How Insurers Divide Up and Amalgamate Damage to Assess Payments

What is it about?

There is much uncertainty about both the law and practice in relation to insurance aspects of the divisibility of damage. The lack of empirical research of insurers’ practices makes it difficult to assess how claims are assessed initially and how disputes are actually treated by insurers. Furthermore, the diversity of insurance policies makes it difficult to formulate general statements about the law: much depends upon the particular policy wording and the specific circumstances of the claim. It is clear that more disputes are now reaching court. There is an increasing sophistication in the analysis of causal factors relevant to loss. Clauses have been added and liability defined in more and more detail in an attempt to preclude certain possibilities. In particular, there has been concern to avoid liability for injuries which occur gradually over a period of time. However, in demanding that damage must result from specific events, such as an accident or occurrence, policies have proved to be unduly restrictive. Market forces have then led to a relaxation in the wording of some policies. In addition, social and other factors favouring insurance coverage have encouraged courts, especially in the USA, to interpret policies in favour of claimants. The overall picture is therefore a complex one. Here it is suggested that European insurers have been slow to react to changes of wording to deal with multiple causation issues, and as a result have become exposed to a wider time range within which liabilities may be established. Insurers should pay close attention to aggregation and divisibility issues: policies can, and should, be amended to ensure that the extent of the risk matches that which was intended when the premiums were first set.

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Photo by Daniel Tausis on Unsplash

Photo by Daniel Tausis on Unsplash

Why is it important?

Issues regarding aggregation and divisibility of damage will continue to grow in importance in insurance and tort law for some time to come. This is because of the central importance of insurance to this area of civil litigation. It is the driving force – the “lifeblood” – of the tort system. Without it, in many cases, damages would not be paid and cases would simply not be litigated. We would live in a very different legal world.