Australia: Policy Constructions And Multiple Proximate Causes Of An Insured Loss

Last Updated: 14 May 2009

Article by Shayne Thompson, Mark Dobbie and Baron Alder

Key points

  • Multiple causes of loss.
  • Wayne Tank principle affirmed (although not relevant in this case).
  • Example of how an insurance policy will be interpreted to give it a "sensible, commercial operation".


The Northern Territory Court of Appeal recently considered a professional risks policy in circumstances where the insured had argued that there were two causes of the insured loss, one which was covered by the Policy and one which was excluded: Central Australian Aboriginal Congress Inc v CGU Insurance Limited [2009] NTCA 1.

The Central Australian Aboriginal Congress (Insured) operated a health care facility in Central Australia providing health services to local Aboriginals. In conducting the facility, the Insured employed doctors to work in a general practice clinic as well as Aboriginal health workers, psychologists, nursing staff and administrative staff.

In 2000 and 2001, the Insured treated a patient who subsequently died. The deceased's relatives brought an action against the Insured under the Compensation (Fatal Injuries) Act. The trial judge found that the deceased's death was caused by a number of "administrative" errors on the part of the Insured which, relevantly, were:

  • the failure of the Insured to have in place a system to ensure that patients who had failed to attend appointments were followed up about their failure to attend; and
  • omissions by two medical practitioners who had been consulted by the deceased at different times and for different complaints. The first practitioner failed to realise that she had been given the wrong file at the time of her consultation with the deceased (having been given the file of a patient with the same name as the deceased). The second practitioner failed to read an important note on the deceased's file.

Damages were assessed against the Insured in the sum of $437,944. This amount was reduced by 50% for contributory negligence (being the deceased's failure to attend appointments).

In a third party action, the Insured sought indemnity from its professional indemnity insurer, CGU, (Insurer) under a Professional Risks Insurance Policy (Policy).

The Policy

The Court referred to a number of the Policy's provisions of which the following formed the foundation for its reasons:

  • Insuring clause 3.1 which provided cover for:

    "...Claims for Civil Liability...arising from the provision of the Professional Services, stated in the Schedule, on behalf of the Insured Establishment which Claims:

    • are made against the Insured ...; and
    • arise from an act, error or omission on or after the Retroactive Date specified in the Schedule;"
  • Special Condition 5 which provided:

    "This Policy covers the Insured for Breach of Professional Duty as Health Care services [sic] for the provision of dentistry, psychology, nursing and administrative services only;"

  • Section 6.11 of the Policy which provided:

    "We do not cover any of the following Claims (or losses):

    6.11 Medical Practitioners

    Claims against Medical Practitioners, regardless of whether such Medical Practitioners are employed by the Insured or acting as a contractor of the Insured entity;"

  • the definition of "Claim" which was:

    "Any originating process (in a legal proceeding or arbitration), cross Claim or counter Claim or third party or similar notice claiming compensation against and served on an Insured".

The Insurer submitted that the omissions identified by the trial judge as leading to the deceased's death were concurrent causes of the loss. As one of the causes was excluded under clause 6.11, the Insurer submitted that the whole of the loss was excluded from cover by the principle in Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] QB 57.

Justice Mildren described the Wayne Tank principle in the following terms:

"... the relevant principle is that if there are two or more proximate causes of the loss (in the sense of effective or direct causes of the loss) and one of these causes is insured against under the policy and none of the others are expressly excluded, the insured is entitled to recover. If on the other hand one of those causes is wholly expressly excluded, the insurer is not liable".

Court of Appeal

Reasons for judgment were given by Justice Angel and Justice Mildren (Martin CJ agreed with the reasons of Mildren J). Although their Honours both ultimately found in favour of the Insured, each had different views on the interpretation of the Policy.

Justice Angel thought that clause 6.11 was not an exclusion clause to which the principle in Wayne Tank applied. His Honour stated:

"Clause 3.1 and Special Condition 5 describe what falls within the insurance cover and cl 6.11 ... describes what falls outside the insurance cover. The latter [clause is an exception or limit] on the cover rather than [an exclusion]."

His Honour thought that clause 6.11 described "an exception" or a "limit" on the Policy's cover which was confined to claims against the Insured arising from the provision of professional services as defined which included administrative services. As the claim fell within the cover provided by cl 3.1 and Special Condition 5, the Insured was entitled to indemnity under the Policy.

Justice Mildren disagreed with Justice Angel about the characterisation of clause 6.11 and did not think that it mattered whether clause 6.11 was described as an exclusion or an exception. In any event, his Honour thought that the clause was not a limitation, explaining that a limitation (sometimes called a stipulation) is a policy provision such as a limit of indemnity clause or an excess provision. Justice Mildren thought that clause 6.11 was clearly an exclusion clause.

Having concluded that clause 6.11 was an exclusion clause, his Honour affirmed the Wayne Tank principle (as set out above).

However, Justice Mildren thought that clause 6.11 did not have any application to the facts of this case. In particular, his Honour had regard to the facts that clause 6.11 referred to Claims against medical practitioners and the proceedings against the Insured did not include a Claim against the medical practitioners alleged to be involved in the errors that were the legal cause of the deceased's death.

Justice Mildren reasoned that exclusion clauses will be "strictly construed against the insurer" and that commercial contracts (including contracts of insurance) should be interpreted in a common sense way to give the contract a "sensible, commercial operation". His Honour thought that clause 6.11 should be considered in light of the fact that medical practitioners invariably take out their own insurance and that if the doctors in question had been parties to the proceedings, their insurance policies would have responded to the claim.

Finally, Justice Mildren rejected the submission that there were two proximate causes of the loss. His Honour thought that the real cause of the loss in this case was the failure by the Insured to put in place proper systems to ensure that administrative errors were eliminated.


The Wayne Tank principle is an important rule of policy interpretation. Professional indemnity insurers of multi-disciplinary operations may find the principle of particular relevance. However, to rely on the principle, the insurer must demonstrate that there really are multiple causes of the subject loss, at least one of which is expressly excluded under the policy.

This decision also provides an example of the assumptions that courts may make (in this case, that doctors invariably hold professional indemnity insurance) in order to give effect to insurance policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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