De-mystifying insurance series
Continuing our popular series of ‘De-mystifying Insurance’, today we focus on aggregation.
So what is aggregation? What impact can it have on claims, and does it have wider implications for Insureds when seeking to aggregate matters in order to maximise recovery under a claims made policy?
Put in simple terms, aggregation is a contractual mechanism under an insurance policy that allows for consolidation of multiple claims where a unifying factor can be identified, such that they are treated as one claim.
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.
Aggregation clauses can vary from policy to policy and between jurisdictions.
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).
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:
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.
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.
