What are the practical implications of this case?
The case should lead those who draft insurance policies to think carefully about how widely (or narrowly) they want policy exclusions to operate. Exclusions for damage ‘caused by X’ are likely to be engaged only if X is a proximate ie substantial and effective, or dominant) cause of the damage. If the draftsperson wants the exclusion to operate more widely, then it might be necessary to use words such as ‘directly or indirectly caused by X’.
But even that might not be enough. Take the present case. On one analysis, the reason why Allianz’s pollution exclusion was not engaged is not because the pollution or contamination, comprised in the spread of petrol over various parts of the petrol station, was too ‘remote’ or ‘indirect’ a cause of the loss, but rather because that pollution or contamination was not a ‘cause’ of the loss at all. Rather, the words are a description of the process by which the underlying cause (the rupturing of the fuel pipe) caused damage. In other words, the rupturing of the fuel pipe may be regarded as a different type of occurrence from the consequent contamination by leaking fuel.
If an underwriter wants to exclude damage of a particular type or description (such as ‘pollution’ or ‘contamination’) then it may be better to avoid using the language of causation at all. So, rather that excluding damage caused by pollution (which was the wording used), instead the policy should exclude damage consisting of pollution or contamination to insured property. That way, the exclusion should operate, even if the pollution or contamination in question in turn had a proximate cause that was insured under the policy.
That said, as noted above the outcome of the case was finely balanced. It may be that, on similar facts, even subtle differences in the language of the exclusion would lead to a different result.
What was the background?
The claimant owned a petrol station in East Yorkshire. A leak occurred from a fuel pipe connecting an underground fuel tank to forecourt fuel pumps. It was accidental damage, caused by pressure from a sharp object that was compressed by the concrete slab under the forecourt. Among the various heads of insurance cover held by the claimant in its policy underwritten by the defendant insurer, was property damage cover. It was common ground that, subject to any applicable exclusions, the policy would cover the damage in question.
Allianz declined the claim on the ground that it fell with an exclusion to the policy for ‘pollution or contamination’, contending that the (or a) cause of the damage to the claimant’s property was ‘pollution’ or ‘contamination’ from the leaked petrol; and under orthodox principles of insurance law, if loss is caused both by an excluded peril, then it is not covered, even if it also caused by an insured peril (eg, as here, accidental damage).
At first insurance, the Judge (Ms Clare Ambrose, sitting as a deputy judge of the High Court) agreed with Allianz, holding that the damage in question was caused by ‘pollution or contamination’, bearing in mind the natural meaning of those words as well as the context in which they appeared in the policy.
What did the court decide?
The leading judgment was given by Popplewell LJ. He began by emphasizing three matters. First, he pointed out that an operator of a petrol station would naturally desire cover against the risk of leakage from fuel pipes, being “amongst the most obvious risks” arising from such an operation. Second, he cited Impact Funding Solutions Ltd v Barrington Services Ltd  UKSC 57 for the proposition that the contra proferentem principle has no role to play when construing exclusions in insurance policies. Third, and most importantly, he noted the principle codified in section 55 of the Marine Insurance Act 1906. As noted above, absent agreement to the contrary, an insurer is only liable for loss proximately caused by an insured peril but is not liable for loss that is proximately caused by an excluded peril.
Lord Justice Popplewell then turned to consider the wording of the policy. The pollution or contamination exclusion was worded as follows:
‘The General Exclusions of this Policy apply to this Section and in addition it does not cover:
9. Pollution or Contamination
Damage caused by pollution or contamination, but We will pay for Damage to the Property Insured not otherwise excluded, caused by:
- pollution or contamination which itself results from a Specified Event
- any Specified Event which itself results from pollution or contamination.’
It was common ground that no Specified Event had occurred.
Having noted that the proximate cause of the damage was not the pollution or contamination, but rather the puncturing of the fuel pipe, Popplewell LJ then considered whether the language of the exclusion rebutted the presumption that pollution or contamination needed to be the proximate cause of the loss in order for the exclusion to apply. In his view, it did not.
In a concurring judgment, Lord Justice Nugee agreed that there was not enough in the exclusion to displace the presumption that ‘Damage caused by pollution or contamination’ refers only to the case of proximate causation.
In a dissenting judgment, Lord Justice Males thought that the wording of the exclusion did rebut the proximate cause requirement. He summarized his approach as follows:
‘There can in my view be no doubt that, as a matter of ordinary language, it makes perfect sense to say that the damage in this case was “caused by pollution or contamination”. Although the pollution and contamination was not the proximate cause of the damage as that term would be used by an insurance lawyer or broker, it was the pollution and contamination which resulted from the penetration of the fuel pipe which caused the damage to the property and meant that the business had to be shut down.’
•Court: Court of Appeal, Civil Division
•Judges: Lord Justice Males, Lord Justice Popplewell and Lord Justice Nugee
•Date of judgment: 11 January 2023
Article by Tom Bell – first published by Lexis PSL