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aggregation - a definition

30 September 2014

‘Aggregation’ is the mechanism whereby an insurer, with an indemnity limit on a ‘per claim’ basis, minimises its exposure to numerous related claims being made against a particular insured. Without an aggregation clause in the policy, an insurer would have to pay in respect of each such claim, even if its total exposure thereby exceeded the sum insured under the policy.

Example

A policyholder is insured under a policy with a limit of £1m for any one claim. The policyholder faces ten separate claims, averaging £0.5m each, all arising from (say) negligent advice given at a seminar presented to ten different clients. In that situation (and ignoring the application of any excess) the insurer would have an exposure of £5m.

By contrast, if (as is almost invariably the case) the policy contained an aggregation provision, then the ten separate claims would be treated as one claim, and the insurer would merely pay out its £1m aoc policy limit.

Whether separate, but arguably related, claims will indeed aggregate will depend on the wording of the particular aggregation clause in the policy.

One extreme is a clause which envisages a relatively close connection between the various claims – eg, all claims arising out of “any one act, error or omission” or “out of any one event” or “any one occurrence”.

At the other extreme would be a clause which aggregates all claims arising “directly or indirectly out of the same original cause or source”.

An ‘event’ or an ‘occurrence’ is markedly different to a ‘cause’. As Lord Mustill explained in AXA Re v Field [1996] 1 WLR 1026:

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

To similar effect is the observation by Morison J in Countrywide Assured Group plc v Marshall [2002] EWHC 2082 that:

The word ‘event’, ‘occurrence’ or ‘claim’ describes what has happened; the word ‘cause’ describes why something has happened”.

The Excess

An aggregation clause will almost invariably apply for the purpose of the indemnity limit. It may also apply for the purpose of the excess. In that situation, whether the aggregation clause is of benefit to the insurer or the insured will depend on the facts. If there are many relatively small claims, insurers will resist aggregation, since they will wish each claim to be the subject of an excess, and the insured will argue for aggregation. Conversely, if there are many large claims, the excess will be relatively immaterial and insurers will argue for aggregation so as to minimise their exposure, while the insured will resist aggregation so as to have the full policy limit available for each claim.

Aggregate policy limits

Where the policy limit is written not on a per claim basis but in the annual aggregate, there will be no need for an aggregation clause for the purpose of the indemnity limit. However, there may well still be a clause in order to govern whether one or several excesses are payable in the case of related claims.

Jonathan Newbold

Jonathan Newbold

Partner

Jonathan specialises in professional negligence, financial services and commercial dispute resolution; advises insurers on policy wording and coverage matters.

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Colin Peck

Colin Peck

Partner

Colin advises on insurance/reinsurance policy coverage and related litigation, arbitration and mediation involving the Lloyd’s and London market.

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