In a recent English case, Allianz Insurance v The University of Exeter, the University sought insurance cover for damage that occurred in 2021. The insurer declined cover on the basis that the damage had been caused by an excluded risk that occurred 79 years earlier – in the form of a Second World War bomb. The insured sued, but the Court agreed with the insurer.
Contractors were working on a construction site next to the University of Exeter’s campus when they discovered an unexploded bomb in the ground. A safety cordon was established, the University’s nearby halls of residence were evacuated, and bomb experts were called in to investigate. The experts identified the bomb as a 1,000kg high explosive that had been dropped by hostile German forces in 1942. They concluded that the bomb was in a poor state and could not be safely moved. The only realistic course of action was to detonate the bomb in a controlled explosion. They constructed a “sand box” around the bomb (a metal fence packed with 400 tonnes of sand) and detonated the bomb.
Unsurprisingly, the detonation caused physical damage to the University’s nearby halls of residence. The University claimed cover for the damage and resulting business interruption under its material damage and business interruption policy with Allianz. Allianz declined cover on the basis that an exclusion for damage “occasioned by war” applied, and applied to the English High Court for a declaration to that effect.
The parties agreed that the key question was whether “war” was the “proximate cause” of the damage suffered following detonation of the bomb. If so, the exclusion would apply, and there would not be any cover under the policy.
Allianz argued that the proximate cause of the damage was the dropping of the bomb, which was an act of war. The exclusion therefore applied. In the alternative, Allianz argued that the dropping of the bomb was a proximate cause (that is, one cause among others). The exclusion would still apply in that case because, where a loss has multiple causes and one of those causes is excluded, the usual rule is that the exclusion applies.
The University argued that the cause of the damage was not the dropping of the bomb, but its deliberate detonation. It argued that the war exclusion cannot have been intended to apply to historical events, and that it was only ever intended to apply to events that occurred during the term of the policy.
The exclusion applied
The Court held that the exclusion applied, so the University was not covered by the policy.
In doing so, the Court summarised the key principles for determining causation under insurance policies:
- The proximate cause test is the usual test for causation under insurance policies (although a different test might apply depending on the wording of the policy).
- The “proximate cause” is not necessarily the most recent cause. It is better thought of as the “real” or “efficient” cause.
- The question of causation is a matter of common sense that does not require a “microscopic analysis” or “over-analysis”. Rather, it is a question of what a “person in the street” would consider to be the cause.
- That said, causation is not a mere “unguided gut feeling”. It involves making a judgment about what made the loss “inevitable”.
- When making that judgment, reasonable human action that takes place after the event is to be ignored.
Applying these principles, the Court held that the proximate cause of the damage was the dropping of the bomb. That was true whether or not the reasonable intervention of the bomb experts was ignored. The explosion was triggered by the “obviously correct” decision to detonate the bomb, but that decision was made necessary by the presence of the bomb. If it had not been dropped, there would not have been any explosion. It was the “obvious” cause.
Alternatively, even if it was not the cause, it was clearly a cause – and as Allianz had argued, where a loss has multiple causes and one of those causes is excluded, the usual rule is that exclusion applies. While that rule can be displaced by the wording of the policy, in this case there was nothing in the policy wording that displaced the rule.
As a result, regardless of whether the dropping of the bomb was the cause, or a cause, the exclusion applied.
Causation analysis can be difficult when there are multiple events that have contributed to the damage. This case illustrates a helpful rule of thumb that reasonable human actions taken after an initial event are to be ignored when assessing causation.
Here, the bomb squad’s actions were clearly reasonable, and so their intervention was to be ignored when identifying the proximate cause. When their actions were ignored, there was only one possible cause: the dropping of the bomb. The exclusion therefore applied.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.