Aggregation clauses, a comparative analysis

In Elborne Mitchell Commercial’s Employment and Regulatory Newsletter 55 the firm has compared aggregation clauses.

In an article entitled “Hiscox, cadavers and insurance law in Illinois”, Elborne Mitchell said that “an eye should always be kept on other jurisdictions and how they contrast with English law.” One such jurisdiction to keep an eye on was Illinois, whose law underpins a number of US insurance contracts.

Aggregation was under consideration in the recent case of Lloyd’s Syndicate 3624 (Hiscox) v Biological Resource Centre of Illinois et al. This case saw a clarification of what constituted a single Claim.

The underlying cases against the insured, BRCI, arose from the mishandling and/or sale of human remains. The bodies of the deceased had been donated to BRCI on the condition that they would be used for medical/scientific purposes.

However, the bodies were instead cut up and sold on the open market. The family and estates of the deceased brought their cases against BRCI on this set of facts.

However, they were through different types of claim, ranging from the intentional affliction of emotional distress to a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act.

Hiscox funded BRCI’s defence costs of these lawsuits pursuant to the insurance policy it had issued. However, when the defence costs reached $2m. Hiscox stated that a $2m limit for “Each Claim” applied and informed BRCI that it was no longer obligated to provide coverage.

BRCI disputed this, stating that the limit was $3m “in aggregate for all claims” rather than the $2m limit that applied for a single claim.

Hiscox therefore sought a declaratory judgment in Illinois, as per the jurisdiction clause, to clarify the meaning of this contractual wording.

The Judge saw the court’s primary duty as one “to ascertain and give effect to the intention of the parties, as expressed in the policy language”. As such, the focus of the court turned on the intention of both sides in drafting the policy’s clauses.

At the heart of the case was the clause that “All Claims based upon or arising out of any and all continuous, repeated or related Wrongful Acts or Accidents committed or allegedly committed by one or more of the Insureds shall be considered a single Claim.”

Whether the underlying cases constituted a single claim revolved on the interpretation of the word “related”, with the case law stating that it covered “a very broad range of connections, both causal and logical”.

On the facts, it was ruled that though the underlying complaints varied in their precise wording the allegations were based upon the same specific course of conduct.

Accordingly, the judge saw the complaints as clearly “related” and Hiscox’s policy coverage was limited to $2m.

Elborne Mitchell observed that in the House of Lords case of Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co. Ltd [2003] UKHL 48 the approach taken was similar to that of the BRCI case in that the focus was very much on the intention of the parties when they were drafting the respective clauses and how that intention was to be reflected in either side’s obligations.

An important distinction was drawn by the House of Lords. It was held that the lack of training and supervision did not directly cause the losses, with the misselling itself being the direct cause of the action. Therefore, the claims were deemed not to be related and did not fall within the aggregation clause.

As Elborne Mitchell observed, both the cases turned on the meaning of the word “related” and both took a similar approach to interpreting the policies’ wording. And yet they resulted in significantly different judgments. Elborne Mitchell concluded that “even when clause terminology is standardized, separate advice should always be taken for different jurisdictions as differences in interpretation can have significant consequences on a policy claim”.