UKSC 26: The Implications of the Supreme Court’s Approach to Concurrent Causation for the Wider Insurance Industry - Craig Williams

Fri, 30 November, 2018

Navigators Insurance Company Limited and Others v Atlasnavios-Navegacao LDA (formerly Bnavios-Navegacao LDA (“the B Atlantic”) [2018]

The recent decision of the Supreme Court in the B Atlantic ([2018] UKSC 26.) in which Quadrant Chambers’ Guy Blackwood QC represented the successful insurers, was not only an important decision for the marine insurance market but the insurance industry as a whole.

An area of particular interest to the wider insurance industry is the Supreme Court’s comments on the correct approach to the causation analysis in cases where the parties posit multiple potential causes for a loss. This is a topic which shall be dealt with in detail in an upcoming series of talks by Quadrant Chambers on the broader impact of the B Atlantic, however, the issue is briefly explored in this article.

The Facts of B Atlantic

After loading a cargo of coal in Lake Maracaibo, Venezuela, for discharge in Italy, an underwater inspection by divers discovered 132kg of cocaine strapped to the vessel’s hull below the waterline. This concealment constituted an offence contrary to Article 31 of the Venezuelan 2005 Anti-Drug Law. Articles 63-66 of the same law provided for the seizure of the vessel in such circumstances. The vessel was therefore seized by the Venezuelan authorities. The vessel remained in detention until August 2010, after which the Court ordered the final confiscation of the vessel. The owners, having abandoned the vessel to the Venezuelan court in September 2009, treated vessel as a constructive total loss and pursued a claim under their insurance.

The hearing before the Supreme Court turned on the inter-relationship between perils identified in clauses 1.2, 1.5 and 1.6 of the policy[1] and the exclusion identified in clause 4.1.5. The premise upon which the case proceeded to the Supreme Court was that the concealment of the cocaine by unknown third parties constituted a malicious act (it was only on this basis that the owners were able to claim under clause 1.5 and argue that clause 4.1.5 was inapt to exclude liability).[2] However, the Supreme Court found that (despite the parties’ agreement to the contrary) the concealment of the cocaine did not in fact constitute a malicious act. This was sufficient to dispose of the appeal, nevertheless the Supreme Court helpfully considered what the position would have been if this premise had been accepted.[3]

Competing or Concurrent Causes

Where multiple “causes” are said to give rise to an incident, the general rule in insurance law is that the Court will identify the true proximate cause,[4] finding the other posited cause(s) to be too remote or not actually causative.[5] The identification of the proximate cause is an exercise in common sense, it is not necessarily the last event prior to the loss.

An example of the general rule being followed is In re Etherington and the Lancashire and Yorkshire Accident Co[6] where the assured fell from his horse, suffered shock and wetting and later died from pneumonia. Whilst the policy in question covered death caused by and occurring within three months of an accident, it had an exception in respect of death caused by “disease or other intervening cause”. However, the accident was held to be the proximate cause of the death as the pneumonia was considered to be something usually attendant upon the particular accident and caused by it rather than an independent disease.

The general rule is, of course, subject to exceptions and sometimes the correct analysis is that there are in fact two (or more) concurrent causes. The issue of concurrent causation usually arises in cases where there are potentially applicable exception clauses,[7] likely because of the increased commercial advantage in insurers running such arguments in those cases[8] and because the very existence of an exception clause affects the analysis of what is regarded as proximate.[9] The question of whether there is concurrent causation is in no way restricted to marine insurance disputes, a well-known example being Wayne Tank and Pump Co Ltd v Employers Liability Corporation Ltd[10] where the Court of Appeal had to consider whether the cause of a fire which burned down a factory was: (i) the defective nature of equipment; (ii) the negligence of one of the servants of the insured in leaving said equipment turned-on and unattended overnight prior to proper testing of the installation; (iii) or both as concurrent causes.

