In my last article, ‘The Dilemma of Proximate Cause in view of the Varying Interpretations,’ I referred to two laws, Bacon’s Rule (immediate cause) and Newton’s Rule (initial cause), that the courts often resort to in solving issues related to Proximate cause.
Look at this Scenario
A Classical Example of Newton’s Law- Leyland Shipping Company owned a ship called The Ikaria (insured against perils of the sea) that was carrying gold from Southampton to the Port of Le Havre. A German U-Boat torpedoed it. The crew took the ship to Le Havre for repairs. The Harbour Master ordered that the vessel be moored at open sea. The vessel remained at open sea but sank due to a strong gale, becoming a total loss.
So what was the proximate cause of the loss of the ship in this case?
- The torpedoing by the submarine
- The subsequent storm (a marine peril, under the policy)?
The House of Lords, in this case, held that to determine the proximate cause, one must apply common sense, affirming that the proximate cause was not necessarily the last event before the loss occurred, but rather the event that constituted the dominant cause of the loss. The Court dismissed the notion held till that time that the peril closest in time to the loss should always be considered the proximate cause. In other words, the proximate cause has to be determined in terms of the efficiency of the cause. Causation is to be understood in its ordinary meaning, and not, for example, by its strict scientific meaning.
One should take a holistic (consider all facts in totality) view of the facts involved in causing the loss. An isolated view will prejudice the decision. There can be cases of a new intervening cause that prevents the originating peril from producing the result that it would otherwise have produced. The point considered above, based on ‘Balance of Probabilities’, was to decide whether the loss of the vessel was the natural consequence of the torpedo attack or whether any intervening cause came into play. Which, in that case, was more efficient— the initial or the intervening cause?
Concurrent Causes
The fire policy we know doesn’t cover any loss or damage occasioned by, through, or in consequence of, directly or indirectly, an earthquake, volcanic eruption, or other convulsions of nature. An earthquake is an excluded peril, but loss by theft is an uninsured peril( other than as provided in the RSMDT clause)
When more than one interdependent event causes the loss, it becomes challenging to ascertain which of the various causes was the most efficient in qualifying as the proximate cause. One must apply the balance of probabilities test to determine which cause is most likely to have caused the loss.
When events occur concurrently in that scenario, presuming one insured and one uninsured cause worked together and are competing, the insured cause is deemed to have caused the loss, and the insurer must admit liability. On the other hand, if one excluded peril or cause and one insured peril work in tandem, the excluded peril dominates, and the insurer may disown liability. When independent perils, such as fire and earthquake, operate together to cause a loss, each peril contributed to the loss to some degree; the onus of proof is on the insured to prove that the insured peril was the proximate cause of the loss. In cases where interdependent perils work together to cause a loss, each peril played a role in causing the loss, and one peril is insured while, the other is excluded, there is no liability for the insurer. But the interpretation changes if one peril is insured and the other is uninsured. The claim must be admitted and paid, as the insured peril prevails over the uninsured peril.
Novus Actus interveniens
Novus actus interveniens — in Latin, it means “a new intervening act” — plays a crucial role in determining causation. It is a scenario in which a new, independent, unforeseen event occurs, breaking the chain of causation between the insured peril and the loss or damage. The chain of causation is disrupted when the intervening act is sufficiently independent from that of the original insured peril. If the intervening peril is not insured, the insurer is freed of their liability from this point of intervention (if it could be segregated). In addition, reasonable foreseeability constitutes the main test of remoteness (i.e., that which is not reasonably foreseeable is considered remote); even then, the issue of causation is essential. Where the ‘chain of causation’ leading from the initial peril is broken by a ‘novus actus interveniens’ (‘new intervening cause’), the insurer will not be liable.
A New Dimension of Proximate Cause – New India Assurance Co. Ltd. Vs Zuari Industries Ltd. and Ors.. Supreme Court (India)
Background:-
1. Zuari Industries Ltd. had taken two Insurance Policies from the New India Assurance Co. Ltd on 1.4.1998 for its factory situated in Jauhri Nagar, Goa. One policy was a Standard Fire and Special Perils policy, and the other was a consequential loss (Fire) insurance policy.
On January 8, 1999, at approximately 3:20 p.m., a short circuit in the main switchboard caused a flashover, resulting in extreme heat and soot. This led to substantial damage to the boiler and other equipment, as well as a significant loss of profits due to the plant’s interruption.
