Proximate Cause - The Wayne Tank Principle and The Three Little Pigs

You may have recently seen in the papers that building in Lidcombe where the roof blew off in January and the owners found themselves in the situation with a strata policy which covers storm damage but excludes poor design and construction. After initially appearing to be covered the claim was later denied.

The question of what is the proximate, or dominant cause of a loss is one that has been the cause of the loss of many trees over the years with so many articles, judgements and insurance assessments being written on large volumes of paper.

The Wayne Tank principle relates to an English decision of Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57. In that case there was a fire at the insured’s factory and the factory was destroyed. It was found that the proximate cause of the fire was the negligence of the insured’s employee, and that was an exclusion under the policy. The court found that the loss was not covered due to the exclusion.

At common law the general principle then was that if there are two or more proximate causes, but that one of those causes was excluded under the policy then the insurer is not liable to indemnify the insured for the loss, notwithstanding that the other cause of the loss is not an excluded loss and falls within the ambit of the policy coverage. So if the policy covered fire or storm, but the loss was also caused by an excluded cause the entire claim could arguably be excluded.

Of course it is not always easy to determine on any factual scenario what the proximate cause of the loss is.

Take the three little pigs. Depending upon whether you are reading a child friendly modern version or one of the more traditional ones, the first two pigs suffered their loss when they lazily built their houses out of twigs and straw. The smart pig suffered no such loss as he built his house out of bricks.

So what caused the loss? Was it the fact that the first two houses were built out of twigs and then straw, or was it the fact that a wolf came along and blew their house down? I will leave that out there for the loss adjusters to answer.

What then if the pigs had an insurance policy which covered wolf damage but excluded poor design and construction. Australian courts have been keen to point out that each decision will turn on its own facts, and have recently been moving away from the general Wayne Tank Principle as always applying. Recent cases in Australia include a number dealing with the Queensland floods, and the question of whether the proximate cause was flood or run-off.

In McCarthy v St Paul’s International Insurance Co Ltd [2007] FCAFC 28 the full Federal Court made a distinction between applying the principle when:

  1. a loss is caused by two interdependent causes so that the loss would not have occurred if only one of the causes had been operative; and
  1. a loss caused by two causes operating concurrently but independently in the sense that each would have caused the loss without the other.

Where one of these losses was covered and the other excluded the court said that in the first scenario the insurer may deny indemnity and in the second scenario it is not simply a case of applying the Wayne Tank principle, but one must go back to the contractual intentions by construing the words of the insurance policy.

The Canadian Supreme Court has also decided not to follow the Wayne Tank Principle. More recently in the Northern Territory Court of Appeal the court reiterated the point that insurance clauses in policies are strictly construed against the insurer.

In each case then the question of what was the proximate cause and whether or not an insurer can deny liability based on the Wayne Tank Principle will depend upon how each of the causes of loss relate to the actual loss, and the precise wording and intention of the policy and the exclusion clause.

Liberty International Underwriting have sought to clarify some of the confusion, and possibly eliminate costly litigation,  by including a new clause in their professional indemnity insurance policy  applying a “pro rata” calculation of the causes of the loss instead of applying the Wayne tank Principle to exclude the loss altogether.

I believe that as one leading insurer is doing this, other insurers will follow, and if they don’t their policy exclusions may well be read down against them. The Liberty “Multiple Causes of Loss extension” provides some coverage where a claim may otherwise have been entirely denied.

So if any of the first two pigs survived they could make a claim under their Liberty insurance policy for the Wolf damage.

 

***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.

 

Prepared by Bannermans Lawyers

12 May 2016

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For more information on this topic or any legal enquiries please contact your Insurance Team.

     
         

 

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