Aggregation clauses and the Canterbury earthquakes
The High Court has released a helpful decision on the interpretation of an aggregation clause. In Moore v IAG New Zealand Limited,1 the Court confirmed that the Christchurch earthquakes are a series of events with the same cause and were subject to an aggregation clause. Aggregating the losses, limited the insured to just one payment of the sum insured limit – and not payments of up to the sum insured for each earthquake event.
The plaintiff, Mr Moore, owned a large architecturally-designed home in the exclusive suburb of Scarborough Hill. Mr Moore’s home was insured by IAG under a policy with a sum insured limit of $2.5 million plus GST per loss.
The home suffered extensive damage in the 22 February 2011 and 13 June 2011 earthquakes. IAG paid Mr Moore the full sum insured, however the estimated cost of reinstating the damage significantly exceeded that amount. Mr Moore said that he was entitled to be paid up to the sum insured for each earthquake event and that IAG had failed to pay him approximately $1.7 million.
The key issue in the dispute was whether the aggregation clause in Mr Moore’s policy limited IAG’s liability for damage caused by the two earthquakes to a single sum insured payment on the basis that they were ‘one event’. The aggregation clause in Mr Moore’s policy provided that:
The most we pay for any loss (or any series of losses caused by one event) is the sum insured shown in the schedule.
‘One event’ was defined in the policy to mean “a single event or series of events which have the same cause”.
The parties sought a ruling on the following preliminary question:
On a proper interpretation of the aggregation clause in this policy, can it be said that the most IAG is required to pay for the loss on 22 February 2011 and the loss on 13 June 2011 is the sum insured?
Mr Moore’s arguments
Mr Moore argued that the aggregation clause did not apply because:
- the earthquakes were not a ‘series’;
- a ‘series of events’ required a relationship of connectedness which did not exist;
- the aggregation clause required a ‘series of losses’ to be caused by a ‘series of events’. In other words, the losses suffered in both February and June must have been caused by both of the earthquake events and not just by any one of them, and they were
- the events did not have ‘the same cause’.
Mr Moore also argued that IAG’s post-contract conduct confirmed that neither party intended the aggregation clause to apply to the losses. In support of this, Mr Moore said that IAG assigned the claims different claim numbers and pointed to the fact that IAG had not raised the aggregation clause until November 2017.
Unsurprisingly, the Court did not accept that this was evidence of post-contractual conduct or that the parties’ conduct ‘shed light’ on the interpretation of the clause.
Was there a ‘series of losses’?
Mr Moore first argued that the aggregation clause required any losses to comprise a ‘series’. He said that this requires a connection between each loss, such as by natural succession, temporal proximity, spatial proximity and similarity in nature. He said that the only connection in this case was that the losses were both caused by earthquakes and happened to the same house.
Justice Dunningham rejected this. She considered that Mr Moore’s interpretation of the word ‘series’ read too many requirements into the phrase, and that the word required no greater connection between the two earthquakes than that they were, in some way, similar. For example, a person, in ordinary speech, would be considered to have suffered a ‘series of mishaps’ if within a matter of months the person had two or more adverse events occur.
The Judge concluded that suffering more than one loss in a cover period would constitute a ‘series’ for the purposes of the policy’s aggregation clause.
Was there a ‘series of events’?
Mr Moore further argued that the events which resulted in the losses must also be a series. He said that there was no suggestion that the June earthquakes occurred ‘in succession’ to the February earthquake, and pointed to seismological evidence to the effect that the June event did not depend on the February event. Mr Moore said that the earthquakes occurred along distinct fault lines, were temporally distinct, and did not constitute a series.
Again, the Judge considered that Mr Moore’s arguments read unnecessary requirements into the words ‘series of events’. The only connection required by the aggregation clause was that they have ‘the same cause’. If they did, then there was a sufficient connectedness to constitute a ‘series of events’.
Is the ‘series of events’ required to cause the ‘series of losses’?
Mr Moore further argued that the ‘series of losses’ must be caused by a ‘series of events’. That is, the losses suffered in each earthquake must be caused by both events, and not just one of them. In support of this, Mr Moore relied on the House of Lords’ decision in Lloyds TSB General Insurance Holdings Ltd v Lloyds Bank Group Insurance Co Ltd,2 in which it was held that the insurer could not aggregate losses where they were caused by a different act.
Justice Dunningham distinguished Mr Moore’s case on the basis that the wording in IAG’s aggregation clause differed. In Lloyds TSB the clause was properly read as the “related series of acts or omissions” being the unifying factor so that it was the series of acts or omissions which had to, together, result in each of the claims. In Mr Moore’s case the unifying factor required by the wording of the clause was not a series of related events, but the cause of the events which led to the losses. Therefore, if the Court was satisfied that the series of events had the “same cause” it could aggregate the losses under the policy. This led to “the final, and… critical argument”.
Do the events have ‘the same cause’?
Mr Moore’s final argument was that the February and June earthquakes did not have the same cause.
Both parties led expert evidence on this issue. Both parties’ experts agreed that it was statistically highly probable that the September 2010 earthquake caused additional loading on the faults which ruptured in 2011 and contributed to them occurring when they did.
IAG’s expert said further that there was a 97 percent or greater possibility that the 2011 earthquakes were aftershocks, meaning that the September earthquake was “the determinative trigger”. Or, to use the words of the policy, it was “the same cause” for the 2011 earthquakes.
IAG’s expert’s calculations were not disputed, however Mr Moore’s expert said that the 2010 earthquake contributed to “setting the stage” for the 2011 earthquakes, but said that it was not “the straw that broke the camel’s back”. He reached this conclusion because of the temporal delay between the earthquakes and the fact that they occurred on spatially distinct faults. Mr Moore also argued that, to say that the first earthquake caused the 2011 earthquakes because it increased loading on the relevant faults would ignore “millennia of stresses that continued to build” on the faults.
Justice Dunningham considered that the answer to this question turned on the degree of connection required by the words “the same cause” and whether the evidence satisfied that requirement.
Her Honour interpreted the word ‘cause’ in the “usual way, as meaning a direct or proximate cause of the event”. Although the question of causation was usually dealt with in terms of the cause of loss rather than the causation of an event, her Honour applied the same test – ‘but for’ the September earthquake would the 2011 Earthquakes have happened? She concluded that they would not. In reaching this conclusion, the Judge gave weight to the timing of the earthquakes, and the evidence that the 2011 earthquakes were likely aftershocks. Without the September 2010 event, it was extremely unlikely that the faults underlying the 2011 earthquakes would have ruptured when they did.
Accordingly, the 2011 earthquakes had ‘the same cause’ for the purpose of the policy and the aggregation clause applied.
This decision is a reminder to insurance brokers of how aggregation clauses may operate to limit coverage within a policy year – and the importance of advising clients to buy sufficient insurance coverage to fully reinstate insured property. Had Mr Moore selected a sum insured sufficient to rebuild his home, the aggregation clause would not have affected his insurance recovery.
-  NZHC 1549.
-  UKHL 48,  4 All ER 43.