Zuari Industries preferred two claims— one under the SFSP for Rs 1,35,17,709 (material damage) and the second under a consequential loss (Fire) insurance policy for Rs 19,11,10,000. After surveying the loss, New India Assurance Company rejected the claim, asserting that the damage resulted from a short-circuit-induced thermal shock rather than a fire vide letter dated 4-9-2000. Zuari Industries sought redressal from the National Consumer Disputes Redressal Commission, which allowed the claim.
Point of view of New India while rejecting the claim :
The fire did not cause the loss of the boiler and other equipment; the loss was caused by the stoppage of the electric supply due to a short circuit in the switchboard.
The cause of the loss to the boiler and to the equipment was thermal shock from the stoppage of electricity, not due to any fire.
It invoked the principle of proximate cause, which, in the case mentioned above, was thermal shock caused by the stoppage of electricity, not by fire.
However, the National Commission, when approached by Zuari Industries Ltd, rejected the insurer’s repudiation of the claim and allowed the claim.
New India Assurance Co. Ltd moved the Supreme Court against the order of the National Commission in 2004
Issues of contention :
1. Does flashover constitute “fire” as per the Standard Fire and Special Perils Policy?
2. What was the proximate cause of the loss – flashover or fire?
3. What is the bearing of this exclusion “Loss, destruction or damage to any electrical machine, apparatus, fixture or fitting arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self heating or leakage of electricity from whatever cause (lightning included) provided that this exclusion shall apply only to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines, apparatus, fixtures or fittings which may be destroyed or damaged by fire so set up”.
The issue the Hon’ble Judges of the Supreme Court focused on was the definition of Fire. A short circuit caused a flashover. The Supreme Court alluded to Wikipedia definition of flashover. According to it “A flashover is the near simultaneous ignition of all combustible material in an enclosed area. When certain materials are heated they undergo thermal decomposition and release flammable gases. Flashover occurs when the majority of surfaces in a space are heated to the autoignition temperature of the flammable gases.” In this connection, it is acknowledged that the short circuit in the main switchboard caused a flashover.
In this context, the conventional definition of Fire as actual ignition under accidental circumstances in fire insurance has bearing.
The Surveyor, Shri M.N Khandeparkar, maintained that “Flashover, can be defined as a phenomenon of a developing fire (or radiant heat source) radiant energy at wall and ceiling surfaces within a compartment…. In the present case, the paint had burnt due to the said flashover…. Such high energy levels, would undoubtedly have resulted in a fire, causing melting of the panel board. The other Surveyor, P.C Gandhi Associates stated that “Fire of such a short duration cannot be called a ‘sustained fire’ as contemplated under the policy.”
The view of the second surveyor was erroneous. The Hon’ble judges observed that the duration of the fire was not relevant. As long as a fire caused the damage, the claim is maintainable, even if the fire lasted for a fraction of a second. The term “fire” in Clause (1) of Fire Policy is not qualified by the word “sustained”.
The Hon’ble Judges also observed that “It is well settled that the court cannot add words to a statute or to a document and must read it as it is. Hence, repudiation of the policy on the ground that there was no “sustained fire” in our opinion is not justified”
As an explanation to the exclusion mentioned in point -3 , the Hon’ble judges observed as under: “If, for example, the short-circuiting results in damage in a television set through fire created by short-circuiting in it, the claim for it is excluded under the fire policy. However, if from the same fire there is a damage to the rest of the house or other appliances, the same is included within the scope of the fire policy by virtue of the proviso. In other words, if the proximate cause of the loss or destruction to any other including other machines, apparatus, fixtures, fittings, etc. or part of the electrical installation is due to the fire which is started in an electrical machine or apparatus all such losses because of the fire in other machinery or apparatus are covered by the policy”.
While deciding whether the flashover and fire were the proximate cause of the damage in question, New India Assurance Co. Ltd. stated in a written submission to the National Commission that it was the flashover/fire that started the chain of events resulting in the damage. The Hon’ble judges categorically observed that ‘apparently there is no direct decision of this Court on this point as to the meaning of proximate cause, but there are decisions of foreign courts, and the predominant view appears to be that the proximate cause is not the cause which is nearest in time or place but the active and efficient cause that sets in motion a train or chain of events which brings about the ultimate result without the intervention of any other force working from an independent source.
The Hon’ble judges categorically observed that in the case described above, it was evident from the chain of events that the fire was the efficient and active cause of the damage. If the fire had not occurred, the damage would also not have taken place, and no intervening agency was an independent source of the damage. Hence, the Hon’ble judges disagreed with the surveyors’ conclusion that the fire was not the cause of the damage to the claimant’s machinery.
Authored by:
Dr Abhijit Chattoraj –Chartered Insurer
