As Shakespeare conveyed in Hamlet, “There is nothing good or bad, only thinking makes it so.” No event or occurrence is truly good or bad, they are based on our cognitive processing and pre-suppositions. Fewer changes in the recent narrative of D&O in the UK can be considered to have been as unequivocally good as the advent of the Any One Claim basis of cover (“AOC”) over what had traditionally been an aggregate limit of liability. Amongst all the noise and drama, closer inspection ought to confirm that to be. Or, perhaps, not to be. That is the question.
The pressure for AOC came from several sources. In a profitable environment, cover expanded and the margins for differentiation were squeezed. Broker wordings added pressure, as did the demand for growth from the insurers themselves. The circularity of the discussion in favour of the change was persuasive. Underwriters argued it was not necessary as it was not a frequency class of cover, swiftly countered by AOC protagonists (brokers and development led underwriters) that if this were the case then a switch to AOC would make little difference. Somewhere in the middle were the actuaries, often the supreme arbitrators, and almost always right, who argued that historic data was biased. They contended there could be no clear line of sight because, where limit losses had occurred, no further claims could be made. This tension ultimately resolved itself in a compromise.
This centred itself on the potential likelihood of aggregation. If underwriters were able to maximise the chances of aggregating claims, some concessions might be granted, and actuarial tensions eased. Some protection already existed but the capping of policy limits had made this less important. Now, minds were focused, and scope certainly existed to broaden the aggregation trigger. The consensus was that the simpler (and shorter) the clause, the more likely it would be that a court would give effect to a clear intent to provide a broad scope for aggregation i.e.
“All Claims directly or indirectly arising out of, consequent upon or attributable to one source or original cause shall be deemed to be a single Claim first made on:”
This language created a single limb for aggregation where claims are “consequent upon or attributable to one source or originating cause”. The connecting language of “consequent upon or attributable to” is a broad formulation which indicated that the necessary causal connection could be construed, not at the level of proximate cause, but a more remote level of causal connection. Furthermore, the words “one source or original cause” are also acknowledged to be wider than a defined “event” or “occurrence”. Generally, an “event” is something which happens “at a particular time, in a particular place, in a particular way” Axa Reinsurance (UK) Ltd v Field (1996). By contrast, a “cause” can encompass a continuing state of affairs or the absence of something happening. Moreover, it was expressly held that the word “originating” opens up “the widest possible search for a unifying factor in the history of the losses that it [seeks] to aggregate”.
So, what’s the punchline? It is unclear and it is a complex issue. There are legal technicalities over how certain word combinations might be interpreted by the courts, and debate over whether claims aggregation can ultimately only be judged on a case-by-case basis. However, there seems little doubt that if an insurer is able to aggregate all claims to a single originating cause, it is theoretically easier to decline them simultaneously. A Devil’s Advocate might also argue the move to AOC has facilitated a rise in late notification issues because of the greater ability to tie matters together i.e. first awareness. Moreover, if notification activity spans multiple policy years, the change to AOC might actually be disadvantageous. Critically, and this often gets lost in the debate, the ‘Any’ is only as good as the ‘One’. Much Ado About Nothing? Even the fiercest critic of AOC would have a challenge to suggest it was anything other than a broadly positive move. Even in a non-frequency class of cover like D&O, the ease of understanding the concept and difference of AOC is clear, even if the transition hasn’t quite been As You Like It. However, if the AOC genie is ever put back in the bottle, and there are signs that this is happening, it might not be a case of All’s Well That Ends Well.