This recent United Kingdom Supreme Court Judgment considered whether under the relevant reinsurance program Covid-19 losses all arose out of or were directly occasioned by one “catastrophe”.  If so, the losses could be aggregated so that the reinsurers would pay those claims under the relevant treaty terms. 

The judgment contains an extensive review of historical use of “catastrophe” in treaty wordings in the United Kingdom. 

The reinsurers argued, on three main bases, why the Covid-19 pandemic was not a “catastrophe”. Surprisingly it was the first time the English courts had to consider the meaning of “catastrophe” in a reinsurance contract. 

The court considered the dictionary definition of “catastrophe” and the scope of the treaty terms.  The court held that in the reinsurance context “catastrophe”:

  • did not require physical damage;
  • the element of suddenness was not required (bearing in mind that the treaty covered losses from perils that can build up through time such as a flood);
  • did not require strict adherence to the “unities test”;
  • uncertainty is not fateful to the consideration as to when the catastrophe comes into an existence and ends;
  • a catastrophe must be able to directly cause individual losses in that it must be a “coherent, particular and readily identifiable happening”;
  • it must be an event with a “catastrophic character”;
  • it couldn’t be a continuing state of affairs – there had to be some “radical discontinuity” with what came before it;
  • there must have been an adverse, significant change to that which preceded it.

The judgment does not in itself define what a “catastrophe” is because that will always be dependent on the commercial and contractual context of the claim.

The principles set out above articulated by the court are significant and useful to the reinsurance market.  The approach is likely to be no different under South African law.