurance policy. The reinsurance coverage is per occurrence with a total coverage limit of USD 40 million. The contract specifies a USD 20 million sublimit per occurrence for damage caused by the release of substances hazardous to soil or water.

Due to an error by the pilot, the primary insured’s aircraft negligently releases liquid fuels, resulting in the pollution of agricultural land. The damage amounts to USD 30 million. The leakage of the fuels further results in a crash that causes property damage in the amount of USD 30 million. The event causes damage totalling USD 60 million.

Both the pollution and the property damage losses can be considered direct consequences of the pilot’s error. In order to respect the different sublimits, however, it is necessary to test whether the aggregate pollution loss falls within the pollution sublimit. This is not the case. USD 20 million of the pollution losses are covered by the sublimit specified for pollution losses, while the remaining USD 10 million of the pollution losses are not.

Another necessary test is whether the aggregate loss resulting from the event (error) falls within the total coverage limit. Both pollution and property damage losses can be considered losses caused by the pilot’s error. Therefore, all the covered pollution losses are aggregated with the property damage losses. They amount to USD 50 million (USD 20 million pollution losses and USD 30 million property damage losses). The total coverage limit is USD 40 million, meaning that the remaining losses amounting to a further USD 10 million are not covered under the contract.

5.          Treaty reinsurance

C25     In the case of treaty reinsurance, a reinsured takes out reinsurance against a multitude of risks covered by multiple (re)insurance policies under a single contract.

C26     If multiple first-party primary insurance policies are triggered as a result of the same materialization of a peril reinsured against, multiple losses occur under the contract. Under paragraph (1), these losses are treated as one single loss with regard to the reinsurance deductible and coverage limit.

Illustration

I30.      Reinsured A takes out reinsurance for a reinsurance portfolio of car property damage policies. The peril insured against is destruction by accident. Several car accidents occur under different primary insurance policies in the reinsurance portfolio. As the accidents occur independently of one another, the peril insured against materializes in multiple instances so that the individual losses incurred by the different car owners cannot be aggregated for the purpose of aggregating losses under the reinsurance treaty.

By contrast, if a multiple collision accident occurs where the initial car crash was causative for any of the other collisions involved, the initial car crash can be considered the materialization of the peril insured against. Any losses that directly originate from this first car accident are to be aggregated under the PRICL (facts based on Hartford Accident & Indem Co v Wesolowski, 33 NY2d 169, 910, 305 NE2d 907 (NY 1973)). The fact that the accident triggered multiple primary insurance policies does not preclude the aggregation of losses under paragraph (1).

C27     It should be noted that it is generally not possible for one event to trigger multiple third-party primary insurance policies as third-party liability risks are normally covered in only one primary insurance policy. Thus, if this primary insurance policy is triggered, the other primary insurance policies under the reinsurance treaty remain unaffected.

6.          Hours clauses

C28     Catastrophe excess of loss contracts, in particular, often contain hours clauses that define a time frame within which losses arising from an event are to be aggregated. Regularly, such clauses refer to a “catastrophe” as the unifying factor for the aggregation of losses. Under the PRICL, a “catastrophe” equates to any other event (see Comment 1 to Article 5.2), therefore paragraph (1) applies. However, hours clauses tend to narrow down the scope of the aggregation mechanism provided for in paragraph (1).

C29     Where the parties include an hours clause, paragraph (1) will be modified to that extent. In such a case, the relevant event is still determined pursuant to paragraph (1), and it still the case that only losses directly occasioned by this event may be aggregated. However, the parties thereby amend the mechanism provided for in the PRICL by specifying that only losses occurring within the time frame agreed upon in the hours clause are to be aggregated.

7.          Life insurance policies

C30     Under paragraph (1), life insurance policies are equated with first-party insurance policies where appropriate. In life insurance, a primary insurer pays a stipulated sum of money to the designated beneficiaries upon death of the insured.

C31     A policyholder’s death is to be considered the loss suffered. As an insured can only lose his life once, there can only be one loss per individual life insurance policy. Therefore, loss aggregation is irrelevant in primary life insurance.

C32     By contrast, if a portfolio of primary life insurance policies is reinsured, the reinsurance treaty may provide for a deductible, a coverage limit and a coverage sublimit for the whole portfolio rather than for each primary life insurance policy. In this case, the question of aggregating losses arises.

C33     Generally, life insurance is all-risks insurance subject to the exclusion of a number of risks. Unless a certain cause of death has been excluded from the policy’s scope of coverage, the insurance payment becomes due once the primary insured has died. The primary insured’s cause of death is to be considered the aggregating event, whereas his death is the loss. Therefore, an event, under the PRICL, is the materialization of any risk (cause of death) not specifically excluded from the life insurance policy’s scope of coverage.

C34     If multiple losses originate in the same materialization of a risk, they may be aggregated for the purpose of loss aggregation (Article 5.2(1)). As life insurance policies generally cover all-risks, any event (cause of death) responsible for the death of multiple people may be considered the relevant event for the purpose of aggregating losses.

Illustrations

I31.      Multiple people die from an earthquake. Each insured’s death may be considered a loss. As all of the losses originated directly in the earthquake, they are to be aggregated under a reinsurance treaty.

I32.      Multiple people die of lung cancer. Each insured’s death may be considered a loss. However, the development of the illness is a separate instance of materialized peril for each insured. Hence, the individual losses are not to be aggregated under a reinsurance treaty.

I33.      Multiple people die of the exact same virus strain. The outbreak of the respective virus and the subsequent infection of people can be considered one instance of materialized peril, and the individual deaths can be considered a direct consequence of the materialization. Hence, the individual losses are to be aggregated under a reinsurance treaty.

8.          Bundled insurance products

C35     If a primary insurance policy contains aspects of first- and third-party insurance, it may be that an instance of materialized peril (first-party) coincides with the act, omission or fact triggering liability (third-party). In such cases, losses under the first-party insurance are to be aggregated with losses under the third-party insurance.

Illustration

I34.      Primary Insured C takes out property car insurance as well as liability car insurance. A car accident occurs due to Primary Insured C’s negligent driving, damaging both Primary Insured C’s vehicle and another driver’s car. Under the first-party property car insurance, the peril of damage by accident materialized when the accident occurred. Thus, the accident can be said to be the event for the purposes of paragraph (1). Simultaneously, by negligently causing the accident, the driver triggered liability under the third-party insurance. Thus, the accident can also be considered the event for the purposes of paragraph (2). As the events under these two provisions are identical, the respective losses are to be aggregated.