MANN AND HOLT v. LEXINGTON INSURANCE CO.

In a proportionate retrocession, an occurrence limit must be construed in the context of the whole contract, its commercial purpose and the underlying insurance. Clear words are required before the retrocessionaire may aggregate losses across separate insured locations, particularly where the contract expressly provides for aggregation only in specified cases.

Whether several losses constitute one occurrence depends on their degree of unity. Relevant considerations include cause, locality, time and the intentions of human agents. A common plan or central orchestration cannot, without sufficient unity of place and time, turn geographically dispersed riot damage occurring over two days into one occurrence.

The claimant reinsurers accepted proportions of an underlying risk covering stores at several Indonesian locations and retroceded corresponding proportions to the defendant. The retrocession provided a limit of US$5 million “per occurrence”, with an annual aggregate separately for flood and earthquake.

Stores at different locations were damaged during rioting over 14 and 15 May 1998. The defendant contended that the losses could constitute one occurrence because the rioting had allegedly been centrally orchestrated. Timothy Walker J determined preliminary issues in the Commercial Court. He held that “per occurrence” was an aggregation provision and that the differences in location and time did not necessarily produce more than one occurrence.

The reinsurers appealed. The central issues were whether the retrocession permitted aggregation across locations and whether the alleged common orchestration could make the riot damage one occurrence.

1. Appeal allowed unanimously. Lord Justice Waller delivered the leading judgment. Lord Justice Kay and Lord Justice Laws agreed. The losses necessarily constituted more than one occurrence, and the further preliminary questions concerning the perpetrators’ identities and purposes did not arise.

2. The expression “per occurrence” derived its meaning from the surrounding contractual terms and the commercial object of the proportionate retrocession. The retrocessionaire received a share of the premium in return for accepting a share of the underlying risk. The underlying reinsurance covered each loss at each location, while the retrocession expressly provided annual aggregation only for flood and earthquake.

3. The identically worded deductible did not show that one occurrence could extend across several locations. In the underlying reinsurance it contemplated a deductible for each loss at each location. It retained that meaning in the retrocession. Accordingly, the occurrence addressed by the insured limit was an occurrence at a particular insured location. Clearer language would have been required to permit aggregation of losses at several locations for other perils.

4. Even if “occurrence” were capable of extending beyond one location, a common peril would not itself make all resulting damage one occurrence. The circumstances must possess sufficient unity. Cause, locality, time and the intentions of human agents may be relevant, viewed in the contractual context.

5. The riot damage occurred over a wide area, at different locations and over two days. There was no unity of place or time. The alleged central orchestration, even if established, could not supply the necessary unity. A plan does not by itself constitute an event or convert geographically and temporally separate destructive acts into one occurrence.

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The losses necessarily constituted more than one occurrence, reversing the answers given to the material preliminary issues below. Reported at [2001] 1 Lloyd's Rep 1; neutral citation [2000] EWCA Civ 256.
2. Commercial Court: Timothy Walker J held that “per occurrence” operated as an aggregation provision and that differences in locality and time did not necessarily establish more than one occurrence. The judgment’s citation is not stated.