Category: Insurance case law · Reviewed by Simon Temme, Account Executive · Last reviewed June 2026
Court of Appeal decision on whether 32 separate reinsurance underwriting decisions could be aggregated as one “event” — held they could not — a leading authority on the narrowness of event-based aggregation.
The case formed part of the Lloyd’s litigation following the disastrous LMX (London Market Excess of Loss) spiral. Mr Outhwaite, an active underwriter at Lloyd’s, wrote a series of reinsurance contracts on behalf of his syndicates, including reinsurance to close (RITC) policies that subsequently exposed the syndicates to substantial long-tail US liabilities arising from asbestos and similar exposures.
Names on the affected syndicates sued Mr Outhwaite and his agency for negligence in underwriting. The body of claims became known as the Outhwaite or PSL litigation. The members’ agents and underwriting agencies were insured under errors and omissions policies including aggregation language that referred to “any one event”.
In Caudle v Sharp the central question was whether the underwriter’s failure properly to investigate, before signing, the underlying liabilities being assumed under a number of run-off contracts could be characterised as a single “event” for aggregation purposes. The relevant policy aggregated claims arising from “one event”, and the parties disputed whether 32 separate reinsurance contracts written over a period — each said to embody a similar failure of investigation — fell within that wording.
The insured (in effect the agency and its insurers) argued that all 32 contracts shared a common cause — the underwriter’s failure to make proper enquiry — and that this failure was the unifying “event”. The reinsurers/excess insurers argued that each separate signing of a separate contract was a separate event and that no single event could be identified that encompassed them all.
The Court of Appeal had to decide whether the writing of 32 reinsurance contracts over an extended period, each tainted by the same underlying underwriting failure, constituted “one event” for the purposes of the aggregation clause. The decision required the court to identify what the word “event” meant in the context of the aggregation language, and in particular whether it could embrace a course of conduct or a general failure to investigate, or whether it required something happening at a particular time, in a particular place, and in a particular way.
The court also had to consider the relationship between aggregation language using “event” and the broader concept of “originating cause” used in other policies, and to address the policy reasons for keeping the two formulations distinct.
The Court of Appeal held that the 32 separate underwriting decisions did not constitute “one event” for the purposes of the aggregation clause. The court drew an important distinction between an “event” — something that happens at a particular time, in a particular place, in a particular way — and an “originating cause”, which could be a continuing state of affairs or an omission.
Evans LJ delivered a leading judgment articulating the now-familiar test: an event has temporal and locational specificity, it is something that happens, not a general failing or a course of conduct. The underwriter’s failure to investigate was characterised as a continuing failure rather than a discrete event, and so could not satisfy the wording.
The court rejected the argument that the underlying common cause of the contracts (the underwriter’s inadequate investigation) could itself be the “event”. Common cause was not the same as common event. Different language would have been required to capture the common cause as a unifying factor.
The decision was a significant loss for the insured side and a significant gain for excess insurers, since it meant the limits applied per contract (or per group of similar contracts) rather than aggregating across the whole book. The reasoning was subsequently approved and applied by the House of Lords in Lloyds TSB v Lloyds Bank Group Insurance.
For the purposes of an aggregation clause using “event”-based wording, an event is something that happens at a particular time, in a particular place, in a particular way. A continuing state of affairs, a course of conduct or a generalised failure to investigate is not an event and cannot found aggregation. Where aggregation is to be based on a common cause rather than a common event, the policy wording must use the broader cause-based language.
Caudle v Sharp is a foundational authority on the meaning of “event” in aggregation language and remains regularly cited alongside Lloyds TSB v Lloyds Bank Group Insurance and Axa Reinsurance v Field as one of the pillars of the modern law.
For brokers placing E&O and PI business, Caudle is essential reading. It establishes that event-based aggregation language will not capture systemic failures or courses of conduct, with substantial consequences for the operation of limits and deductibles. Where common-cause aggregation is desired, the wording must use “originating cause”, “source” or similar broader language.
For insurers writing reinsurance and excess layers in long-tail classes, Caudle provides comfort that event-based language will be construed strictly. This has shaped market practice in choosing aggregation language and in drafting LMX, financial lines and professional indemnity wordings.
For the wider law of aggregation, Caudle v Sharp and Axa Reinsurance v Field together set up the now-classic distinction between event-based (narrower) and cause-based (broader) wording, with AIG v Woodman later providing the modern test for the intermediate “series of related” formulation. Together these cases form the spine of the doctrine.
The case is also of historical importance to anyone advising Names, members’ agents and their professional advisers on the legacy of the Lloyd’s losses of the late 1980s and early 1990s.
By Matt Bartlett, Director, on 2026-06-06. Next review: 2026-12-06.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-06. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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