The Court of Appeal has ruled that a policy exclusion for damage caused by pollution or contamination did not exclude cover for material damage and business interruption resulting from a fuel leak at a petrol filling station. As the damage to an underground fuel pipe was the proximate cause of the loss and not the pollution or contamination itself, the Court found that the exclusion applied only when pollution or contamination was the proximate cause.
BLG, a 24-hour petrol filling station operator, made an insurance claim for material damage and business interruption arising out of a fuel leak. On or around 4 June 2014, under pressure and movement from the heavy concrete slab forecourt, a sharp object punctured a section of pipe connecting one of the underground fuel tanks to six of the forecourt fuel pumps. The forecourt and adjacent shop building were contaminated and had to be closed on 9 June 2014 as there was an immediate risk of fire or explosion. The insurer declined liability on the basis that the policy excluded cover for loss “caused by pollution or contamination”.
The decision subject to the present appeal was the finding on a summary judgment application that the damage was “caused by pollution or contamination” so as to be excluded from cover under Exclusion 9 of the policy. BLG argued that the effect of the leak might have been pollution or contamination, but that that only defined the damage, the cause of the damage being the sharp object which punctured the pipe. BLG further argued that Exclusion 9 only applied to environmental pollution of groundwater and subsoils.
Ultimately, the appeal turned on the interpretation of Exclusion 9. Exclusion 9 provided:
Exclusions to Section 1
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:
a) pollution or contamination which itself results from a Specified Event
b) any Specified Event which itself results from pollution or contamination
Specified Events included fire, explosion, earthquakes and civil commotion. It was common ground that there had been no Specified Event in this case.
It became common ground in oral argument that (on the assumed facts on which the appeal was based) the loss was caused by a process of contamination or pollution as part of the causative chain, but that the proximate cause of the loss was the sharp object rupturing the pipe, which was not itself pollution or contamination. The central issue for the Court was whether Exclusion 9 applied only when pollution or contamination was the proximate cause of the damage or whether the “caused by” language required a wider interpretation and referred to any claim where pollution or contamination formed part of the causative chain.
The Court provided a useful refresher on the principles of proximate cause:
- The insurer is liable for losses proximately caused by a peril covered by the policy;
- The proximate cause of the loss is not the last cause of the loss, but that which is proximate in efficiency, being the dominant, effective or efficient cause;
- There may be more than one proximate cause of a loss; and,
- Where there are concurrent proximate causes, one an insured peril and the other excluded, the exclusion prevails (the Wayne Tank principle).
The majority looked to the presumed intention of the contracting parties. They felt that “caused by” had been interpreted historically and uniformly as referring to proximate cause. Delivering the leading judgment, Popplewell LJ contrasted this with other exclusions in the policy which referred to loss or damage “directly or indirectly caused by” pollution or contamination as examples of exclusions widened beyond proximate clause.
Furthermore, the write back wording in parts (a) and (b) of Exclusion 9 did not conflict with this interpretation because they were engaged only where pollution or contamination was the proximate cause of the loss (which it was not).
In a dissenting judgment, Males LJ reached a different conclusion on the particular wording of Exclusion 9, holding that it was not limited to excluding damage proximately caused by pollution or contamination. In particular, he considered that Exclusion 9, including the write back wording in parts (a) and (b), had to be construed as a whole and the outcome of Popplewell LJ’s interpretation was that the scope of the write back wording was very limited and could not have been intended. He also considered that the write back wording was not concerned with the proximate cause of the damage, but to ensure that there was cover where a “specified event” caused or was caused by pollution or contamination. That being the case, the use of the words “caused by” in the write back wording did not require proximate causation, which contradicted an interpretation that the same words used earlier in the exclusion did require proximate causation.
Males LJ also referred to the lack of argument that the exclusion applied only to proximate causes up to the oral arguments on appeal. This was, he said, evidence that the correct construction of the clause with regard to its ordinary meaning was that the exclusion applied to all loss or damage related to pollution or contamination.
This case highlights the importance of carefully considering the scope of cover as defined by the policy. The Court drew contrasts between the “caused by” wording of the relevant clause and the “directly or indirectly caused by” wording used in other clauses. The former was found to refer to proximate cause only, while the latter was interpreted more widely. Insurers and insureds alike should consider how excluded losses are likely to arise and consider whether an excluded cause of loss could also arise as the result of a covered loss.
Further reading: Brian Leighton (Garages) Ltd v Allianz Insurance Plc  EWCA Civ 8