INSURANCE LAW

CONCISE NOTES PREPARED BY MR. CHIMBAU

UNIT THREE: CAUSATION

4.0 Introduction
In insurance law, a loss may result from a combination of causes. To determine liability,
the proximate cause—the dominant or most influential cause of the loss—must be
identified. The insured can only recover losses if the proximate cause is covered by the
policy. The doctrine of proximate cause is guided by common sense and legal
principles.

4.1 Definition of Proximate Cause

Proximate cause is defined as:
"The active, efficient cause that sets in motion a train of events which brings about a
result, without the intervention of any force started or working actively from a new or
independent source."
Key case references:
 Pawsey v Scottish Union & National Insurance (1908)
 Section 55(1), Marine Insurance Act 1906: This section states that insurers are
only liable for losses proximately caused by a peril insured against unless
specifically excluded.

4.2 Key Principles of the Doctrine

1. Causation and Common Sense
Courts rely on common sense to determine proximate cause, focusing on
causation as an average person would understand it.
Cases:
o Becker Gray & Co v London Assurance Corporation [1918]
o Marsden v City and County Insurance [1865]
o Everrett v London Assurance [1865]
2. Insured and Excepted Perils
 o Insured peril: The specific risk covered under the policy (e.g., fire in a fire
policy).
o Excepted peril: Risks expressly excluded by the policy's terms.
o If a loss is caused solely by an insured peril, the insurer is liable. If an
excepted peril causes the loss, the insurer is not liable.

4.3 Guidelines for Determining Proximate Cause

1. Concurrent and Interdependent Causes
o If several causes operate together, and one is an insured peril, the loss is
recoverable unless an excepted peril is involved.
o If an insured peril and an excepted peril cause the loss, the insurer is not
liable unless the damage caused by the insured peril can be separated
from that caused by the excepted peril.
Case: Wayne Tank & Pump Ltd v Employer’s Liability Assurance
[1974]
2. Concurrent and Independent Causes
o When two independent causes (one insured and one excepted)
concurrently cause the loss, the insurer is liable only for the part
attributable to the insured peril.
o If the damage cannot be separated, the insurer is not liable.
Cases:
 Ford Motor Co of Canada v Prudential Assurance Co [1958]
 Guaranty National Insurance Co v North River Insurance Co
[1990]
3. Multiple Causes
o If multiple proximate causes exist and at least one is an insured peril (with
no excluded perils), the insurer is liable.
o If one cause is an excepted peril, the insurer is not liable.
Cases:
 JJ Lloyd Instruments Ltd v Northern Star Insurance Co Ltd
(The “Miss Jay Jay”)
 Board of Trade v Hain [1929]
4. Successive Connected Causes
 o If an insured peril initiates a chain of events leading to an excepted peril
and subsequent loss, the proximate cause is the insured peril, making the
insurer liable.
Cases:
 Fitton v Accidental Death Insurance Co [1864]
 Issit v Railway Passengers Assurance Co [1889]
 Mardorf v Accidental Insurance Co [1903]
 Re Etherington & Lancashire & Yorkshire Accident Insurance
Co [1909]

4.4 Practical Considerations

1. Difficulty in Determining Proximate Cause
o Determining causation is complex when losses involve multiple
interdependent causes.
2. Reasonable Effort to Mitigate Loss
o The insured must take reasonable steps to minimize losses. Failure to do
so can impact claims.
Case: Canada Rice Mills Ltd v Union Marine & General Insurance Co
[1941]

4.5 Summary
 The doctrine of proximate cause ensures that liability is determined based on the
dominant cause of loss.
 Courts rely on common sense and legal principles to assess causation.
 Insurers are liable only when the proximate cause is an insured peril, barring
exceptions explicitly stated in the policy.
 Cases involving multiple or successive causes require nuanced application of
these principles, often guided by established legal precedents.
DOCTRINE OF SUBROGATION & CONTRIBUTION

4.6 Doctrine of Subrogation

Definition
Subrogation is the right of one party (the insurer) to stand in the place of another (the
insured) to enforce their rights and remedies against a third party, following payment of
a claim. This doctrine ensures the insured does not receive more than indemnity for
their loss.
Key Case:
 John Edwards & Co v Motor Union Insurance Co [1922] 2 QB 243
o The insurer may pursue recovery from a third party responsible for the
insured's loss after settling the claim.

