Court of Appeal applies Wayne Tank principle: if there are two concurrent causes of loss and one is excluded, then no cover

The Court of Appeal has dismissed an appeal by the University of Exeter (the insured) against a High Court ruling in March 2023 regarding a denied insurance claim for damage caused by the detonation of a WW2 bomb: The University of Exeter v Allianz Insurance PLC [2023] EWCA Civ 1484.

The Court of Appeal agreed with the High Court’s findings at first instance that the proximate cause of damage to the insured’s buildings was the dropping of the bomb itself rather than the controlled detonation in 2021. The resulting loss was therefore excluded by the war exclusion clause (the Exclusion) in the Policy as it stemmed from an action committed as part of WW2.

Lord Justice Coulson referred to this as a classic case of there being two concurrent causes of the loss of approximately equal efficacy and one is excluded from cover, resulting in a relevant policy exclusion applying – as per Wayne Tank & Pump Co. Ltd v Employers Liability Incorporation Ltd [1974] QB 57 (Wayne Tank). In this case the act of war in 1942 and the controlled detonation of the bomb in 2021 were the concurrent causes and the former was excluded under the Exclusion.

BACKGROUND

In 2021, an unexploded German WW2 bomb was discovered during construction works on the insured’s campus. A controlled detonation of the bomb caused damage to buildings owned by the insured and it made a claim under its insurance policy in respect of physical damage to the buildings and business interruption.

The insurer, Allianz, asserted that the Exclusion, which excluded loss and damage “occasioned by war”, applied. It was agreed by the parties that “occasioned by” gave rise to the proximate cause test.

At first instance, the High Court found in favour of the insurer, concluding that the proximate cause of the damage was the dropping of the bomb during WW2, such that the Exclusion applied. The High Court made an alternative finding that, even if the dropping of the bomb was not “the” proximate cause, it was “a” concurrent proximate cause of the loss such that the Exclusion applied. For a full analysis of this first instance decision see our insurance blog post: When is a cause a proximate cause?

The insured appealed on 4 grounds:

Policy interpretation: the judge failed to have regard to “the likely intent of the parties” in interpreting the Exclusion,
Inevitability: although the judge correctly identified the need to consider whether the loss was made inevitable in the ordinary course of events by the dropping of the bomb, he failed to apply that test, correctly or at all, in deciding the proximate cause of the loss,
Agency of change: the decision to attempt a controlled detonation and not the dropping of the bomb, was the “agent of change” (as per Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1 (Arch)), and
No reasonable judge could have reached the concurrency conclusion: the judge reached a conclusion on proximate cause which no reasonable judge could have reached.

COURT OF APPEAL DECISION

Lord Justice Coulson gave the leading judgment with whom Lord Justice Snowden and Lord Justice Lewison agreed.

Coulson LJ reconfirmed the general principles in relation to establishing the proximate cause of a loss including that the starting point is the proper interpretation of the terms of the insurance policy and the policy is to be interpreted objectively, as it would reasonably be understood by an ordinary policyholder. Also, the proximate cause does not mean the last in time but is the dominant, effective or efficient cause of the loss.

He then summarised the general principles in relation to concurrent causes:

An insured peril, in combination with uninsured events, can be the proximate cause of a loss, if it has brought about the loss with a sufficient degree of inevitability. This is so even if the occurrence of the insured peril is neither necessary nor sufficient to bring about the loss by itself (Arch).
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).

Coulson LJ also referred to Reischer v Borwick [1984] 2QB 548 and Leyland Shipping Co v Norwich Union Fire and Insurance Society [1918] AC 350 in which the proximate cause was found to be the first event in time, even when the later event might have been said to trigger the damage complained of. Both loomed large in Arch and the High Court’s judgment. However, Coulson LJ acknowledged that these cases were not directly comparable because in those cases the relevant event had already caused significant damage (here the insured’s buildings were not damaged when the bomb was dropped) and the time gap between the events was very short.

Policy interpretation

Coulson LJ first considered the proper interpretation of the policy and how the words “occasioned by war” in the Exclusion should be interpreted.

The insured argued two points:

first that the Exclusion did not seek to exclude losses “directly or indirectly caused” unlike other parts of the Policy. Therefore, the parties’ intention when entering into the Policy, was to limit the Exclusion to “direct” causes relating to war only. The insured argued that the only direct cause for the damage was the controlled detonation which would not trigger the Exclusion; and
secondly it was not plausible that the parties intended that the Exclusion applied to “long ended historic wars”.

