Aggregation Of Construction Claims
The nature of a construction project gives rise to the possibility of numerous individual defects or losses arising which may be brought together in one or more claims. In a worst case scenario, there may be an underlying design error which is repeated by the insured on various projects, giving rise to multiple claims from different parties under different contracts. When indemnity is sought under the policy for such claim(s), it has to be considered to what extent the losses or liabilities should be grouped together and treated as just one claim for indemnity under the policy, or multiple claims.
The underlying liabilities may be grouped together by various different routes. On the facts and policy wording, the liabilities may comprise only "one claim" against the policy, in which case no further debate arises. Alternatively, express aggregation wording within the policy may bring together the underlying liabilities so that they are treated as a single claim.
Of course, whether it is in the insured's, or insurer's interests for the losses to be aggregated depends entirely upon the limit of indemnity under the policy, the excess, and the number and size of the losses. A slight difference in the wording can, however, make a significant impact upon the amount recoverable under the policy. Say, for example, there is a £2 million claim, which is made up of individual defects, none of which, alone, exceeds the £50,000 each and every claim excess within the policy. If, on the policy wording in place, every defect is treated as a separate claim and no aggregation provisions apply, insurers will have no liability. If the losses are aggregated, the exposure will be the full £2 million, less the £50,000 excess.
In some cases, the calculations may be so finely balanced that it cannot be determined until the insured's third party liabilities are finally resolved, who benefits from the particular losses being treated as one claim under the policy. Given that the same clause may at times favour the insured and at other times the insurer, the courts have held that "aggregation clauses thus require a construction which is not influenced by any need to protect the one party or the other. They must be construed in a balanced fashion giving effect to the words used1." In short, the courts will adopt a neutral approach to the language used, seeking to identify its natural meaning without any predisposition either for or against a party or for a particular...
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