Therefore the Supreme Court’s comments on this subject are of great interest to the wider insurance industry. The issue of concurrent causation was not argued at first instance or the Court of Appeal but was argued in the Supreme Court. The owners sought to avoid the loss being excluded by arguing that it was the malicious act,[11] not the detainment/seizure for the infringement of customs regulations (which was excluded), which fell to be regarded as the proximate cause of the loss. Therefore, the Supreme Court had to choose from the following posited causes:  (i) the malicious acts of third parties;[12] (ii) the seizure/detainment by reason of infringement of customs regulations; or (iii) both (acting as concurrent rather than independent causes). In rejecting the owners’ argument, the Supreme Court made the following comments:

  1. The Court is more likely find concurrent causes when the policy has a potentially applicable exceptions clause. [13]
  2. The likelihood of concurrent causes being found was increased by the fact that the owners had effectively used a clever construction of the policy to avoid relying on the most obviously applicable peril, which was itself obviously covered by the applicable exceptions clause, in order to side-step that otherwise wise applicable exception.
  3. The owners needed to rely upon the detainment/seizure of the vessel for 6 months in order to establish it as a constructive total loss under Clause 3. However, in order to avoid the effect of the exception clause at 4.1.5, they sought to argue that the detainment and its continuation were not causatively relevant as they were simply incidents of or sequela to the original malicious act. The Supreme Court rejected that the submission as “unreal in practical terms”[14] as they were “by no means bound to occur”. This appears to be a very high standard indeed.

Therefore the Supreme Court held that it was the combination of the “malicious act” and the seizure/detainment which led to the loss, with the latter arising from the excluded peril of infringement of customs regulations and therefore that the owners’ claim failed. The case demonstrates the very real difficulties that an insured will encounter in attempting to recover in respect of a loss where the insurers are arguing that the loss was caused (in whole or concurrently) by an excluded peril.

[1] The policy in question was a standard war risks insurance policy on the Institute War and Strikes Clauses 1/10/83 with additional perils.

[2] This had been common ground from at least the first instance hearing before Flaux J: [2014] EWHC (Comm). The basis for this common ground was that those unknown third parties were reckless as to whether or not the concealment of drugs on the vessel led to the detention or confiscation of the vessel.

[3] See [2018] UKSC 26, at [30]-[31]. The remainder of this article will therefore refer to the concealment of the cocaine as a malicious act.

[4] What is referred to in this article as the “proximate” cause is also given other monikers in the case law, such as the “operative”, “dominant”, or “effective” cause. This article shall take the same approach as the Court of Appeal in B Atlantic and call this the “proximate” cause ([2016] EWCA Civ 808, at [23]).

[5] [2018] UKSC 26, at [43].

[6] [1909] 1 KB 591.

[7] ENE Kos I Ltd v Petroleo Brasileiro SA (No 2) [2012] UKSC 17, [41]-[43].

[8] Where a loss has two or more proximate causes both of which are necessary for the loss to occur (i.e. concurrent, not independent) but only one of which is insured (the other being excluded), the exclusion will prevent the insured from recovering for the loss despite the insured cause also applying: see John Cory & Sons v Burr (1883) 8 App Cas 393, pp. 400-401, and Wayne Tank and Pump Co Ltd v Employers Liability Corporation Ltd [1974] 1 QB 57, see Lord Denning MR at p 67B-68A, Cairns LJ at 69B-D and Roskill LJ at pp. 74E-75D.

[9] See Royal Greek Government v Minister of Transport (The Ann Stathatos) (1949) 83 Ll L Rep 228, 237: “the whole of what one might call the area naturally appurtenant to the excepted event must be granted to it”.

[10] [1974] 1 QB 57.

[11] The argument was considered by the Supreme Court on the hypothetical that the concealment of drugs was considered to be malicious.

[12] On the hypothetical that concealment of drugs constituted a malicious act.

[13] [2018] UKSC 26, at [42]-[43].

[14] [2018] UKSC 26, at [44].

Craig Williams 

Craig has an international commercial practice which encompasses banking, energy, international trade, and shipping. He regularly appears in the High Court (including the Commercial Court and Admiralty Court) and arbitration both as sole and junior counsel.

Prior to joining Quadrant, Craig worked in the litigation team (EMENA) of an energy multinational. He has also worked in-house at a boutique commercial disputes firm and undertaken secondments at a leading London shipping law firm and in the insurance industry.

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