Getting to grips with the proximate cause when thinking about causation

When we think about coverage, we frequently find ourselves considering issues of causation – this could be in the context of whether a loss or claim triggers the insuring clause; whether multiple losses or claims should aggregate; or perhaps whether an exclusion applies.

Regard always has to be had to the particular context of the issue, of course. However, there are some general points about the concept of causation that are helpful to think of, whatever the context.

In this article, we talk about the issue of proximate cause and share some snapshot views of what this concept is. Please always remember to tailor these comments to the facts of your situation.

 

Introduction: Why is proximate cause relevant for cover?

The general principle of proximate cause is codified in s.55 of the Marine Insurance Act 1906 (MIA 1906) but applies equally to non-marine insurance. Save where the Policy itself provides otherwise, the effect of s.55 is that the insurer is liable, and only liable, for losses "proximately caused" by an insured peril, and expressly is not liable for any loss which is not proximately caused by the peril insured against.

Consequently, insurers will be liable to indemnify the insured if the insured proves, on a balance of probabilities, that a peril covered by the policy was the proximate cause of any loss incurred. The burden of proof that another cause was more probable, possibly an excepted one, lies with insurers.

The concept may seem a simple one but if, for example, the insured peril is cyber fraud, the insured must show that the loss was not incurred by some other event, such as employee fraud. But what happens if it was an employee who committed the cyber fraud? Will the policy still respond?

Typically, when there is a chain of events or multiple causes that ultimately lead to a loss, the question arises as to what insurers have agreed to cover.

 

How to determine the proximate cause?

When trying to identify the proximate cause, the courts have used a variety of descriptions, such as "immediate cause", "direct cause", "efficient cause", "dominant (or predominant) cause", "effective cause", and "real cause".

Although the proximate cause is often the last event to occur that causes the loss, this is not always the case. In the Victorian case of Lawrence v The Accidental Insurance Co Ltd [1881] 7 Q.B.D. 216, Mr Lawrence was killed by a train after an epileptic seizure, which led to him falling off the platform at Waterloo Station. The Court held that his death was caused by the train, and not the seizure, and therefore his death was an accident covered by his personal accident policy. While the Court considered the event closest in time to the loss as the cause of the loss, the decision was also justified on other grounds, as the seizure as such - without causing Mr Lawrence to fall on to the train tracks – might not have caused the death.

However, Leyland Shipping Co v Norwich Union Fire Insurance Society [1918] A.C. 350 established that the proximate cause of the loss is not necessarily the last cause in time, but the one which is proximate in efficiency, being the "dominant, effective or operative cause". This view was affirmed by the Supreme Court in The Cender Mopu (Global Process Systems Inc v Syarikat Takaful Malaysia Berhad [2011] UKSC 5) stating that "section 55(2) of the Marine Insurance Act 1906 required the court’s inquiry to be based on fact and common-sense principles and reaffirmed the principle that the proximate cause is the cause which is proximate in efficiency."

 

What happens if there is more than one proximate cause for the loss, and one of those causes is excepted from cover?

Wayne Tank and Pump Co Ltd v Employers' Liability Assurance Corp Ltd [1974] Q.B. 57 established that, where a loss is due to a combination of causes of equal efficiency (and not one cause being dominant), one of which is an insured peril and one of which is expressly excluded, the exclusion prevails, and the insurer will not be liable.

This principle was reaffirmed by the Court of Appeal in University of Exeter v Allianz [2023] EWCA Civ 1484 [see Case Comment – University of Exeter v Allianz | DLA Piper] which concerned the discovery and subsequent controlled detonation of a WWII bomb on land adjacent to the University’s campus in 2021, resulting in damage to the University’s buildings.

The Court of Appeal found that insurers were entitled to decline cover on the basis of a war exclusion contained in the University's policy, concluding that both the dropping of the bomb in 1942 and the controlled detonation almost 80 years later were concurrent causes of the loss and damage to the University's buildings: "it was the combination of these two events which made the loss inevitable, or at least in the ordinary course of events. Neither would have caused the loss without the other." In consequence, the Wayne Tank principle applied, and the exclusion prevailed.

 

What happens if there is more than one proximate cause for the loss, but only one is expressly insured?

Where there is more than one proximate cause, neither of which is subject to an exclusion, but only one of which is expressly insured, the insurer will be liable (JJ Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd's Rep 32).

In The Miss Jay Jay, a ship had been lost as the result of adverse conditions at sea, in combination with defects in the ship’s design. The policy afforded cover for loss due to adverse sea conditions, but not design defects. Had the design faults been the only cause of the loss, there would have been no cover; however, insurers were held liable because the existence of one insured peril as a proximate cause, namely the adverse conditions at sea, was found to be sufficient.

