Insurance Issues – Causations And War Exclusions

In the discussion of Spinneys in my latest articles, difficulties concerning evidence and the transfer of burden of proof have been observed. In the absence of phrases displacing the proximate rule test or the absence of a reverse burden of proof clause, it can be extremely difficult for the insurer to prove that the excluded war risk caused the loss or damage.

Take the example of a substantial aluminium plant located in a small South American republic subject to a civil war. It was known that three weeks before the incident in question an unsuccessful attempt had been made to damage the power line to the aluminium plant. It was further known that it was caused by one of the civil war factions.

Three weeks later, the electricity power line to the plant was severed by explosion and the assumption was made (although proof was difficult) that it was in fact caused by one of the civil war factions.

Twenty-four hours after the severing of the power line an announcement was made by the management that many of the employees would be suspended as a result of the shutdown of the smelter.

This immediately resulted in protests from the employees and attempts were made by them to totally shut down operations, which were thwarted by the police. Twenty-four hours later, a further large group of employees stormed through the entrance to the smelter resulting in a considerable amount of vandalism and damage to the plant.

If the proximate cause, test applied then, although the initial damage to the power lines and the first period of business interruption may well have been caught by the civil war exclusion, the subsequent damage and business interruption would probably fall outside the civil war exclusion.

If, however, the appropriate phrases had been incorporated into the war exclusion clause displacing the proximate cause test, insurers may well have been able to argue that the initial damage to the power line was an indirect cause of the subsequent damage.