The case arose from a tribunal award relating to reinsurance contracts covering losses arising out of the terrorist attack on the World Trade Centre of September 11 2001. The claimant wrote four retrocession (ie, between reinsurers) excess of loss insurances in favour of the defendants (the 'outward reinsurances'), which in turn wrote 10 reinsurance contracts in favour of certain others (the 'inward reinsurances').
The outward reinsurances covered all business underwritten by the defendants and which the defendants classified as 'aviation'. The policy limits were from $1 million to $3 million on each and every loss (subject to an excess of $100,000), where the total loss exceeded the sum specified in the policies (which ranged from $200 million to $500 million). The outward reinsurances cover was on a 'whole account catastrophe excess of loss' basis, and therefore covered a variety of loss types, including property damage, personal injury and liability claims. The outward reinsurances thus provided cover for large claims in the event of major catastrophes.
Pursuant to Article 4 of London Standard Wording 351, which applied to the outward reinsurances, 'each and every loss' means "each and every loss or accident or occurrence or series thereof arising out of one event".
Following the September 11 2001 hijackings and the subsequent attacks in New York, Washington DC and Pennsylvania, lawsuits were commenced against American Airlines and United Airlines as the operators involved. Claims were also commenced against security companies Globe Aviation Services Corporation (which had provided screening services for the aircraft operated by American Airlines) and Huntleigh USA Corporation (which had provided screening services for the aircraft operated by United Airlines). The personal injury and wrongful death claims were the subject of settlements approved by District Judge Hellerstein in the Southern District of New York. These claims were split between the airlines and the security companies.
Each of the inward reinsurances was settled on the basis that the attacks on the World Trade Centre were occurrences arising from two events. At the tribunal and when appealing the tribunal's award, the claimants reasoned that in the context of liability under the outward reinsurances, those attacks were occurrences arising from a single event.
The judge considered the tribunal's award, noting its consideration of the known facts of each of the hijackings as determined by the Final Report of the National Commission on Terrorist Attacks upon the United States.
The two leading cases on the understanding of an event are the Dawson's Field arbitration and Kuwait Airways Corporation,(1) which set out and developed the relevant tests to be applied. For a factual situation to amount to a cause arising "out of one event", an informed observer in the position of the insured would have to have determined that the attacks arose as a single event, and in doing so would have reference to the "degree of unity in relation to cause, locality, time, and, if initiated by human action, the circumstances and purposes of the person responsible".
The tribunal concurred with the findings in respect of the relevant underlying claims and the outward reinsurances followed. The authorities make it clear that a plan – which there undoubtedly was in relation to the September 11 attacks – cannot constitute an event. While the two attacks on the World Trade Centre did have similarities in timing and manner, the losses arose from two separate hijackings of two separate aircraft which were then used to attack two separate buildings (albeit that the two buildings were on the same complex and were connected), with neither attack reliant on the other.
Two occurrences (of personal injury and death) arose out of two events of successful hijackings by the perpetrators of the attacks.
The claimant sought to overturn the arbitral award on the following grounds:
- The arbitrators placed too much emphasis on the attacks on the Pentagon and in Pennsylvania, which were more readily understood as being separate events.
- The arbitrators had erred in asking what the cause of the losses was rather than understanding that the unity of cause was the unity of operative peril.
- The tribunal failed to appreciate that it did not follow that since both hijacking and terrorism were operative perils, the losses did not arise out of the same event and, in any event, the tribunal focused too much on hijacking.
- The tribunal had placed itself in the position of only an 'informed observer' and not an 'informed observer placed in the position of the insured'.
- The meaning of 'event' ought to be broad – the aggregation of losses set out in Article 4 of London Standard Wording 351 corrals together losses and this was not understood by the arbitrators. In Kuwait Airways Corporation the contract applied to war risks – here the claimants were retrocession-level war risk insurers protecting an account distant from the underlying losses, implying that because of distance between the parties and the miscellany of losses arising in the event of a catastrophe, the term ought to be interpreted broadly.
- The tribunal had failed to have sufficient regard to the purpose and intent of hijackings and attacks, which were a series of occurrences arising out of one event: the attack on the World Trade Centre.
The judge considered the claimant's grounds for overturning the award and found as follows:
- The tribunal had not placed too much emphasis on the attacks on the Pentagon and in Pennsylvania. However, it had performed a sense check against the other two attacks.
- The unity of cause in the attacks on the World Trade Centre was both hijacking and terrorism.
- A finding as to whether the attacks fell under the terrorism or hijacking perils, in the context of determining the unity of cause, was irrelevant as to the question of whether one event or two had occurred. The judge also found that it was unsubstantiated to suggest that too much emphasis had been placed on hijacking.
- It was clear, although not expressed in the award as such, that the arbitrators had considered the unities questions from the position of "an informed observer in the position of the insured".
- The arbitrators had considered the nature of Article 4 of London Standard Wording 351 and had come to their conclusions in light of this.
- The arbitrators had considered the nature and scope of the plot and concluded that this was insufficient to find that there had been two events.
The judge concluded that the tribunal had applied the law correctly, had regard to all material facts and did not take into account impermissible considerations. The claimant's appeal was dismissed.(2)
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