GROUP 9 DISCUSSION

STUDENT NAME STUDENT NUMBER

1. NAYIGA PRISCILLA 19/U/20316/PSA

2. BOSS EMMANUEL 19/U/22373/PS
3. ABIGABA DONATHA 19/U/20341/PSA
4. KATO PATRICK NTALE 19/U/22414/PSA
5. SEERA SHIRLEY SLYVIA 19/U/20384/PSA
6. ABDULHAMID IBRAHIM MANZIL 17/U/19499/EVE
7. NABATU SUMAIYAH 19/U/20297/PSA
8. AKENA DENIS 11/U/22103/EVE
9. KADDU ANDREA 19/U/6287/PSA
10. BENON KARUHANGA
 CAUSATION IN INSURANCE LAW.

The principle of indemnity in an insurance contract governs that the insurer

compensates the insured against any damage, loss or injury caused to the
extent of the loss. However, the insured should only be able to claim for those
losses that fall within the terms of the policy, or in other words, the loss must
have been caused by a peril which the insurers had agreed to cover. This
therefore makes it important for the insurer before indemnifying the insured to
determine the cause of the loss.

The law of causation in insurance plays a key role of linking the cause with
the effect of the damage when deciding whether the insurer is liable to
indemnify the insured1. For instance one may suffer a loss, however the policy
may not cover that particular loss, or cause of the loss and thus the test of
causation comes into play. And at most times this is measured basing on the
construction of policy wording.

It is imperative to note that, the burden of proof rests on the insured to prove
that their loss comes within the policy wording and it is then upon the insurer
to prove an exception or exclusion in the policy wording which relieves them
from liability on the policy. However, this can only be done where the risk
insured against was the cause of the peril. This was the Supreme Courts
holding in The Financial Conduct Authority and Ors v Arch Insurance
(UK) Ltd and Ors2 where court held that because of the effect of COVID 19
that caused the business interruptions loss was beyond the 25 mile radius per
the policy signed, and therefore the insurance companies were not liable to
cover the claims from the Appellants.

It is not enough that in order for an insured to recover for a loss, that loss
should fall within the cover provided as a matter of construction and definition.
The insured must show that the loss was proximately caused by an insured
peril. This position is reflected under Section 55(1)of the marine Insurance
Act 2002 and therefore determining the proximate cause is a question of fact.

1
Hodgin Text and materials 2nd Edition.
2
[2021] UKSC (15TH January)
 The position at common law is that the doctrine of causation has to be applied
with good sense so as to give effect to and not defeat the intentions of the
Aparties as emphasized in Reischer vs Borwick3. In the Marsden V City
and County Assurance Co. the plaintiff had insured the plate glass in their
shop’s front against any loss or damage originating from any cause
whatsoever except fire, breakage during removal, a fire brokeout on the
premises neighboring the plaintiff’s causing slight damage to near the
plaintiff’s shop, but damage didn’t reach the plate glass, the fire attracted a
mob which in the process of overseeing the event, broke the shop shutters
and took the plate glass, the court held that, no doubt remote cause of the
damage was fire but the proximate cause was lawless mob and their violence
hence the breakage of the plate glass was not damage by the fire within the
meaning of the exceptions, and the insurer was liable.

Further still, In the case of Leyland Shipping Company v Norwich Union

Fire Insurance Society Limited4, the court laid down the principle that in
circumstances where there are two real causes of loss, the original cause
predominates and is regarded as the real cause of loss unless it was merely
facilitating a subsequent cause that totally changed matters.

However, the above principle seems to have no application in accident

policies, as we shall illustrate in the cases discussed below.

Causation in accident policies

In Winspear v Accident Insurance Association 5, the policy covered

death/injury caused by accidental, external and visible means, and excluded
any injury caused by/arising from natural disease. The insured suffered a fit,
fell in and was drowned. The court held that the cause of death was
accidental, namely the drowning, and not the fit even though had it not been
for the latter, the insured would not have died as the stream was very shallow.

The same interpretation was applied in the case of Lawrence v Accidental

Insurance Company6, where the policy required accidental injury to be the
3
(1894) 2 QB 548, CA
4
(1918) AC 350.
5
(1880) 6 QB 42
6
(1881) 7 QBD
 direct and sole cause of death. The insured suffered a fit while standing on a
railway platform. This caused him to fall on to the track, whereupon he was
run over by a train. It was held that the accident of being run over was the
proximate cause of death.

