There is common perception between policyholders that their insurance policy covers any incident or accident that their subject matter insured may encounter, for sure this is not the case. Insurance policies cover only certain perils even if it is all risk policy, the exclusions limit the “all risk” cover because they have preference over the cover.

Therefore determining the cause of any eventuality is essential to establish the policy cover. The definition of the “cause” was under test in many cases and was mentioned clearly in the Marine Insurance Act 1906 in its section 55 that the cause should be proximate, as follows:

1. Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.

However, not all the covered losses should be proximately caused by an insured peril as mentioned above in MIA: “unless the policy otherwise provides”. There are some policies that have different wording for how the causation should be determined. A policy can cover “damage arising out of…” or “reasonably attributable to …” or as per the agreed doctrine “damage proximately caused by … “.

For example, the cargo insurance policy which is known by Institute Cargo clauses 82/09 B & C, insurers certain perils that reasonably attributable some to them. The below is ICC policy (B):

1. This insurance covers, except as excluded by the provisions of Clauses 4, 5, 6 and 7 below,

1.1 loss of or damage to the subject-matter insured reasonably attributable to

         1.1.1     fire or explosion

         1.1.2     vessel or craft being stranded grounded sunk or capsized

         1.1.3     overturning or derailment of land conveyance

         1.1.4     collision or contact of vessel craft or conveyance with any external object other than water

         1.1.5     discharge of cargo at a port of distress

         1.1.6     earthquake volcanic eruption or lightning,

This means that if a cargo was discharged in port of distress in sound condition but later this cargo was damaged by a peril not covered, the policy will cover the loss because it is attributable to clause # 1.1.5 discharge of cargo at a port of distress.

 In the same policy, there are other insured perils that are covered if the loss caused by them, which here the doctrine of proximate cause prevails. These perils as following:

1.2 loss of or damage to the subject-matter insured caused by

         1.2.1     general average sacrifice

         1.2.2     jettison or washing overboard

         1.2.3     entry of sea lake or river water into vessel craft hold conveyance container or place of storage,

In English law, proximate cause was defined as the even whether peril or exclusion, which, in all the circumstance prevailing, let inevitably to the loss in question. It is the dominant cause and it is not the remote one.

To explain the above, we need to refer to the law case of Pink v Fleming (1890), a vessel was in collision (an insured peril) and had to put into port of repairs. The repairs took too much time and the cargo was fruit. Due to the delay, the fruit was damaged by deterioration. It was held that the proximate cause of loss was the delay. The collision was remote cause.

However, if the above clause of ICC B 1.1.4 was mentioned in that insurance policy, the loss would have been covered.

Proximate cause means the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source – Pawsey v.Scottish Union and National (1908).

An effective and efficient means that there is direct relation between the cause and the result, and that the cause is strong enough that in each stage of the events one can logically predict what the next event in the series will be, until the result under consideration takes place.

Proximate cause can be direct, dominant, effective, immediate cause. The survey of some law cases is helpful in demonstrating the court approach in determining the proximate cause.

In Leyland Shipping Company v Norwich Union Fire Insurance Society 1918, a vessel was hit by an enemy torpedo at the first World war in the English channel by a German U -boat, she was badly holed and in danger of sinking. The master managed to reach port and the repairs work started but a storm blew up raising the danger of sinking alongside the quay. The harbour authorities, accordingly, ordered the vessel to be shifted onto the outer harbour.

 In the course of this transfer, the vessel grounded and succumbed to the storm outside the port and sank.

Since the danger of sinking had never been removed, the war was deemed to be the proximate cause. The storm was a remote cause but not the active and efficient cause.

In other case law, Ionides v. Universal Marine Insurance Co. (1863). A captain lost his course and took his ship grounded to try to pick out a lighthouse. Due to hostilities (the American Civil War) the navigation light in Cape Hatteras was went out by order of the military authorities and the vessel ran aground. The hostilities and loss were deemed to be too remote to be the proximate cause.

Therefore the question here is who is requested to determine the cause initially? The answer is he who asserts must proof.

The burden of proof is always on the Assured to show that one of the specifically named perils has operated to bring about the loss. If the policyholder does not know how a loss occurred then the Assured will not be able to show that the loss was caused by one of the specified perils and will be unable to recover under the policy.

Unless the policy covers all risk, the insured has to do some work to show what has happened, rather than just having to show the operation of a fortuity and nothing else.

Accordingly, the insurers needs to demonstrate that the cause of loss falls within the area of exclusions, if they wish to reject the claim.

Any cause should be supported by evidence. The causation doesn’t determine simply by a process of eliminating. This concept of Sherlock Holmes “When you have eliminated the impossible, whatever remains, however improbable, must be the truth?” is not bond to be taken by the assurer or the loss adjuster but the court.

The policyholder must still prove that the cause being put forward was more probable than not.

However, the cause shouldn’t be absolute or be determined by precise mechanism, and this was confirmed in the following case:

In Rhesa Shipping v Edmunds (the Popi M) [1985] it remained in doubt why the Popi M sank in calm waters. Mr Justice Bingham chose between two remaining and competing theories on causation. He opted for the claimant ship owners’ extremely improbable theory that the ship was sunk by a submarine over underwriters’ virtually impossible wear and tear theory.

In a recent claim handled by me from two years, a cargo got partially damaged by water and the cargo owner received part of the sound cargo without any objection, and refrained to accept the other part of same sound cargo claiming that it is not sound apparently. The weird thing in this case, the involved loss adjusters accepted the cargo owner allegation without ascertaining any evidence.

Later, I managed to involve an approved independent lap to check the cargo to provide unequivocal report which confirmed the cargo validity, enforcing the cargo owner to accept the cargo in dispute.

Finally, if you are loss adjuster whether on behalf of the policyholder or insurers or any other party, you should give well attention to the proximate cause and its evidence in handling any claim.