Beware unexploded bombs, proximate causes and …. the unintended consequences of adding clarity
It is not that often that the standard UK market War Exclusion, language which for decades has sat materially unchanged, is the basis of a declinature by insurers.
The recent case of Allianz Insurance plc v University of Exeter is therefore particularly interesting as the Court was asked to interpret this language and decide whether BI losses arising from the controlled detonation of a WWII bomb, discovered on nearby property were excluded from cover. Laura Sponti and Tamsin Hyland of RPC's wordings team, consider key points arising from this recent decision and in particular, from the perspective of those drafting insurance wordings, how the judgment deals with the juxtaposition of the war exclusion with other, more modern standard exclusionary language, given that wordings are interpreted as a whole.
In 2021, an unexploded WWII bomb was discovered during construction works on land adjacent to University of Exeter halls of residence. A controlled explosion was the only way to safely remove the bomb which resulted in the complete destruction of the bomb, the release of its full explosive load and damage to UoE property.
UoE subsequently notified a claim for damage and business interruption to Allianz. Allianz declined cover on the basis that the policy excluded loss and damage "occasioned by war". Ultimately, Allianz sought a declaration from the Court that they were entitled to decline cover.
The relevant exclusion within UoE's policy was a variation on the standard UK market War Exclusion:
“Loss, destruction, damage, death, injury, disablement or liability or any consequential loss occasioned by war, invasion, acts of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection or military or usurped power.”
Eagle-eye readers will notice that the standard War Exclusion includes, "confiscation or nationalisation or requisition or destruction of or damage to property by or under the order of any government or public or local authority" which was missing from the exclusion in this case.
The court was presented with two potential proximate causes of loss (i.e. the effective cause of the loss):
i. the dropping of the bomb; and/or
ii. the controlled detonation of the bomb.
Either could be the sole proximate cause or, if the Court accepted that both caused loss, then they would both be "concurrent proximate causes".
Restating the decision in JJ Lloyd Instruments Ltd v Northern Star insurance Co Ltd that concurrent proximate causes were causes which were "equal, or at least nearly equal, in their efficiency", FCA v Arch established that where one concurrent proximate cause is excluded, but the other is not, the exclusion will prevail.
Allianz argued that the dropping of the bomb was one, if not, "the" proximate cause of the loss. On that basis, they argued the loss was "occasioned by war" and so the exclusion was engaged.
On the other hand, UoE's case was that the only proximate cause was the controlled detonation which they said was not "occasioned by war".
His Honour Judge Bird, siding with Allianz, noted that the proximate cause test is a matter of common sense.
His starting point was that the loss was caused by an explosion. He reasoned that "the explosion was triggered by the reasonable (and indeed obviously correct) decision to detonate the bomb. That decision was necessitated by the presence of the bomb. If there had been no bomb, there would have been no explosion. … if the bomb had exploded when it landed … the conclusion that the bomb was the proximate cause of the damage would have been inevitable. Does the reasonable and necessary human act of detonating the bomb change that analysis? In my view it does not."
Further, he rejected the contention that the passage of time between the dropping of the bomb (in 1942) and its ultimate detonation, was enough to unseat his analysis. He observed that the explosion and damage were proximate in time, but that "the passage of time does not of itself provide an answer to the question of "proximity" [as a question of causation]. He concluded that "the dropping of the bomb [was] an act of war" and therefore, as either the sole or a concurrent proximate cause, the exclusion applied. He rejected the submission by UoE that the detonation was the sole proximate cause of loss.
In light of that finding, UoE argued that because the policy contained express language in other exclusions which recited the operation of the FCA v Arch rule, it could be inferred that the absence of such language in the War Exclusion, was intentional, i.e. that the rule ought to be disapplied in this context.
The specific language relied on was the market standard language of a cyber exclusion, namely "… regardless of any other cause or event contributing concurrently or in any other sequence to such act of Terrorism".
The Judge ultimately dismissed the argument. He found that in the context of this language, which is increasingly prevalent, the reasonable observer, aware of the rule, would not conclude that the absence of reference to it in the war exclusion meant it was to be read as expressly disapplying the rule. A reasonable person with that knowledge would expect that if the rule was to be excluded, clear words to that effect would be used.
Lessons learned for policy drafting
For drafters of policy wordings, this case is a reminder of a salutary lesson that because policies are interpreted as a whole, there may be unintended consequences of including language which seeks to 'copper bottom' a specific point, especially where including it may open up the argument that inference can be drawn from its absence, elsewhere.
This situation might arise from the incorporation of endorsement language (where it is not uncommon to see that approach), into the body of a policy wording. Whilst that danger did not materialise in the context of concurrent proximate causes, there may be a case where a reasonable observer might conclude that the inference was a reasonable one to draw.