The Supreme Court has confirmed, in the recent judgment of Navigators v Atlasnavios that findings of concurrent proximate causes are still possible thereby reinforcing the importance of policy exclusions.
After a period of some uncertainty following the Cendor MOPU judgment in 2011, the UK Supreme Court has reaffirmed the established principle of insurance law that when a loss arises through a combination of two concurrent proximate causes, one covered and the other excluded, the exclusion will take precedence and insurers will be entitled to decline cover.
Following a shift in English insurance law after the introduction of the Insurance Act 2015 which was legislation widely perceived to be "pro-insured", this recent judgment in Navigators v Atlasnavios is a helpful confirmation of the value and importance of exclusions in insurance policies.
Whilst the decision relates to a marine policy, this article explores how the judgment may affect energy insurance losses which are often deemed, in root cause analysis reports, to be caused by a multitude of concurrent causes.
The Facts and Judgment
In August 2007, unknown third parties attempted, unsuccessfully, to smuggle drugs out of Venezuela by attaching them to the hull of the vessel 'B Atlantic'. Venezuelan authorities located the drugs during an inspection and seized and detained the vessel. In June 2008, the owners served a notice of abandonment which was effective to constitute the vessel a constructive total loss.
The policy in question was a named perils wording which included cover for "persons acting maliciously". Ultimately, it was held by the Supreme Court that the act of attaching the drugs to the vessel was not considered a "malicious act", as the smugglers had not intended that the vessel be detained or rendered a constructive total loss.
However, the remainder, and for the purposes of this article, the most interesting section of the judgment dealt with the question of whether, if the court had held there to have been a loss by an insured peril (which it did not), the following exclusion would have applied in respect of for loss arising from: "detainment…by reason of infringement of any customs or regulations." On any view, there had been detainment by reason of infringement of customs or regulations.
Lord Mance gave the leading judgment (which was unanimously agreed) and he considered the scenario where, if both the covered peril and the excluded peril worked concurrently to cause the loss, the loss would be excluded. This had been settled law until the decision of the Supreme Court in The Cendor MOPU in 2011 in which the Court found that the exclusion for inherent vice (of the jack-up rig legs) did not bite due to there being an external fortuity of a "leg-breaking wave". A commonly held view following that judgment was that it cast doubt upon the principle that exclusions override insured perils where the causes are concurrent given that, in that case, the evidence was that the wave would not have broken the leg but for inherent, internal issues with the leg. Lord Mance expressly contrasted the Navigators case with the The Cendor MOPU and noted:
“In…The Cendor MOPU… I expressed a reservation in the very different context of the inter-relationship… between hull cover against perils of the seas and inherent vice. That reservation does not on any view have traction in relation to the present careful exclusion of the peril of loss arising from detainment by reason of infringement of customs regulations from cover under the Institute War and Strikes Clauses Hulls-Time.”
This recent judgment therefore provides welcome clarity by reaffirming the long-established position set out in Wayne Tank.
Impact on the Energy Insurance market and a Cautionary Note
Those involved in energy claims will be all too familiar with root cause analyses which list a number of possible causes of a particular the loss and the real difficulty in identifying the true "proximate cause". Sometimes it is simply the case that there are two concurrent causes where the loss only arose due to operation of them both and would not have occurred in the absence of either.
Energy risks are most commonly written on an "all risks" basis. If one considers a hypothetical example where a piece of equipment is being operated (negligently) outside of its design parameters and therefore fails prematurely due to that operation, the loss would arguably be covered (subject to any due diligence arguments). However, if it subsequently transpires that the equipment was defectively designed and that, in the absence of the design defects, it would not have failed even with the negligent operation (nor would the defect alone have led to failure), it is arguable that there are two concurrent causes. If the relevant policy excluded design defects, the recent decision in Navigators (which reaffirms Wayne Tank) would mean that the loss is excluded.
The position, however, is less clear when considering a loss with multiple concurrent causes, one of which is excluded, all operating in combination with one another. Would the loss fall out of cover as a result of the exclusion clause or would the multiple covered perils combine to take precedence over the exclusion? In his judgement, Lord Mance did refer to a possible scenario in which a certain peril will dominate and exclude from relevance a later development which, taken by itself, may otherwise be seen as triggering an exclusion. Until a Court addresses this point specifically we cannot therefore be certain of the answer and any such decision may well depend heavily on the facts of the particular case. It seems likely, however, that the Court will continue to strive to find a single proximate cause and will only deem there to have been concurrent causes in the most extreme examples.
We anticipate that the clarity brought by the judgment in Navigators will be welcomed by the energy insurance market and will enable insurers to resist arguments that competing causes should lead to some sort of apportionment as is common in some jurisdictions e.g. in Scandinavia. It confirms that England is certainly an "all or nothing" jurisdiction in this regard.