This approach was taken further in the FCA Test Case [see UK Supreme Court judgment in the FCA COVID-19 business interruption insurance | DLA Piper] where multiple causes were considered to bring about a loss in combination with each other. The Supreme Court found that each individual case of COVID-19 that had occurred (at least one of which would have been within any relevant geographical range to the insured businesses) were equally effective proximate causes of the government and public response to the pandemic which caused the business interruption and loss to the policyholder businesses. The Supreme Court dismissed insurers’ arguments that policyholders could not prove that the insured business interruption resulted from an insured risk, because the same interruption of business losses would have occurred anyway as a result of other COVID-19 cases elsewhere in the country. It was sufficient to prove that the interruption was a result of governmental action taken in response to cases of disease which included at least one case of COVID-19 within the specified area required by the policy.

While the FCA Test Case had concerned so called "disease" or "radius" clauses, in the subsequent case of London International Exhibition Centre plc v Royal Sun Alliance Insurance plc et al. [2023] EWHC 1481 (Comm), the High Court considered a slightly different type of clause in relation to business interruption losses in consequence of the occurrence of a notifiable disease "at the Premises". The High Court took a similar approach and decided against insurers, finding that in respect of a loss "proximately caused by closure of the premises or part thereof on the order or advice of any local or governmental authority as a result of an occurrence of COVID-19 at the premises," it is sufficient to prove that "the order or advice was made or continued in response to cases of COVID-19 which included at least one case of COVID-19 at the premises."

 

Are insurers liable when it cannot be established whether the insured or the excepted peril caused the loss?

Where the insured cannot establish which of the perils (the insured or the excepted peril) caused the loss, or where none of the concurrent causes seem inherently likely, insurers will not be liable, per Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 1 WLR 948, which also held that the insured had the burden of proof throughout; and Nulty and others v Milton Keynes Borough Council [2013] EWCA Civ 15, which includes a detailed consideration of how a party discharges its burden of proof in claims where there is no single clear factual cause of the damage.

 

When does the presumption of proximate cause not apply? Setting aside of the presumption

The courts will assume that the proximate cause rule applies (as implied in every insurance contract) unless this presumption is displaced by very clear words, whereby the policy provides for some other connection between the loss and the occurrence of an insured or excepted peril, as expressed in the FCA Test Case; this is equally reflected in the wording of s.55 MIA 1906 which states "and unless the policy otherwise provides". All of this means that the actual policy wording agreed by the parties will be relevant to consider also.

Setting aside the presumption of proximate cause is often done by a policy clause referring to losses caused "directly or indirectly," connoting a looser connection between loss and cause.

For example, in Coxe v Employers' Liability Assurance Corporation [1916] 2 K.B. 629; ARC v Brit [2016] EWHC 141 (Comm), the court held that the proximate cause principle is to be applied in all cases if possible unless the language dictates otherwise, and the word "indirectly caused by" did so in that case because there could be no such thing as an indirect proximate cause.

The case of Brian Leighton (Garages) Ltd. v Allianz Insurance plc [2023] EWCA Civ 8 concerned a claim by a petrol station for damages and business interruption under a Motor Trade Policy, as a result of a leak in a fuel tank pipe, caused by the pressure of a sharp object on the pipe, leading to fuel pollution/contamination over the entire forecourt. The Policy excluded liability for "damage caused by pollution or contamination".

The wording "caused by pollution or contamination" gave rise to the question of whether the policy exclusion was concerned with pollution or contamination as a proximate cause, or whether the pollution or contamination was merely to be seen as an intermediate process in the chain of causation.

The court considered in detail whether the presumption of proximate cause had been set aside. In particular, the court considered the whole wording of the exclusion, which included a write back for cover to be available where a ‘specified event’ (which did not include fuel leaks) occurred, and other policy terms where wider language was used in connection with pollution.

In this context, the court applied well known rules of construction, considered the background knowledge of the parties, advice they would have received from brokers, and the commercial context of the policy. The court also noted that the write back wording is only relevant where the exclusion applies and therefore says nothing about the scope of the exclusion before the write back becomes operative.

Ultimately, it was held that the presumption of proximate cause was not set aside, and that the exclusion was concerned with a proximate cause only. The exclusion did not, therefore, apply, because the proximate cause of the damage was the puncturing of the pipe by the sharp object, and not the consequent fuel contamination.

 

Practical takeaways

• First, establish whether the loss claimed was proximately caused by an insured peril and not an excepted one.
• If there are concurrent proximate causes, check whether one might be excepted – it is up to the Insured to prove which peril has caused the loss; and for insurers to demonstrate the application of any exclusion.
• If it appears that the loss was caused by an excepted peril, consider if there was an agreement reached between the parties to set aside the presumption of proximate causation, as evidenced by the words of the policy.

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