When a disaster strikes, the insurance industry is expected to respond quickly and decisively. Unfortunately, the factual chaos which often results is frequently accompanied by coverage issues.

A recurring issue is causation due to the chain of events leading to loss, for example, an earthquake which leads to a tsunami which leads to flooding.

Determining cause of loss can be a conundrum due to the way in which the law approaches causation. We summarise below relevant principles plus contractual drafting tips. The starting point is that an insurer is only liable for losses caused by an insured peril. However, a loss may have a range of possible causes depending on how far back in time one goes. As one judge put it in relation to an insurance contract, "...the chain of causation recedes infinitely into the past. The draftsman must have intended to stop somewhere: and that place must be the point at which an event ceases to be a cause of the loss, and becomes merely an item of history."

Rather than adopt simpler tests for causation such as the peril first or last in time, we have, under English law, the doctrine of "proximate cause" which has been explained as the "dominant" or "efficient" cause.

There is no recent English case law on proximate cause in a catastrophe context. In the leading case Leyland v Norwich Union (1918), a vessel was torpedoed by a German submarine in WW1. Towed to Le Havre, she could have been repaired if allowed to stay. However, the port authorities were concerned that she might sink and block the port so they ordered her out. A gale blew up and after being buffeted by wind and waves, she sank. Instead of finding the proximate cause of loss was "perils of the sea", the court held it was "war", an excepted peril.

So, although the doctrine of proximate cause is theoretically easy, it may be difficult to predict how far back in time a court will go in selecting from a range of possible causes.

What if there are two proximate causes operating concurrently with equal dominance? This can be critical if one is covered and the other excluded or simply uninsured. Thankfully, English law provides straightforward answers. Where one cause is covered and the other uninsured, the general principle is that the cover responds to the entire loss – The Miss Jay Jay (1987). Where one cause is covered and the other specifically excluded, the cover does not respond at all – Wayne Tank (1974).

The ability to reach back into time when determining proximate cause and the qualitative nature of the definition as "efficient" and "dominant" means that how you characterise your argument is important. Although there is a legal framework for determining cause of loss, a skilfully crafted presentation can characterise loss in the most advantageous way. Early and appropriate legal input can be critical.

It is possible to craft your wordings so as to tilt the causation argument in your favour. For example, the insuring clause could provide that the policy responds only to loss caused "solely and directly" by a covered peril. Conversely, it could provide that the policy responds if loss is caused "directly or indirectly" by a covered peril. Similarly, one could totally exclude loss resulting "directly or indirectly" from named perils. Conversely, excluding loss resulting "solely and directly" from excepted perils narrows operation of exclusions.

Finally, it is possible contractually to reverse the natural burden of proof. For example, the burden of proving an exclusion applies normally rests with the (re)insurer. It is, however, contractually possible to provide that the burden of showing that an exclusion does not apply rests with the (re)insured. Obviously, such provisions should be limited to exclusions reasonably identified by the (re)insurer as applicable.

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.