Insurance policy – Exclusion – Proximate cause of damage – Interpretation – Appellant claiming under insurance policy following fuel leak in petrol filling station – Respondent insurer applying for summary judgment – Commercial Court interpreting meaning and effect of wording of exclusion clause in policy – Judge granting respondent’s application – Appellant appealing – Whether court erring in treating pollution or contamination as cause of damage – Appeal allowed
Until June 2014, the appellant ran a garage business in Goole, East Yorkshire, trading and repairing vehicles and operating a 24-hour petrol filling station. The respondent was its insurer under a motor trade policy covering various risks under 15 sections. The appellant brought a claim under section 1 (material damage) and section 8 (business interruption) arising out of a fuel leak in early June 2014, which resulted in the garage being shut down for health and safety reasons. The respondent declined liability.
The judge determined various issues in a summary judgment application in favour of the respondent: [2022] EWHC 1150 (Comm).
The appellant appealed against the decision that damage to the forecourt and shop building was damage “caused by pollution or contamination” so as to be excluded from cover under exclusion 9, which provided that the policy did not cover damage caused by pollution or contamination, but stated “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”. It was common ground that no specified event occurred in this case.
The appellant contended that the judge had made a fundamental error in treating pollution or contamination as the cause of the damage, which was the inquiry required by the words “caused by” in exclusion 9.
The respondent argued that the judge correctly identified that the process by which the damage to the shop and forecourt occurred in this case was by contamination and pollution, which was what caused it.
Held: The appeal was allowed (by a majority, Males LJ dissenting)
(1) The core principle was that an insurance policy, like any other contract, had to be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean: Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1; [2021] EGLR 12; [2021] AC 649 applied.
The relevant commercial context was that this was a policy for a small or medium-sized enterprise whose business included a petrol filling station. The risk of leakage of fuel from pipes, tanks and apparatus was among the most obvious risks arising from such an operation, and one against which the operator of the business would naturally desire cover.
There was no room for the application of the relevant aspect of the contra proferentem principle, which applied to a clause exempting a party from a liability which would otherwise arise by operation of law or under a contractual term, which defined the benefit which it appeared it was the purpose of the contract to provide: Impact Funding Solutions Ltd v Barrington Services Ltd [2016] UKSC 57; [2017] AC 73 considered.
(2) It was a general principle of insurance law that the insurer was only liable for losses proximately caused by a peril covered by the policy. The proximate cause of the loss was not the last cause of the loss, but that which was proximate in efficiency, being the dominant, effective or efficient cause. There might be more than one proximate cause of a loss. Where there were concurrent proximate causes, one an insured peril and the other excluded, the exclusion prevailed: Financial Conduct Authority v Arch considered.
It is commonplace in human experience, and therefore insurance claims, that a loss might result from a combination of causes, either operating independently of one another or in a chain where each would not have arisen but for that preceding it in the chain. Of those causes, the search was for a proximate cause, and it was generally irrelevant if a cause was either more remote in the chain than the proximate cause or more immediate.
That was subject to the qualification that the requirement of proximate causation was based on the presumed intention of the contracting parties; it was a presumption capable of being displaced if, on its proper interpretation, the policy provided for some other connection between loss and the occurrence of an insured or excepted peril. The parties might expressly provide that losses which resulted from causes which were more immediate or more remote than the proximate cause were to be included or excluded. Typically, that was done by a clause referring to losses caused “directly or indirectly” by the insured or excepted peril.
(3) It was trite that exclusion 9 was to be read as a whole. The reasonable reader of the clause would expect the scope of the exclusion to be determined by the language employed to express the exclusion, namely that in the exclusionary words, rather than by what followed.
This was a policy covering all risks of material damage unless excluded, and it was not inherently surprising in such a policy that an exception should have a narrow scope of application. Moreover, the risk of leakage of fuel from pipes, tanks and apparatus was among the most obvious risks arising from a business like that of the appellant, and one against which the operator of the business would naturally desire cover. A narrow interpretation of the exclusion was consistent with such desire.
(4) (per Males LJ dissenting) As a matter of ordinary language, it made perfect sense to say that the damage in this case was “caused by pollution or contamination”. Although the pollution and contamination was not the proximate cause of the damage as that term would be used by an insurance lawyer or broker, it was the pollution and contamination which resulted from the penetration of the fuel pipe which caused the damage to the property and meant that the business had to be shut down.
Therefore, the terms of exclusion 9 sufficiently demonstrated an intention to displace the general rule that causation language had to be taken to refer to the proximate cause of damage, and that the damage in this case was caused by pollution or contamination within the meaning of the exclusion.
Nicholas Davidson KC (instructed by Adie Pepperdine Ltd of Lincoln) appeared for the appellant; Jason Evans-Tovey (instructed by Clyde & Co Claims LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Brian Leighton (Garages) Ltd v Allianz Insurance plc
