September 2014

Author Meixian Song
Causation in Insurance Contract Law

Guide to causation in insurance law published

by Steve Keall, barrister and solicitor, New Zealand

A recently published insurance text that focuses on causation will interest anyone affected by insurance disputes.

Causation in Insurance Contract Law by Dr Meixian Song (2014, England, Informa Law/Routledge) provides a useful guide through the labyrinth of considerations affecting causation in the context of insurance contracts.

The text should find a home on the bookshelf of a well-informed Australasian practitioner.

Dr Song notes the commonality of approach across the United Kingdom, Australia and New Zealand. The starting point, she notes, is section 55 (1) of the UK Marine Insurance Act 1906, which is substantially mirrored in sections 55 and 61 of the New Zealand Marine Insurance Act 1908 and the Australian Marine Insurance Act 1909 respectively. The provision states:

Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.

This rule applies equally to marine and non-marine claims. So, where any claim under a policy is made, the key concept is therefore identifying the “proximate cause” which explains the relationship between the risk and the loss.

The author examines this concept to contrast to the tort approach. With reference to such cases as Lloyds TSB v Lloyds Banking Group Insurance Company [2003] UKHL 48, she notes a different and more restrictive test ordinarily applies to insurance contracts. So, while a failure to provide proper training to employees did not prevent the bank from being liable in tort to the underlying claimants, when calling on its professional indemnity policy it was permissible for the insurer to treat this failure as resulting from claims “result[ing] from any single act or omission” and therein reduce its liability to the policyholder.

Historically, causation was a matter of what happened at the latest point in time. Dr Song reminds readers of the often-quoted case of Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 691, and the words of Lord Shaw with reference to whether the relevant cause should be the “nearest one in the time chain”:

...Causes are spoken as if they were as distinct from one another as beads in a row or links in a chain, but – if this metaphysical topic has to be referred to – it is not wholly so. The chain of causation is a handy expression, but the figure is inadequate. Causation is not a chain, but a net. At each point influences, forces, events, precedent and simultaneous, meet, and the radiation from each point extends infinitely. At the point where these various influences meet it is for the judgement as point a matter of fact to declare which of the causes thus joined at the point of effect was the proximate and which was the remote cause.

Dr Song explores other worthwhile topics, including concurrent causes, and the burden of proof. The burden of proof chapter deals with the fascinating topic of unexplainable losses. In Green v Brown (1743) 2 Str, 1199, the ship left port on her intended voyage and was never seen again. The Chief Justice determined it would be unreasonable for the policyholder to adduce evidence to establish how the loss was caused. All that could be required was the best proof the nature of the case could permit. Essentially this created a rebuttable presumption that the loss was caused by an insured peril, provided the vessel was seaworthy and “unexplainability” was also clearly established.

Dr Song addresses the continually vexing issue of causation relating to breaches of warranty, specifically where the breach of warranty has not caused the loss in question but otherwise permits the insurer to decline the claim. She mentions UK law reform in this area, which has drawn much understanding from law reform legislation on the topic in New Zealand and Australia. She refers to s54 of the Australian Insurance Contracts Act 1984 according to which the insured may prove that the breach did not cause the loss in question. That requires the breach to be the dominant cause of the loss.

It stands in contrast to s11 of the NZ Insurance Law Reform Act 1977 where the provision refers to the loss has not been “caused or contributed to” by the breach – essentially a heavier burden. Since publication the British Government has introduced a business insurance law reform bill, following an almost decade-long period of consultation. The Insurance Bill provides that the insurer’s liability should be suspended, rather than discharged, in the event of a breach of warranty. Cover is restored after the policyholder has remedied the breach.

The book is based on a doctoral paper. That leads to perhaps the only potential criticism of it, which is that it could have perhaps done with one final further edit before publication. However, it is hardly alone in this, and generally the contently is provided clearly and succinctly.

The hardback price is £140.00 ($A252) + shipping. It was published on June 25, 2014, and is available here.

(c) 4 August 2014 Steve Keall, barrister and solicitor, New Zealand