The Catastrophe That Tests the Event Definition
A property treaty with a catastrophe excess of loss layer attaches at $10M per event with a $20M limit. A named storm crosses three states over four days, producing wind damage on days one and two and inland flooding on days three and four. The cedent aggregates all four days as one event and presents a ceded loss of $31M, exhausting the layer and seeking recovery. Your review shows the wind losses alone would be $9M-below the attachment-and the flood losses alone $14M. The treaty's event definition refers to 'a single occurrence or series of occurrences arising from one originating cause' and does not separately define storm versus flood. The cedent's own catastrophe model treats wind and flood as separate perils.
1. What is the central interpretive question, and how do you work through it?
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The question is whether wind and flood from one named storm are 'one originating cause' or separate occurrences. The treaty language is broad and favors aggregation when there is a common originating cause-the storm-but it is not self-executing, and the cedent's own model treating the perils separately is evidence about how the parties understood the risk.
Work through it in order: (1) the treaty's words, read as a whole, including any hours clause or event definition in the catastrophe section; (2) the parties' course of dealing-how prior events were aggregated; (3) industry practice for named storms. If the treaty contains an hours clause, it may resolve the question by time window rather than by peril. Do not decide on the cedent's aggregation alone; require the loss breakdown by peril and by day before taking a position.
2. The cedent has exhausted the layer on its aggregation and wants payment. What is your response and what do you need?
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Do not pay the full $20M on the cedent's aggregation while the interpretation is unresolved. Acknowledge the claim, state the disputed issue in writing, and pay any undisputed amount-on these numbers, if aggregation is accepted the layer is exhausted, but if the perils are separate, neither wind nor flood alone reaches the $10M attachment, so the undisputed amount may be zero. That is a defensible position only if documented.
Require: a peril-by-peril and day-by-day loss breakdown, the cedent's aggregation rationale, and any prior-event precedent. Preserve your rights explicitly and set a response timeline. If the amounts are large enough, consider a reservation-of-rights letter and, if the parties cannot agree, a defined dispute-resolution step under the treaty rather than an open-ended standoff.