Preserving the presumption of proximate cause - because, because, because, because of the wonderful things it does?
The Court of Appeal’s decision in Brian Leighton (Garages) Ltd v Allianz Insurance plc  EWCA Civ 8 has reaffirmed the well-established presumption of proximate cause when it comes to excluded perils.
By a 2:1 majority, an exclusion for damage “caused by” pollution or contamination was found not to preclude cover for the damage that resulted from an escape of fuel at the claimant’s petrol filling station.
The policyholder, Brian Leighton (Garages) Ltd (“BLG”), was a garage business in East Yorkshire that operated a 24-hour petrol filling station. BLG held a Motor Trade Policy with Allianz that covered various risks, including material damage and business interruption (the “Policy”).
In June 2014, a leak occurred from a pipe connecting one of the underground fuel tanks to six of the forecourt fuel pumps. The hole in the pipe was thought to have been caused by the pressure of a sharp stone (or another object) on the pipe under the weight of the concrete slab beneath the forecourt.
Within a matter of days, the leak had contaminated the forecourt and the lower parts of the floors, walls and skirtings of the adjacent shop building. The contamination meant that the premises was at immediate risk of catching fire and so the business had to be closed.
BLG made a claim under the material damage and business interruption sections of the Policy. Allianz declined cover on the basis that the damage fell within the “Pollution or Contamination” exclusion and so was outside the scope of cover under the Policy.
BLG could not afford to carry out the necessary repairs itself and so the business never reopened.
Section 1 of the Policy (Material Damage) provided cover on an “all risks” basis such that all material damage to insured property was covered unless specifically excluded. Section 8 provided cover for business interruption that was a consequence of damage insured under section 1.
Section 1 contained the exclusion in question.
“Pollution or Contamination
Damage caused by pollution or contamination, but We will pay for Damage to the Property Insured not otherwise excluded, caused by:
1. pollution or contamination which itself results from a Specified Event
2. any Specified Event which itself results from pollution or contamination.”
As to the “write-back” of cover within the exclusion, it was agreed that no “Specified Event” (which included fire, lightning, explosion and civil commotion) had occurred and so the exceptions at a and b did not apply.
BLG claimed that the exclusion did not apply to the claim because although the effect of the fuel leak was the pollution or contamination of the premises, that was merely to define the consequence, not the cause. The cause of the damage was the sharp object which had punctured the pipe.
However, at first instance, Ms Clare Ambrose, sitting as a deputy judge of the High Court, agreed with Allianz that the damage had been caused by pollution and/or contamination. In the ordinary sense of the words, “pollution” and “contamination” included both the leakage of the fuel and also the mechanism by which the leak took place, which was the failure of the pipe.
Court of Appeal
On appeal, it became common ground between the parties that the damage had been caused by a process of contamination or pollution as part of the causative chain, but the pollution or contamination was not the proximate cause of the damage. The proximate cause was the sharp object that had pierced the pipe, which of itself was not pollution or contamination.
The question was whether the exclusion applied only if the pollution or contamination was the proximate cause of the damage, or whether the words “caused by” connoted something looser than proximate cause so that the exclusion applied as long as the pollution or contamination was part of the chain of events leading to the damage.
The majority found that since the general rule is that causation language in an insurance policy refers to proximate cause, and as there was nothing to suggest the parties’ intention to displace this general rule, including the wording of the write-back, the exclusion did not apply.
In his leading judgment, Popplewell LJ provided a useful refresher of the principle of proximate cause and the presumption that an exclusion of damage caused by a certain peril is concerned only with the proximate cause (see paragraph 27 of the judgment). He also noted the relevant commercial context: that the risk of a fuel leak was amongst the most obvious risks to the business and one against which the policyholder would naturally desire cover.
Not all the justices were convinced though. In his dissenting judgment, Males LJ confessed that it made perfect sense to him, as a matter of ordinary language, to say that the damage was “caused by pollution or contamination”. In his view, although the pollution and contamination was not the proximate cause of the damage as the term would be used by an insurance lawyer or a broker, it was nonetheless the cause of the damage that was the subject of the claim and meant the business had to be shut down.
Popplewell LJ noted that policyholders like BLG will have the benefit of expert advice on the scope of cover under their policies from their brokers, who are well placed to advise on the effect of exclusions, such as the one in question, because they are familiar with the basic insurance principle of proximate causation and understand the language which reflects it or modifies it.
The decision will no doubt serve as a reminder to brokers, then, that when it comes to excluded perils, the presumption is that causation refers to proximate cause, but this can be modified by the wording of the exclusion. Phrases for policyholders and brokers to watch out for are those that widen the meaning of causation in an exclusion, such as “directly or indirectly caused by”.
If there is potential for losses resulting from causes that are more far reaching than the proximate cause to be excluded, brokers’ review of the scope of cover and effect of the exclusion should therefore include assessing whether an excluded cause of loss could arise somewhere in the causal chain of events (even if it is not the proximate cause) because this might present a barrier to cover.