By Grace Fox, Claims Advocate
Retentions (or also known as Deductible or Excess) generally apply to each claim. Where claims aggregate that will affect the number of retentions to be applied, may determine the policy year to which multiple claims attach, and will consequently affect to what extent the applicable policy limit may be eroded.
In essence, as an Insured, if you have a lot of smaller claims the benefit of aggregating them is that you only have one retention applicable. However, only one policy limit will apply. In respect of a large claim that is likely to exhaust the policy limit, if multiple claims do not aggregate, which would mean more than one retention applying, having multiple policy years potentially available is something Insureds may want to consider.
Policy wordings often have appropriate language to ‘aggregate’ claims notified over multiple policy years, to ensure there is not a gap in cover.
How is this reflected in policy wordings?
In order to aggregate multiple claims, it is important to be able to show they are linked to a single “unifying” factor. Aggregation is not implied, and the applicable unifying factor depends on the express wording of the contract and the Insured’s ability to show how these claims are linked.
Aggregation has been tested under English law and there are numerous high-profile cases that have caught the industry’s eye. The prospects of aggregation can vary significantly, depending on which formulation is used to do this - we most commonly see “act or occurrence”, “originating cause or source” or “series” clauses under policies governed by the laws of England and Wales, with ‘originating cause or source’ being considered as the most favourable (according to the outcome of the most recent cases considered in the English courts).
Impact on claims and wider implications for Insureds
There are numerous considerations for Insureds when it comes to considering whether to aggregate multiple claims or not. Here are a few examples that Insureds may want to consider:
-
Having multiple claims that aggregate may minimise the number of policy retentions that would apply.
-
If multiple claims span various policy years, this may mean accessing multiple policy limits.
-
The scope of a coverage release as Insurers may later argue that it does not capture “related” claims.
-
When a policy renews it is important to maintain continuity of the aggregation language to avoid any future claims falling between two policies.
Conclusion
In a nutshell, how aggregation is applied can impact how claims are dealt with, including the amount of recovery and the policy years that may be impacted.
Insureds should consider discussing with their broker the impact of aggregating claims and it is essential that Insureds understand the terms and conditions of their policy wording in relation to aggregation.
It is essential that Insureds understand the terms and conditions of their policy wording in relation to aggregation of multiple claims where a unifying factor can be identified
Also, Insureds ought to be aware of the tactical advantages in the use of aggregation. Given the potential impacts and outcomes, it may not be straight forward to prove the unifying factor, or indeed to decide which route to go down. Accordingly, Insureds should seek to engage professional advice at an early stage and protect their position, particularly when it comes to notification.
|
