Insurance policies: identifying in the English courts the proximate cause of a loss

Almost 80 years ago, during World War II, a 1000kg high-explosive bomb fell on farmland near Exeter and did not explode. In 2012, the claimant's halls of residence were built about 200 metres away from the bomb, which was discovered by contractors in 2021. The authorities determined that the best way to deal with it was to diffuse the ordinance by carrying out a controlled "low order" explosion to split the casing and allow removal of the high explosive. However, that was unsuccessful and the high explosive detonated, damaging the claimant's properties.

The defendant in University of Exeter v Allianz Insurance insured the claimant for property damage and business interruption. As is typical for property cover, the policy contained a war-risks exclusion, for loss and damage "occasioned by war". The dispute concerned whether the loss had been caused by the enemy action during the war (excluded) or the failed attempt to diffuse the bomb (covered and last in time).

Causation: the key principles

A number of principles on causation in insurance claims have been laid out in earlier decisions and the Court of Appeal restated these in its decision.

The usual rule is that an insurer is only liable for loss proximately caused by a peril covered by the policy. And, although the parties can agree to contract out of that position, the words "occasioned by" equated to a proximate cause test.

However, proximate cause does not necessarily mean the last cause in time. It means "the dominant, effective or efficient cause of the loss". Establishing whether the loss would have occurred "but for" the cause under consideration can be useful, but it can also be over inclusive. Later human intervention and agency is not generally regarded as breaking the chain of causation, unless the actions taken are wholly unreasonable or erratic (see the Supreme Court decision in Financial Conduct Authority v Arch Insurance (UK) Ltd [2021]).

There are two relevant rules where there are multiple possible causes. If there are two equally efficient causes of loss, one of which is covered under the policy but the other is not (but is not excluded either), the loss will be insured. The leading case on this is JJ Lloyd Instruments Ltd v Northern Star Insurance Co Ltd [1987] 1 Lloyd's Rep 32. If there are two causes of loss, one of which is covered under the policy but the other is expressly excluded, then the exclusion prevails and the loss will not be insured. The authority for this is Wayne Tank & Pump Co. Ltd v Employers Liability Incorporation Ltd the Wayne Tank & Pump [1974] QB 57, confirmed in Atlasnavios-Navegação, LDA (formerly Bnavios-Navegação, LDA) v Navigators Insurance Co Ltd [2018].

The loss may be occasioned by a number of different causes, any one of which on its own would not inevitably have led to the loss. Even if the insured peril is not, on its own, enough to cause the loss, it may be a proximate cause when considered in combination with other uninsured causes. Arch Insurance was an example of this situation: the loss occurred where the insured peril took place in the context of many other concurrent causes that were not themselves excluded.

Concurrent causes

The Court of Appeal confirmed there were two concurrent causes of approximately equal efficacy. One was the dropping of the bomb during the war and the other was the controlled detonation almost 80 years later. Despite that long time gap, the bomb's destructive potency had not been reduced.

The Court of Appeal concluded that this was a classic case of two concurrent causes and since one was expressly excluded there was no cover for the claimant's loss under the policy.

Osborne Clarke comment

The Court of Appeal accepted that "unguided gut feeling" might suggest that damage caused by a controlled detonation almost 80 years after the bomb was dropped and 76 years after the war ended, was not "occasioned by war". It is also notable that the buildings that were damaged had not been built at the time the bomb was dropped. At first blush, the argument that the failed disposal of the bomb was a new supervening cause may seem persuasive, especially after a long passage of time, which the claimants asserted had established a new "status quo".

However, the case illustrates the courts' willingness to apply the technical legal principles on causation even where that might lead to intuitively surprising results. In particular, it confirms that the mere passage of time is not enough to argue, in itself, that a cause is no longer operative. The wider picture must be examined and the precise wording of the policy also taken into account.

As with almost all insurance issues, the common-law rules are subject to the express wording in the policy and different policy wordings may – and often do – affect the basic principles set out above.