Menu

Reinsurance News

COVID “occurrence” ruling could confuse reinsurance response: GC

3rd March 2021 - Author: Matt Sheehan

Analysts at Guy Carpenter (GC) have argued that the definition of a COVID “occurrence” under the recent ruling by the UK Supreme Court could “confuse the conversation around reinsurance responses to COVID losses.”

covid-19-coronavirus-pandemicIn January, the legal verdict on the FCA’s pandemic business interruption (BI) test case was that some forms of BI coverage would apply to losses caused by COVID lockdown measures.

However, in order to reach this decision, Guy Carpenter says that the Court adopted a “narrow definition” of a COVID occurrence as an illness suffered by just one person or arguably several people in one household.

Critically, this means that the insured peril under many BI policies is COVID whenever and wherever it occurs, in contrast to the FCA’s contention that the peril should be limited to a particular occurrence or national outbreak.

Now, some commentators have suggested that the definition of “occurrence” in the test case could also apply in the reinsurance context — specifically to loss occurrence clauses in catastrophic excess of loss treaties (Cat XL).

RMS

Guy Carpenter notes that many CAT XL treaties have loss occurrence definitions that allow for the aggregation of losses arising from “one event.”

But the broker added that “context is everything” in contract interpretation, meaning the UK Supreme Court’s definition of “occurrence” or “event” should not be extended to reinsurance agreements.

“Though not binding outside the United Kingdom, the Court’s analysis of an “occurrence”—especially its ruling that a COVID outbreak cannot be an occurrence in certain primary BI extensions—has the potential to confuse the conversation around reinsurance responses to COVID losses,” said David Priebe, Chairman, Guy Carpenter.

“The clarifying response is simple: context is everything. The context and analysis of the test case decision demonstrate that it cannot answer reinsurance aggregation questions,” Priebe explained.

“To apply the Court’s reasoning to reinsurance would risk defeating the very intent and purpose of CAT XL contracts, defy industry customs and expectations, and distort the language used in aggregation provisions.”

Print Friendly, PDF & Email

Recent Reinsurance News

Getting your daily reinsurance news from Reinsurance News is a simple way to receive only the reinsurance industry news that matters, delivered directly to your email inbox.

  • Only email is mandatory, but the more you tell us about yourself the better we can serve you in future!
  • This field is for validation purposes and should be left unchanged.

By submitting the form you are giving your consent to be emailed by us.

Read previous post:
Aston Lark acquires Scottish broker Bruce Stevenson

Aston Lark, a chartered insurance broker backed by Goldman Sachs, has acquired Bruce Stevenson, a Scotland-based insurance broker. Bruce Stevenson...

Close