Insurance

INDIRECT CAUSATION MUST STILL BE REAL CAUSATION

In the recent decision of Arc Capital Partners Limited v Brit Syndicates Limited [2016] EWHC 141, the courts have yet again had to grapple with causation issues in the insurance context.

The case concerned a claim on a professional indemnity policy by a Fund Manager, which was facing a very substantial negligence claim from a former client.

The Commercial Court (Cooke J) was required to construe a Retroactive Exclusion, which excluded:

“… any claim … arising from or in any way involving any act, error or omission committed or alleged to have been committed prior to 5th June 2009”.

One of the key issues was how the phrase “in any way involving” should be construed, as compared with the phrase “arising from”.

The Insured contended that the two phrases in question were near identical, with both in effect equating to “proximately caused by”.

By contrast, the Insurers, while agreeing that “arising from” did indeed mean “proximately caused by”, argued that “in any way involving” meant only that there had to be “a broad or loose connection” between the claim and the act/error/omission which had occurred prior to 5 June 2009.

Ironically, in the event that their respective primary arguments failed, both the Insured and the Insurers had identical fall-back positions - namely that, while “arising from” meant “proximately or directly caused by”, the phrase “in any way involving” was to be construed as meaning “indirectly caused by”.

Perhaps unsurprisingly, the court held that this unintended compromise between the parties was indeed the correct construction, a construction which resulted in the two phrases being given recognisably distinct meanings and the clause hanging together as whole.

The court then went on to consider what was meant by “indirectly caused by”. It stated that it derived considerable assistance from the decision of Scrutton J (as he then was) in Coxe v Employers’ Liability Assurance Corporation Limited [1916] 2 KB 629, which involved a life insurance policy taken out by an Army Captain who had been fatally hit by a train while inspecting sentries guarding a railway line. The question was whether the insurers could rely upon an exclusion for death or injury “directly or indirectly caused by, arising from or traceable to … war”.

Scrutton J held, and nowadays this might be thought obvious, that:

“…A line must be drawn somewhere. For instance, the birth of Captain Ewing, even though it may be said to have led in the chain of causation to his being in the position in which he was killed, could not be considered as causing his death…”

Thus, stated Scrutton J, if for example Captain Ewing had been struck by lightning while he happened to be at a military camp, it could not be said that his death was indirectly caused by the war. In this case, however, he had been killed by the train while undertaking military duties, and thus his death was indeed indirectly caused by the war, so that the claim by his estate on the life policy failed.

Against that background, the court in Arc Capital held that the “act, error or omission” referred to in the Retroactive Exclusion had to have causative effect, and thus must have been the type of act, error or omission which could in principle give rise to liability on the part of the insured. Thus:

“It is not enough that circumstances arise prior to 5th June 2009 in which a wrongful act takes place thereafter. That would merely represent the historical context or background against which wrongful acts occurred. There must be some act, error or omission which could give rise to liability which occurs prior to the Retroactive Date which is genuinely part of a chain of causation which leads to liability for the claim in question.”

So, whereas “arising from” (or any other phrase connoting direct causation) requires an immediate causal connection between an event and an outcome, “in any way involving” (or any other such phrase connoting indirect causation) still requires a genuine causal connection between the two albeit not an immediate one. It is sufficient that the two are connected by a “chain of causation”, however many links apart they may be in that chain.

About the author

Jonathan Corman      Partner

T: 020 3058 3077

E: jonathan.corman@fenchurchlaw.co.uk
Jonathan is a partner specialising in insurance disputes, with a particular focus on Professional, Financial and Construction risks. Jonathan has been an insurance specialist for over 20 years, concentrating primarily on professional indemnity claims, as well construction, EL/PL and D&O. He has litigated at all levels of the court system, is familiar with the arbitration process and a strong believer in mediation whenever it is appropriate.

by Jonathan Corman