4.6.1 Application of Subrogation

 Applies only to contracts of indemnity (e.g., property or motor insurance). It
does not apply to life insurance.
Case:
o Solicitors & General Life Assurance Society v Lamb (1864):
Subrogation excluded in life insurance contracts.

4.6.2 Extent of Subrogation

 The insurer can recover only the amount paid to the insured. Any excess
recovery belongs to the insured.
Case:
o H Cousins & Co v D & C Carriers Ltd [1971]: Insurers are entitled to no
more than what was paid out.
Example:
If A (insured) suffers a motor accident caused by C (a third party) and B (the insurer)
compensates A, B can sue C to recover the amount paid.

4.6.3 Key Rules for Subrogation

1. Payment Requirement:
 o Subrogation rights arise only after the insurer has settled the insured’s
claim.
Case: Page v Scottish Corporation [1929]
2. Action in Insured’s Name:
o Actions against third parties must be undertaken in the insured’s name
unless explicitly assigned to the insurer.
3. Exception:
o If the insured caused the loss, subrogation does not apply, as this would
effectively mean suing oneself.
Case: Simpson & Co v Thomson (1877)

4.6.4 Abandonment and Subrogation

 Abandonment: When the insurer pays for a total loss, they can take over the
insured’s entire interest in the insured property.
o Referenced in Sections 63(1) and 79(1) of the Marine Insurance Act
1906.

4.6.5 Alteration of Subrogation Rights

 Insurers’ subrogation rights traditionally arise after payment, but policies may
include clauses allowing them to exercise these rights before payment.

4.7 Doctrine of Contribution

Definition
Contribution ensures fairness when multiple insurance policies cover the same subject
matter, interest, and risk. It allows an insurer who has paid the claim to recover
proportional contributions from other insurers.
Key Case:
 Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1962]: The insured
can recover no more than the actual loss suffered, regardless of the number of
policies in force.

4.7.1 Conditions for Contribution

Contribution applies when:
 1. Multiple insurance policies are in effect.
2. The policies cover the same subject matter, interest, and risk.

4.7.2 Mechanism of Contribution

 Insurers share the burden of indemnity proportionally, based on their respective
liability under the policies.
Example:
If a property worth P100,000 is insured with two insurers, one for P60,000 and the other
for P40,000, and the loss is P50,000, the contribution is:
 Insurer 1 pays: (60,000/100,000)×50,000=30,000(60,000/100,000) \times 50,000
= 30,000(60,000/100,000)×50,000=30,000
 Insurer 2 pays: (40,000/100,000)×50,000=20,000(40,000/100,000) \times 50,000
= 20,000(40,000/100,000)×50,000=20,000

4.7.3 Abandonment and Contribution

 When abandonment occurs, insurers are entitled to benefits related to the
insured property post-abandonment but cannot claim payments made in advance
(e.g., for cargo carriage).
Case:
 The Sea Insurance Co v Hadden (1884): Insurers are entitled to the benefits
linked to abandoned property.

4.7.4 Preventing Over-Indemnity

 The doctrines of subrogation and contribution ensure the insured does not
recover more than full indemnity.
Case:
o Castellain v Preston (1881): The insured cannot profit from insurance
beyond their actual loss.

4.8 Summary
 Subrogation protects insurers by allowing them to recover from third parties
responsible for the insured loss.
 Contribution ensures equitable distribution of liability among multiple insurers
covering the same risk.
 Both doctrines are fundamental to upholding the principle of indemnity in
insurance law.