What is the difference between an ‘event’ and an ‘occurrence’? Charles Bending reports on recent insurance cases that have tried to clear up the debate

Insurers and reinsurers have struggled with the much-debated concepts of ‘event’ and ‘occurrence’ for many years. Excess of loss contract wordings vary, but many include provisions to aggregate “each and every loss and/or disaster and/or occurrence and/or series of losses and/or occurrences and/or disasters arising out of one event”, or possibly, “out of one originating cause”.
Applying these provisions has repercussions not only as to how many limits are available to settle related losses, but also the number of retentions to be satisfied before reinsurance cover is available. If there is any doubt about their application, if substantial sums are at risk, insurers may need to seek adjudication of the issues to have their aggregate exposure determined. Guidance has been provided on three occasions in the past six months.

Kuwait Airlines case
The decision of the Court of Appeal in MA Scott v Copenhagen Re (2003) arose out of Iraq’s invasion of Kuwait in 1990, when 15 Kuwait Airways Corporation (KAC) aircraft, spare parts and one British Airways (BA) aircraft were lost. London market insurers pooled resources to seek guidance on the meaning of a reinsurance wording that provided cover for “each and every loss or series of losses arising from one event”. Issues to be decided included how many separate events (maximum 17) there were, how many retentions should be applied, and what the maximum aggregate sum recoverable was.
At first instance in the Commercial Court, Mr Justice Langley held that there were two events. The first event was when the KAC aircraft and spares were lost when Iraq invaded Kuwait and captured the airport on 2 August 1990. The second event was the loss of the BA aircraft, as it did not result from Iraq’s capture of the airport, but was damaged by coalition fire when the airport was recaptured.
Judge Langley drew assistance from the House of Lords and in particular Lord Justice Mustill in Axa Reinsurance v Field (1996), where Lord Mustill had held that for the purpose of a reinsuring clause, an event is “something which happens at a particular time, at a particular place, in a particular way”. Lord Mustill’s view was that for the equivalent underlying wording that related to a “series of events… attributable to one originating cause”, a cause was something altogether less constricted than an event and could be a continuing state of affairs.
Reliance was placed on the decision of Michael Kerr QC (as he then was) in Dawson’s Field Award (1972), where four aircraft were hijacked by Palestinian terrorists in 1970. One was flown to Cairo and destroyed, while the other three were flown to Dawson’s Field in Jordan and all were destroyed a few days later within the space of five minutes. Kerr found that the explosion of the three aircraft “in close proximity more or less simultaneously, within the time span of a few minutes, and as a result of a single decision to do so”, comprised one event or occurrence and could, therefore, be aggregated. He rejected any argument that all four aircraft were total losses as a result of the hijacking itself.
Judge Langley found that there were necessary unifying factors when the KAC aircraft and spares were lost: the ‘unity of intent’ being to deprive Kuwait of the KAC aircraft and spares permanently; the ‘unity of time’ being that the objective was achieved when the airport was captured; and the ‘unity of cause’ being the invasion in August 1990. He also ruled that the loss of the BA aircraft lacked unity of time and unity of cause and so was a separate event. However, this decision was appealed.
The Court of Appeal unanimously upheld Judge Langley’s decision. Lord Justice Rix emphasised the presence of the unities of intent, time and cause as being the appropriate test and ruled that a “significant causal link” is required to aggregate losses “arising out of one event”.

Pensions mis-selling
In Lloyds TSB General Insurance Holdings v Lloyds Bank Insurance Company Ltd (2003), the House of Lords relied on the same arguments to rule that there could be no aggregation of pension mis-selling claims, as they were not sufficiently related.
Claims stemmed from an investigation which revealed that many pension salesmen had been in breach of the applicable Lautro Code of Conduct for failing to provide ‘best advice’. The TSB Group received 22,000 complaints, all of them less than £35,000, but totalling around £125m.
TSB was insured against liability to third parties under a bankers’ composite insurance policy written by a captive insurer, which was in turn reinsured. There was a deductible of £1m for “each and every claim”.
An aggregation clause provided that: “If a series of third party claims shall result from any single act or omission (or related series of acts or omissions) then all such… claims shall be considered to be a single… claim”.
The House of Lords held that there was no unifying factor that triggered the aggregation clause. Lord Justice Hoffman concluded: “Each of the claims did not arise from a single ‘act or omission’. Nor did each of them arise from a ‘related series of acts or omissions’. Each of them arose from a separate contravention of the [Lautro code]”.

Train disruptions
Most recently, the same unities test was followed in the Commercial Court by Mr Justice Steel in Midland Mainline Ltd & ors v Commercial Union & ors (17 July 2003), in which he interpreted the extent of business interruption cover available to passenger railway services as a result of disruptions following measures imposed by Railtrack after the Hatfield train derailment.
Judge Steel summarised the criteria for the test for the existence of one event as: a sufficient degree of unity by reference to time, locality, cause and motive; scrutinisation from the perspective of an informed observer in the position of the assured; with the assessment to be made both analytically and as a matter of intuition and common sense.
Relying on the lack of unities of time and location, Judge Steel held that a ‘continuing state of affairs’ to impose emergency speed restrictions did not qualify as an event or occurrence, but that the promulgation and application of the programme of restrictions did. He allowed the aggregation of the losses on the basis they stemmed from a qualifying single event that could include the original causative event, in this case, the derailment.
According to Lord Hoffman in Lloyds TSB, a more definitive test as to the requirements for aggregation has assisted in cases, but aggregation clauses must be construed in a balanced fashion giving effect to the words used. What constitutes a balanced fashion is, of course, open to conjecture.
Charles Bending is an associate in the reinsurance department at Beachcroft Wansbroughs