Clarification of 'event/occurrence' for aggregation of claims

Judgment in Midland Mainline & Ors-v- Commercial Union Co Ltd & Ors and WAGN Railway Ltd & Ors –v- St Paul International Insurance Co Ltd was handed down by Steel J in the Commercial Court on 17th July 2003 and included a reminder, useful to insurers and insureds alike, of the criteria used to assess the existence of one event or occurrence for the purposes of aggregation of claims under an insurance policy.

Facts of the case
The claimant companies operated rail services on parts of the UK railway network, owned and operated by Railtrack plc. The defendant insurers insured the claimants against loss of revenue caused by interruptions to and/or interferences with their business, for policy periods ending 31 October 2000.

In October 2000, a passenger train derailed on a section of line near Hatfield, killing four passengers and injuring others. The derailment was caused by a broken rail, which in turn was caused by gauge corner cracking, a type of contact fatigue.

In the aftermath of the disaster, Railtrack imposed emergency speed restrictions (ESRs) and issued further instructions (known as "the Railtrack Programme"), the implementation of which was described as "the biggest programme of work on the network for more than a century". This caused considerable disruption to the claimants' services (by way of diversions, reduced services etc) and the resultant loss of revenue and increased working costs were the subject of claims under the policies.

Issues in dispute
The proceedings before the court concerned a number of issues but the central question was whether there was one occurrence/event in the form of the overall impact of the implementation of the Railtrack Programme, so that all losses occasioned by virtue of its implementation over the entire 36 month extended period of indemnity were covered; or whether the imposition of each individual ESR was a separate occurrence/event, and thus only losses resulting from ESRs imposed before midnight on 31 October 2000 were covered.

The issue was not one of construction of an aggregation clause nor a determination of whether the losses were all in consequence of the same event, it was whether there was one hindrance to access (the policy wording used this terminology) as a result of the Railtrack Programme or numerous hindrances as a result of each ESR.

The claimants (and Eagle Star, one of the defendants) argued that the measures taken by Railtrack were all part of a single programme and that the claimants were hindered in their use of the network by a logical, systematic and inevitable progression of restrictions of access to their networks. They submitted "the die was cast" from the moment Railtrack issued the first post-Hatfield instruction and that there was a single, but continuing event.

The decision of the Commercial Court
The court ruled that there was no 'Railtrack Programme' in anything other than an anecdotal sense of a range of measures brought into play in response to the derailment to ascertain the extent of the gauge corner cracking problem and the best means of eliminating it.

If, on the other hand, there was a Railtrack Programme in any coherent sense, it had simply led to the situation whereby a large number of ESRs were likely to be imposed across the network for many months. Each ESR related to a specific incidence of gauge corner cracking and no individual ESR was the natural or necessary consequence of any other.

The court acknowledged that it was, in effect, being asked to determine the nature of a unique factual situation and although it was expressed that previous authority may not be useful, Steel J revisited the case law and concluded that, in order to constitute one event/occurrence:

1. "There must be a sufficient degree of unity to justify the label of an event.
2. The assessment of unity will be by reference to time, locality, cause and motive.
3. The matter is to be scrutinised from the perspective of an informed observer in the position of the insured; and
4. The assessment is to be made both analytically and as a matter of intuition and common sense."

Steel J held that although there was unity of cause and intent in the form of the implementation of instructions, there was no unity of time or location – the response to Hatfield was incremental and variable. It was found that the term "the Railtrack Programme" was an invention for the purpose of the proceedings and that there was no reference to such a programme in any of the contemporary documents prior to the expiry of the policies. At the time the initial instructions were issued in the wake of the derailment, it was anticipated that no more than 80 to 100 sites would prove to be in need of remedial work. Only later events proved that an enormous number of sites required urgent action, a process spread out over the following 7 months.

As a result, only losses sustained as a result of ESRs imposed before 31 October 2000 were within the scope of the cover.

However, in relation to the "event" in the deductible clause (as opposed to "event" for the purposes of the indemnity period discussed above), Steel J held that the losses could be aggregated, so that one deductible applied, as they stemmed from the derailment, which was found to be "an event" since it provided the unifying factor in the form of the occasion for a complete review of gauge corner cracking on the network.

Consequence
Whilst each case must be assessed according to its own factual situation, this case provides a useful review of the case law of the criteria used in assessing events or occurrences under policies.

For further details of the case, please contact Andrew Symons at andrew.symons@cms-cmck.com or on +44 (0)20 7367 3044 or Gabrielle Folliard at gabrielle.folliard@cms-cmck.com or on +44 (0) 207 367 2662.