The Good, the Bad & the Ugly: #20 (The Good) Brian Leighton (Garages) Limited v Allianz Insurance Plc

Welcome to the latest in the series of blogs from Fenchurch Law: 100 cases every policyholder needs to know. An opinionated and practical guide to the most important insurance decisions relating to the London / English insurance markets, all looked at from a pro-policyholder perspective.

Some cases are correctly decided and positive for policyholders. We celebrate those cases as The Good.

Some cases are, in our view, bad for policyholders, wrongly decided, and in need of being overturned. We highlight those decisions as The Bad.

Other cases are bad for policyholders but seem (even to our policyholder-tinted eyes) to be correctly decided. Those cases can trip up even the most honest policyholder with the most genuine claim. We put the hazard lights on those cases as The Ugly.

#20 (the Good): Brian Leighton (Garages) Limited v Allianz Insurance Plc

Background

The policyholder, Brian Leighton (Garages) Limited (“BLG”), operated a petrol station.  The case concerned a fuel leak caused by a sharp object perforating a fuel pipe, under pressure and movement from the heavy concrete slab forecourt.  This caused contamination of the property and the business needed to be closed, as it was at risk of fire or explosion.  The insurer, Allianz Insurance Plc (“Allianz”), declined the claim on the basis that a pollution / contamination exclusion applied.

The Policy

The Policy provided cover for “damage to Property Insured at the Premises … by any cause not excluded occurring during the Period of Insurance”.

Extension 26 provided cover for “Damage in consequence of escape of water or fuel from any tank, apparatus or pipe, or leakage of fuel from any fixed oil heating installation …”.

Exclusion 9 excluded “Damage caused by pollution or contamination, but We will pay for Damage to the Property Insured not otherwise excluded, caused by … (a) pollution or contamination which itself results from a Specified Event … (b) any Specified Event which itself results from pollution or contamination”.

Specified Events were defined as “Fire, lightning, explosion … riot, civil commotion, strikers, locked out workers … earthquake, storm, flood, escape of water from any tank apparatus or pipe …”.  It was common ground that no Specified Event had occurred.   

Issue

Allianz considered that Exclusion 9 applied as the damage had been caused by pollution and contamination.  On a summary judgment application, the High Court agreed.

On appeal, BLG maintained that the cause of the damage was the sharp object rupturing the pipe and that the pollution or contamination was the resulting damage, rather than the cause of the damage.

Decision

By a 2:1 majority, the Court of Appeal held that “caused by” meant the proximate cause, and for the exclusion to bite, the contamination or pollution needed to be the proximate cause of the loss.  While the chain of causation which led to the damage included pollution or contamination, the puncturing of the pipe, not pollution or contamination, was the proximate cause of the damage.

Other exclusions in the policy used the words “directly or indirectly caused by”, indicating that the drafter of Exclusion 9 envisaged the words “caused by” to mean the proximate cause.  Popplewell LJ said that the general rule, which requires proximate causation, could be “displaced whenever it appears on the proper interpretation of the policy to be what the parties intended”.

In reaching this decision, reference was made to the Supreme Court judgment in FCA v Arch [2021] UKSC 1, where it was said:

“In the case of an insurance policy of the present kind, sold principally to SMEs, the person to whom the document should be taken to be addressed is not a pedantic lawyer who will subject the entire policy wording to a minute textual analysis … It is an ordinary policyholder who, on entering into the contract, is taken to have read through the policy conscientiously in order to understand what cover they were getting.”

Popplewell LJ observed, however, that many policies of insurance contain technical terms which have acquired their meaning through consistent use and judicial interpretation, which it is the duty of brokers to understand and advise policyholders upon, if necessary.  He He went on to say that Exclusion 9 was to be read as a whole, and he would “not regard that strong presumptive meaning of the exclusionary words as displaced unless the wording of the write-back cannot be reconciled with it”.  Reasonable readers would expect the scope of the exclusion clause to be determined by the words used, “namely the exclusionary words, rather than by what follows”, and the presumption would only be displaced if the write-back was inconsistent with it.

Popplewell LJ found that the words of the write-back did not prevent the words “caused by” from meaning the proximate cause.  Further, he considered that a restrictive interpretation of Exclusion 9 was appropriate since: “the risk of leakage of fuel from pipes, tanks and apparatus, is amongst the most obvious risks arising from a business like that of BLG, and one against which the operator of the business would naturally desire cover”.  On this basis, it was held that Exclusion 9 did not apply.

Nugee LJ likewise allowed the appeal.  He agreed that the exclusion only applied where pollution or contamination was the proximate cause and that the words of the write-back did not require “caused by” to include non-proximate causes.

In a dissenting judgment, Males LJ concluded that Exclusion 9 was not limited to excluding damage proximately caused by pollution or contamination.  Construing the language of the exclusion clause as a whole, he considered that such a narrow interpretation cannot have been intended, noting also that this argument had not been raised until oral submissions on the appeal.

Analysis

This case was plainly “good” for this particular policyholder.  It reinforces the principle that “caused by” generally will mean “proximately caused by”.  The case is useful for policyholders in confirming that non-proximate causes will be relevant to operation of exclusion clauses only where this is clear from the policy wording or to avoid inconsistencies.

Whilst finely balanced, the Court of Appeal judgment represents the latest in a series of pro-policyholder decisions, demonstrating flexibility on causation and a restrictive approach to exclusion clauses, in view of the wider commercial context (for example, see also – Manchikalapati and others v Zurich Insurance plc and others [2019] EWCA Civ 2163; Burnett or Grant v International Insurance Company of Hanover Ltd [2021] UKSC 12; Arch Insurance (UK) Ltd v FCA and others [2021] UKSC 1; Martlet Homes Ltd v Mulalley & Co. Ltd [2022] EWHC 1813).

Grace Williams is an Associate at Fenchurch Law