All’s Fair in Law and War or…Exclusion Explosion: the Court of Appeal Decision in The University of Exeter v Allianz Insurance PLC [2023] EWCA Civ 148

The Court of Appeal recently dismissed an insured’s appeal on a case in which it considered proximate and concurrent causes of loss and the Wayne Tank Principle, in the context of an industry-standard exclusion for damage caused by acts of war.

Facts

In 1942, during the height of World War II and Germany’s systematic raids on the UK, a bomb was dropped on farmland near Exeter which remained unexploded and undetected for many years. Fast forward to 26 February 2021 when the dormant explosive was identified during construction work that was being undertaken adjacent to halls of residence at the University of Exeter (“UoE”).  The bomb disposal squad was called in to manage the situation.  It deduced that, as the bomb could not be easily transported away from the site, the safest course of action would be to carry out a controlled explosion, resulting in detonation of the bomb. Click here for a live recording of the explosion.

However, the force from the explosion caused damage to UoE’s halls of residence. This was always a highly probable result of the exercise and no criticism was levelled at the bomb disposal squad.

The Claim

UoE sought recompense for the ensuing loss under its ‘all-risks’ insurance policy (the “Policy”) in respect of physical damage to the buildings and business interruption.

Its insurers, Allianz Insurance Plc (“Allianz”) avoided the claim by stating that the Policy’s  exclusion for damage caused by acts of war  (the “Exclusion”) applied, which denied coverage for loss and damage “occasioned by war”. The wording of the relevant clause was one typical in property policies of this nature and read as follows:

“War…

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.”

The issue before the Court of Appeal was whether the loss and damage claimed by Allianz was “occasioned by war”. If so, the claim was excluded. If not, the claim would be covered under the Policy. Therefore, the dispute centred around the need to establish the “proximate cause” of the loss.

Allianz asserted that the proximate cause of the loss was the dropping of the bomb in 1942. That act was accepted by both parties to be an act of war and so, according to Allianz, there was no cover.  Alternatively, Allianz submitted that if the dropping of the bomb was “a” not “the” proximate cause of the loss, then even if there were other proximate causes, the Exclusion would still apply by virtue of the concurrent causes rule established in the case of Wayne Tank and Pump v Employers Liability Assurance Corp. [1974] QB 57 (the “Wayne Tank Principle”).  This rule provides that where there are concurrent proximate causes – one insured, the other excluded – the exclusion applies, and coverage can be denied.

UoE, on the other hand, argued that the proximate cause of the loss was not the dropping of the bomb in the 1940s, but the intentional act of detonating the bomb, decades later.  UoE claimed that the detonation was a much more potent cause of the damage to the buildings than the dropping of the bomb, for various reasons including the passage of time between the two events.   It also argued that the parties could not have intended that the Exclusion would apply to an historic war and made reference to the language, relevance and purpose of the Exclusion to advance its claim.  UoE also denied that the concurrent causes argument applied to the facts; however, if the Court deemed that it did then the concurrent causes rule was overruled by the terms of the Policy.

First Instance and Court of Appeal Judgments

At first instance, the High Court found in favour of Allianz. By applying the guidance set out in the case of Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UK SC 1(“FCA v Arch”), Bird J held that the sole proximate cause of the damage was the dropping of the bomb during World War II, and that the Exclusion therefore applied. The High Court made an alternative finding that even if the dropping of the bomb was not “the” proximate cause, it was “a” concurrent proximate cause of the loss and thus, by operation of the concurrent causes rule under the Wayne Tank Principle, the exclusion was valid, could be applied, and the Policy would not respond.  The UoE appealed.

The Court of Appeal (“CoA”) dismissed UoE’s appeal against the first instance judgment that the loss was not covered.

The CoA upheld the High Court’s alternative finding that the dropping of the bomb was not “the” proximate cause, it was “a” concurrent proximate cause of the loss and damage.  The CoA determined that there were, in fact, two concurrent proximate causes of the loss: (1) the dropping of the bomb in 1942; and (2) its subsequent detonation in 2021. The Court of Appeal also stated that: “[n]either would have caused the loss without the other. It was the combination that made the damage inevitable, or at least in the ordinary course of events.”

It went on to provide some useful clarification of the rules on proximate and concurrent causes of loss.

The Court directly addressed UoE’s assertion that the first instance decision had failed to apply the ‘inevitability test’ (which was part of the proximate cause guidance established in FCA v Arch) and that it was not inevitable that the damage “flowed inexorably and in the ordinary course of events” from the dropping of the bomb alone.  The court accepted that this was the case explaining how the bomb could have exploded when it was dropped in 1942 and therefore no damage would have been caused to the subsequent university buildings. However, it also pointed out how it might also never have exploded, had the bomb squad successfully rendered it safe. The Court explained that UoE’s analysis on this point failed as it focused only on the High Court’s finding that the dropping of the bomb was the sole proximate cause; it did not address the alternative finding that there were two concurrent proximate causes. So, the actions of the dropping of the bomb and the later detonation by the bomb squad were, in fact, concurrent, proximate causes of the loss.

Further, the CoA agreed with the first instance decision that the passage of time had no effect on the potency of the bomb, thus rejecting UoE’s assertion that the detonation was a more potent cause of the damage (using the passage of time as evidence).  The Judge stated “the proximate cause is not necessarily the last in time: on the contrary, it can often be the first in time. In a case of potentially concurrent causes, the fact that the first concurrent cause was so much earlier in time then the second does not, of itself, provide any sort of answer.”.

UoE also asserted that as the bomb remained undiscovered for 79 years, this constituted “a settled status quo”, and therefore the controlled detonation was the “agent of change”, not the dropping of the bomb. The CoA again relied upon first instance alternative finding that the dropping of the bomb was a concurrent cause of the loss and rejected the point. The CoA noted that the “agent of change” principle in FCA v Arch “should not be elevated into a principle or slavishly followed as some sort of freestanding causation test.”.

The CoA having established that there were concurrent causes of the loss, again relied upon the Wayne Tank Principle to confirm the application of the Exclusion, allowing Allianz to deny coverage. The CoA stated that “… this is a classic case where there were two concurrent causes of the loss and damage: the act of war in 1942 and the detonation of the bomb as a result of the attempted [Low Order Technique] in 2021. They were of approximately equal efficacy. One of those concurrent causes was expressly excluded from cover under the policy. In those circumstances, the rule in Wayne Tank is that the exclusion will generally prevail… For that straightforward reason…I would dismiss this appeal.”

Commentary

Although there are no new areas of law established by the judgments, they do provide a useful reminder of the key principles to be applied to issues of proximate cause and concurrent causes of loss in relation to exclusion clauses and this judgment endorses the findings in FCA v Arch and the Wayne Tank Principle.

The CoA reiterated the point that these types of decisions are generally fact-sensitive and made with a principled and nuanced approach to causation, rather than being influenced by what it described as ‘unguided gut feeling’.  They also demonstrate the feasibility of there being numerous, concurrent proximate causes of loss. The principles relating to how neither the timing nor chronology of events are determinative factors are now firmly entrenched legal guidelines. The same also applies for the application of the Wayne Tank Principle, where there are two causes of damage and one is not covered, there is no cover available.

They also act as a useful reminder to policyholders of the fact that exclusions for damage caused by acts of war relating to bygone conflicts may still have relevance in a modern world.