Aggregation of losses arising out of the invasion of Kuwait

In May of this year, the Commercial Court in London heard a test case, which was brought with the co-operation of the London reinsurance market, to determine the excess of loss aggregation issues that arose out of the invasion and capture of Kuwait International Airport in 1990.

When Iraq invaded Kuwait and captured Kuwait City Airport on 2nd August 1990, 15 aircraft owned by Kuwait Airways Corporation (KAC) and a Boeing 747 owned by British Airways (BA) were on the ground at the airport. There was also a considerable quantity of aircraft spares belonging to KAC at the airport (worth in excess of $150million). The aircraft and spares were lost following the invasion of Kuwait by Iraq.

An issue that had remained unresolved, as far as the excess of loss market is concerned, was whether the losses suffered by KAC and BA arose out of one or more events under the standard excess of loss reinsurance wording used in the London market.

The Claimant's case was that the losses of the aircraft and spares are to be aggregated as one loss arising from one event, which was the invasion and capture of the airport. The Defendant's position was that the loss of each aircraft arose from a separate event and the loss of the spares arose from a number of separate events, in effect the removal of the aircraft and spares from Kuwait to Iraq, and for the BA aircraft, the outbreak of war and the commencement of Operation Desert Storm in January 1991.

Today, Mr Justice Langley gave his judgment in the test case. Although the 15 KAC aircraft and the KAC spares were removed over the course of weeks after the invasion, Langley J held that the losses of the KAC aircraft and spares arose out of one event and thus could be aggregated together for the purposes of making excess of loss recoveries.

Following the "unities" test laid down by Rix J in the KAC v KIC proceedings, Langley J held that there was unity of intent on the part of the Iraqis both to capture the aircraft and spares and to deprive KAC of them permanently. There was also unity of time: the Iraqis' objective was achieved when the airport was captured, and there was unity of cause, which was the invasion. There was also unity of location as all the aircraft and spares were situated at the airport.

As far as the BA aircraft was concerned, Langley J held that it was not lost as a result of the invasion and capture of the airport. On the evidence, there was no intention by the Iraqis to permanently deprive BA of the aircraft, so there was no unity of intent. It was not clear what the Iraqis' intentions were in relation to it as it simply remained stranded at Kuwait airport from the time of the invasion, unlike the KAC aircraft that were flown away, so there was no unity of time. Langley J also found that there was no unity of cause either because the BA aircraft was not, in common sense terms, lost until the eventual destruction of the aircraft some six months later when it was destroyed during Operation Desert Storm.

Langley J commented that, although he had been referred to the relevant case law, the question he had been asked to consider was one of impression on the facts. However, Langley J helpfully re-stated and approved the "unities" test. This may well provide guidance in relation to any aggregation issues that may arise out of WTC losses with event based aggregation clauses.

For further information please contact Andrew Symons by e-mail at [email protected] or by telephone on +44 (0)20 7367 3044.