Coulson LJ found that although these points had some superficial force, the parties ultimately did not differ as to the proper interpretation of the Exclusion. To the insured’s two points, Coulson LJ reasoned:

the words “occasioned by” in the Exclusion give rise to the proximate cause test, and that test is what must be applied. Therefore, it ultimately did not matter whether the Exclusion clause used the words “directly or indirectly”;
it was agreed that the dropping of the bomb was an act of war so the Exclusion would apply unless the insured could show that it was not the proximate cause or a concurrent proximate cause of approximately equal efficiency of the loss and damage; and
just because the detonation of the bomb occurred after the end of WW2 did not automatically rule out the operation of the Exclusion.

Coulson LJ therefore concluded that this ground of the appeal must fail and that the issue came back to a consideration of the proximate cause of the loss.

Concurrent causes of loss and damage

The insurer argued that even if the bomb was not the proximate cause it was a proximate cause of the loss and damage and therefore in accordance with the principle in Wayne Tank, as reiterated in Arch, the loss was excluded.

In response, the insured contended that if the Court was persuaded that the damage was caused by the controlled detonation, there was no other cause of approximately equal efficacy. The insured raised two arguments to support its case that the controlled detonation was a more potent cause of the damage than the dropping of the bomb:

the effluxion of time between the two events; and
the details surrounding the decision to detonate, such as the fact that the controlled detonation was intended not to cause any damage at all. These emphasised the importance of the events in 2021 rather than the earlier dropping of the bomb.

On point (i) Coulson LJ stated that the authorities show the proximate cause is not necessarily the last event in time and on the contrary can actually be the first event in time. The fact that a concurrent cause was so much earlier in time than a later cause was not of itself instructive as to what was the proximate cause.

To point (ii) Coulson LJ concluded that it did not advance the insured’s case:

“Inevitably, the discovery of a large, unexploded bomb is going to involve a number of individual decisions as to the best way in which to neutralise it. From a causation perspective, that network of individual decisions cannot have any relevance to causation unless something was done which broke the chain of causation (such as an act of negligence). That is not the Appellant’s case.”

Coulson LJ concluded that this was a “classic case” of two concurrent causes of loss – the act of war and the detonation of the bomb – which were of approximately equal efficacy. As one was excluded, the principle from Wayne Tank is that the Exclusion prevails. For that reason, the appeal was dismissed.

Other grounds of appeal

Coulson LJ did consider the other grounds of appeal briefly which were concerned with aspects of the causation test taken from the language used in Arch:

Inevitability: the dropping of the bomb was not the proximate cause of the loss since the damage did not flow inexorably and in the ordinary course of events so was not inevitably caused by the drop.
Agent of change: the controlled detonation was the “agent of change”

These did not, in Coulson LJ’s view, affect the analysis of the concurrent causes and, indeed, confirmed it. Neither ground took into account the High Court judge’s correct conclusion that there were two concurrent causes of the loss (the dropping of the bomb and the controlled detonation in 2021). Neither would have caused the loss without the other and it was the combination that made the damage inevitable, or at least in the ordinary course of events.

Ultimately Coulson LJ concluded that both grounds sought to exclude or minimise the causative effect of a critical event which ultimately led to the explosion – the dropping of the bomb in 1942.

The final ground of appeal – that no reasonable judge could have reached the concurrency conclusion – was considered a catch-all with which Coulson LJ did not agree.

COMMENT

The case provides clarity for policyholders and insurers alike on the principles related to establishing proximate causes and concurrent causes of loss. The judgment demonstrates that Wayne Tank and Arch are still key authorities on proximate cause and concurrent losses and usefully reaffirms key principles including:

where there are two causes of loss and one is insured and the other is excluded, the exclusion will generally prevail; and
the proximate cause of a loss is not always the most recent event.

It may still be that the Court of Appeal judgment leaves some observers with residual unease over the ultimate outcome which seems harsh on the insured given the passage of time since WW2. The Court recognised as much acknowledging that “unguided gut feeling” might lead to such a view but observed that ultimately the approach to legal causation is more nuanced and subject to specific rules which were applied here to yield the ultimate outcome.