In 1942, the Luftwaffe dropped a 1000kg high-explosive bomb onto farmland in the outskirts of Exeter.

Some 82 years later, the Court of Appeal has dismissed the University of Exeter’s appeal against the High Court decision in Allianz Insurance Plc v University of Exeter (see our previous commentary) The Judge at first instance (HHJ Bird) had found that damage to halls of residence caused by the bomb’s controlled detonation was not covered under the University’s insurance policy with Allianz.

The first instance decision

The policy in question contained a war exclusion clause providing that no coverage would be available for any loss “occasioned by war”. That language engages the “proximate cause” test, which tasked the first instance Judge with identifying whether the effective cause of the property damage was:

(a) the dropping of the bomb in 1942 or

(b) the controlled detonation of the bomb on 27 February 2021.

The Judge, applying an approach “based on common sense rather than over-analysis”, concluded that (1) the dropping of the bomb was the proximate cause and (2) the war exclusion therefore applied to preclude coverage under the policy (the parties having agreed that the dropping of the bomb constituted an act of war).

The Judge also considered the alternative position that the two events operated as concurrent proximate causes. It is established that, where multiple causes are “equal or nearly equal” in their contribution to a loss, only one cause need be insured for the loss as a whole to be covered. However, if an exclusion applies to any of the proximate causes, the exclusion will usually prevail and the loss will not be covered.

The grounds of appeal

The University argued that the decision of the first instance Judge erred in the following respects:

  • Policy interpretation – the Judge failed to properly take regard of the likely intent of the parties in respect of the war exclusion.
  • Inevitability – the Judge failed to properly apply the “inevitability” test to the dropping of the bomb.
  • Agent of change – the controlled detonation, rather than the dropping of the bomb, was the “agent of change” and was therefore the proximate cause.

The Court of Appeal’s decision

  • Policy interpretation

The University presented two arguments as to the objective intent of the parties in entering into the policy:

(a) Unlike other provisions in the policy, the war exclusion did not specify that it applied to losses which were “directly or indirectly caused” by war. Omitting this phrase indicated that the parties’ intended the war exclusion to only apply to direct causes. As the only direct cause was the controlled detonation, which was not an act of war, the exclusion does not apply.

(b) It was not plausible for the parties to have intended the war exclusion to apply to such historic wars.

The Court of Appeal dismissed both arguments.

First, including “directly or indirectly caused” in the war exclusion clause would not change the Court’s approach to interpretation. It was agreed between the parties that “occasioned by” necessarily required the Court to apply the proximate cause test. To avoid the war exclusion, the University must demonstrate that the dropping of the bomb was not a proximate cause, regardless of whether it was a “direct cause”.

Second, as to the historic war point, while the Court of Appeal recognised that a lifetime had passed since the dropping of the bomb, the passage of time ultimately does not make any difference to the analysis which is required, which again is the application of the proximate cause test.

  • Inevitability and agent of change

The University adopted these two grounds of appeal to suggest that the dropping of the bomb was not the proximate cause of the damage to the halls of residence:

(a) One established method of identifying the proximate cause of a loss is to consider whether the cause made the loss inevitable in the ordinary course of events. The University argued that this does not apply to the dropping of the bomb as, for example, the bomb could have exploded on impact or been safely removed, neither of which would have damaged the buildings.

(b) Another method of establishing the proximate cause is to identify the “agent of change”. The University argued that the unexploded bomb lay in the ground for 80 years, thereby establishing a status quo which was changed by the controlled detonation. As the “agent of change”, the controlled detonation was therefore the proximate cause of the damage to the buildings.

The Court of Appeal noted that both of these arguments focus entirely on whether the dropping of the bomb was the sole proximate cause. In this case, as suggested in the first instance Judge’s alternative conclusion, two concurrent proximate causes operate together to cause the loss – the dropping of the bomb and the controlled detonation are equal or nearly equal in their contribution to the loss. The Court of Appeal therefore found that this was “a classic case” of two concurrent causes of loss.

As we discuss above, it is an established principle of English law that an exclusion will usually prevail if it applies to one of multiple proximate causes. It was on this basis that the Court of Appeal upheld the alternative conclusion of the first instance Judge and the University’s appeal was dismissed.

Implications for policyholders

While the fact pattern is unique, important lessons can be drawn from the Court of Appeal’s treatment of the war exclusion clause in the Allianz policy:

  • It is clear that the Court, when confronted with a causation requirement in an exclusion clause (e.g., “loss occasioned by war”), will apply the proximate cause test to identify the effective cause of the loss. As we have seen, there are various methods by which this can be achieved, but ultimately a common-sense approach will be taken by reference to the facts of the case. The key consideration, and ultimately the deciding factor in this case, is that where the Court finds multiple proximate causes, only one need be excluded for coverage to fail. Rather than leaving it open to the Court to determine whether an excluded peril is a proximate cause, consideration should be given from the outset as to (i) the possible loss scenarios which could arise under the policy, (ii) what the proximate (i.e., effective) causes could be in relation to those loss scenarios, and (iii) the extent to which one or more of those proximate causes could be excluded under the policy terms.
  • Further enforcing this point is the Court of Appeal’s treatment of time in the proximate cause exercise. While the Court did recognise that over 80 years had elapsed since the dropping of the bomb, this ultimately did nothing to reduce its status as a proximate cause of the loss.
  • The Court of Appeal also provided some useful obiter guidance which applies to the drafting of war exclusion clauses, noting that potential issues which might have arisen on the facts include (i) whether wars which had ended by the time of policy inception are to be included and (ii) whether damage which results from a “war-like desire to damage and destroy” is included.

The Court of Appeal’s judgment is notable in its reliance on issues which were agreed by the parties (e.g., that the dropping of the bomb was an act of war) and in its flagging of potential issues which did not arise (e.g., the obiter guidance above).

As such, the door remains very much open for further legal argument on these points.