| Date | 3 November 2004 |
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| Judgment | Eagle Star Insurance Company Limited v Midland Mainline Limited and Others, CA 28 July 2004 |
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| The Issue | Evaluating the effective or proximate cause of losses. |
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| Implication |
Where two or more causes operate concurrently leading to a loss the courts will look to find an effective or dominant cause to establish liability even although that cause may be more remote in point of time. |
printIt is a common occurrence on construction and engineering projects that two or more concurrent causes of delay or financial loss often have to be considered in arriving at an assessment of a contractor's entitlement. Where one or more of those concurrent events are matters over which the contractor is not entitled to compensation it is often very difficult to resolve which matters should be taken into account in resolving the contractor's claims. The recent case of Eagle Star Insurance v Midland Mainline Ltd required the Court of Appeal to examine these issues. The appeal court confirmed that the effective or dominant cause of the loss should first be established in order to identify the relevant parties' liability. The court went on to give further guidance which may be of assistance in resolving these difficult issues. The dispute arose out of the Hatfield rail disaster in October 2000 which was caused by a broken rail. This in turn was caused by a fault in the head section of the rail known as "guage corner cracking". Immediately after the derailment at Hatfield, Railtrack set about imposing a series of emergency speed restrictions on all sites across the network where guage corner cracking was known to exist and which had previously been identified for renewal. In consequence the timetables of a number of train operating companies were severely disrupted on the parts of the network affected by the speed restrictions. Five of those train operating companies, Midland Mainline, Central Trains, Gatwick Express, Scotrail Railways and Silverlink, commenced proceedings against their insurers claiming entitlement to be reimbursed business interruption losses, under the terms of insurance policies taken out against such risks. Eagle Star had a 25% interest in these policies of insurance. In defence to this action, the insurers relied upon a general exclusion term within the policies of insurance which provided that the policy did not cover "damage or consequential loss caused by or consisting of inherent vice, latent defect, gradual deterioration, wear and tear, frost, changing water table level or its own faulty or defective design or materials". The insurers argued that the reason for the train operating companies incurring business losses was not the imposition of the speed restrictions by Railtrack but was general wear and tear in the track. This, they argued, was caught by the exclusion to the insurance policy. The judge at first instance disagreed with the insurers' contentions. He held that the guage corner cracking, although an example of wear and tear, was not an "effective" cause of the train operating companies' losses. The "proximate" or effective cause of the train operating companies' losses was the imposition of the various speed restrictions. He thought that it was a matter of commonsense that the losses had been brought about by the myriad of speed restrictions imposed upon the lines to try and bring the network back to a safe shape as soon as possible. The gradual development of cracks at numerous sites in the network was no more than the underlying state of affairs providing the occasion for the action. That was not the event that triggered the insurance cover. Eagle Star Insurance appealed that finding, arguing that the judge had addressed his mind to the wrong question in seeking to identify the effective cause of the loss. The Court of Appeal agreed with Eagle Star and allowed the appeal. According to the appeal court there were two causes of the train operating companies' losses. First, the wear and tear to the track which had given rise to the guage corner cracking and the initial derailment. Secondly, the speed restrictions which had thereafter been placed upon the network. The first of those was excluded from cover under the insurance for business interruption losses, the second was not. It was the wear and tear that caused the speed restrictions to be imposed and although the speed restrictions were the immediate cause of the loss that did not mean that the wear and tear was not the proximate or effective cause of the loss. The judge had been wrong to categorise the wear and tear as being no more than the underlying state of affairs providing the occasion for the action. The wear and tear on the track was the effective, dominant, or proximate cause of the loss. It did not matter that the wear and tear could be said to be more remote in time than the speed restrictions. The insurers were therefore entitled to rely upon the exclusion clause contained in the policies of insurance. If that were wrong, then both the wear and tear and the speed restrictions were equally effective causes of the loss in which case the court of appeal considered that it was well established that the insurers could still rely upon the exception contained within the insurance policy.
CJ-0444
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