Update on Proximate Cause in Insurance – Court of Appeal unanimously dismiss Exeter’s University’s Appeal

Allianz Insurance v The University of Exeter [2023] EWCA Civ 1484

Recap

Earlier this year, we reported that the High Court, Technology & Construction Court, had ruled in Allianz Insurance Plc’s (“Allianz”) favour agreeing that the University’s claim under its policy with Allianz was excluded.

This was on the basis that the claim was excluded under the War Exclusion clause and found there was no proximate cause between the loss and the detonation of the bomb. Rather, the dropping of the bomb was the proximate cause of the damage, and not the detonation, which had occurred circa 80 years after the dropping of the bomb.

Appeal Decision

The University appealed HHJ Bird’s decision. However, the appeal was dismissed unanimously by the Court of Appeal in a judgment handed down on 14 December 2023. Consequently, the insurance policy issued by Allianz does not respond to the damage to the University’s student halls of accommodation and business interruption losses in rehousing the students as a result of the controlled detonation of the World War II bomb.

Issues in Dispute

The University appealed HHJ Bird’s decision on the basis that: (i) the policy’s exclusion clause could not have intended to apply to historic events; (ii) the detonation of the bomb was the sole cause of the loss; or (iii) alternatively, it was a proximate cause concurrent with the controlled detonation.

Whereas, Allianz argued that: (i) the dropping of the bomb was the sole proximate cause of the loss, and was therefore excluded by the War Exclusion clause; or (ii) alternatively, the dropping of the bomb and the detonation of the same were both concurrent causes of the loss. Therefore, by virtue of the rule set out in Wayne Tank and Pump v Employers Liability Assurance Corp [1974] QB 57, where there are concurrent causes, one an insured peril and the other excluded, the exclusion applies. On that basis, the War Exclusion clause would inevitably be engaged as a result of the dropping of the bomb, since it was “loss occasioned by war”, which was excluded under the policy.

Judgement

In arriving at its judgment, the Court of Appeal considered the following:

a) Causation – proximate and concurrent cause

• The usual rule is that an insurer is only liable for loss proximately caused by a peril covered by the policy (Brian Leighton (Garages) Ltd v Allianz Insurance PLC [2023] EWCA Civ 8). Proximate cause does not mean the last in time, but that “which is proximate to efficiency, what matters is the dominant, effective or efficient cause of the loss”
• Where there are concurrent causes of approximately equal efficiency, and one is an insured peril and the other is excluded by the policy, the exclusion will usually prevail (Wayne Tank). This principle was restated in FCA v Arch [2021] UKSC 1.

b) Interpretation of the policy

• LJ Coulson did not accept the University’s argument that the War Exclusion clause did not seek to exclude losses “directly or indirectly caused” as the parties agreed that “occasioned by” gives rise to the proximate cause test and the same would need to be applied;
• It was agreed that the dropping of the bomb was an act of war, unless the University could prove that the dropping of the bomb was not the proximate cause, or a concurrent cause of equal efficiency of the loss and damage; and
• It was accepted that the detonation of the bomb, which occurred long after the dropping of the bomb and the end of the war, does not automatically rule out the operation of the War Exclusion clause.

In light of the above, the Court of Appeal unanimously dismissed the appeal as they agreed with HHJ Bird that the loss was caused by two concurrent causes: the first being the dropping of the bomb in 1942 and the second being the detonation of the bomb in 2021. In addition, one of the concurrent causes (i.e. the dropping of the bomb), was excluded from cover under the policy by virtue of the rule in Wayne Tank, given that the exclusion clause will generally prevail.

Comment

The Court of Appeal’s decision reflects that where there is a subsequent cause of loss by way of necessary and reasonable human interference, then the human action cannot be ignored, as it could also be a concurrent cause of the loss. However, for the purposes of policy coverage, insurers must not only consider what the most dominant and immediate cause of the loss is but to also apply a common sense approach to the chain of causation.