In cases of accident policies, the courts seem to infer that the natural cause
(in this case the fit) merely facilitated the real accidental cause. This
interpretation would mean that the case of Leyland Shipping Company v
Norwich Union Fire Insurance Society Ltd 7 was poorly decided. Going by
the logic in accident policy cases, one could conclude that the torpedoing
merely facilitated the sinking by the perils of the sea.

The above accident cases reveal the tendency of the courts to favor the
plaintiffs in such absurd circumstances. The case of Jason v Batten8 reveals
a new trend where insurers add a qualifying clause on the proximate cause to
avoid liability when there are other intervening factors. In that case, the policy
covered the insured if he sustained “in any accident bodily injury resulting in
and being- independently of all other causes- the exclusive, direct and
immediate cause of the injury or disablement”. There was an exception in
respect of death, injury or disablement resulting from any physical defect that
existed prior to an accident. The insured suffered coronary thrombosis after
being involved in a motor accident. The clot blocking a coronary artery existed
before the accident. The court ruled that the insurers were not liable because
the stress associated with the accident had precipitated the thrombosis. The
clot was not an injury sustained in the accident.

In cases with no qualifying clauses like that in Jason v Batten9, it may be

hard for court to genuinely decide which cause was more predominant than
the other. This is portrayed in the case of Wayne Tank and Pump Company
Ltd v Employers’ Liability Insurance Corporation. In this case, there were
2 causes; the defective nature of the equipment used and the fact that one of
Wayne Tank’s employees negligently and without authority turned on the
equipment and left it on all night. The public liability policy under which the

7
(1918) AC 350
8
(1969) 1 Lloyds Rep 281.
9
Abid
 plaintiffs were insured by the defendants excluded indemnity for liability
arising from damage caused by the nature/condition of any goods supplied by
the insured. The court held that the cause of less was the defective nature of
the equipment. The court also commented obiter that it could not be said
genuinely that one of the two causes was predominant.

The second test to apply when considering causation is the “but for”
test. which is that the occurrence of the loss is a direct consequence of the
peril insured against. This is meant to establish a link between the conduct of
the claimant and the loss suffered. This brings about the question of if “but for”
the claimant’s actions, would the harm have occurred? If the answer is yes,
then causation cannot be shown. This test constitutes the generally applicable
rule when it comes to causation in an insurance contract. In case of
Watchorn v Langford10 sets for us the boundaries in applying this test. In
this case, the insurance policy covered ‘stock in trade, household furniture,
linen, wearing apparels and plate' and lined draped goods were destroyed.
The House of Lords concluded that causation here can only be with respect to
household linen and not drapery, and that the insurer should avoid the policy.

Lord Nicholls in the case of Kuwait Airways Corporation v Iraqi Airways

Corporation criticised this test as being ‘over-exclusionary’ and that it is not
infallible and can actually generate confusions in settlement of insurance
claims.

The big debate on causation is all summarised in two cases of Orient

Express Hotels Ltd v Assiurazioni Generali SPA 11, which will subsequently
be referred to as the Orient Express case, in which the insured owned a hotel
in New Orleans and had an ‘all risks' policy, which the insured sought to claim
after disastrous hurricanes Katrina and Rita. The insurer agreed to indemnify
the hotel proprietors for the destroyed premises, but sought to avoid an
indemnity on ‘business interruptions’, which was also part of the policy. Court
set aside the ‘but for' test, arguing that in the interest of fairness and
reasonableness, ‘where two or more events are involved such that the

10
(1813) 170 ER
11
2010
 claimant is unable to distinguish which of the two would be blamed for the
loss.

This is to be contrasted with the second case on this subject matter, that of
Financial Conduct Authority v Arch Insurance (UK) Ltd 12 which is similar
to the Orient Express case except that here, the disruptions brought about by
the Covid19 pandemic was the issue, and the extent to which policy providers
would indemnify policy holders.

The judges in the Financial Conduct Authority case had no kind words about
the decision in Orient Express case, saying “...we would have reached the
conclusion that it was wrongly decided and we would have declined to follow
it". The judges also said the Orient Express case ‘misidentified the peril
insured against’ and concluded that it was badly decided.

Here, the judges took the view that the efficient or dominant cause, as
explained in Leyland Shipping Ltd v Norwich Union Fire Insurance Ltd 13,
is what matters, and that the most important element in understanding
causation or resolving a dispute connected with causation is to look at the
wording of the contract and the perils insured against.

Therefore to sum it all up, in order for a claimant to successfully be

indemnified by the insurer causation must have been proved on the basis of
the two tests discussed above and it is on that basis that the insurance
companies can be also able to protect themselves against fraudulent
tendencies and be able to rightfully compensate the insured.

12
(2021) UKSC 1
13
(1918) AC 350.