Professional Liability Guide

CHAPTER 7 – CAUSAL PHRASES

CHAPTER 7 – CAUSAL PHRASES

Causation lies at the heart of liability insurance. The insured must suffer a loss caused by an event that is insured against and not caused by an excluded event.

The link between the event and the insured loss will depend on the words and phrases adopted in the policy, not only in its insuring clause but also in the policy exclusions and other terms. In the insurance context, the word ‘ cause ’ is often used, and the causal link is frequently equated with the ‘ proximate ’ or ‘ dominant ’ cause of the loss. 433 However, other such connective words/phrases are also used in the insurance context in relation to causation, such as ‘ arising out of ’, ‘ in connection with ’, ‘ caused by ’, ‘ attributable to ’ and many others. In this section, we examine the meaning behind the concept of proximate cause, as well as how other linking words and phrases have been interpreted by the courts. The usage of these conjunctions and the concept of causation are commonplace throughout the insurance industry and are certainly not limited to professional indemnity policies. Accordingly, while not all the authorities and principles considered derive from an analysis of professional indemnity policies, they help professional indemnity insurers interpret policy documents. What are causal phrases? Causal words and phrases express the scope of the relationship in insurance contracts between the event alleged to give rise to the insured’s loss/damage and the loss/damage itself. These words/phrases take on various forms, as will be seen later in this section, but can be as simple as using the words ‘ caused by ’, which will ordinarily invoke consideration of issues relating to proximate cause. Once other causal words or phrases beyond ‘ caused by ’ are used, a more remote consequential relationship between the event and the loss or damage will be permitted. The contrast, for example, between the phrases ‘ caused by ’ and ‘ arising out of ’ was clarified in Dickinson v Motor Vehicle Insurance Trust , 434 when the High Court (in a joint judgment) stated: ‘Whether or not the appellant’s injuries were actually caused by the use of the motor car, it is sufficient to say that they arose out of such use. The test posited by the words “arising out of” is wider than that posited by the words “caused by” and the former, although it involves some causal or consequential relationship between the use of the vehicle and the injuries, does not require the direct or proximate relationship which would be necessary to conclude that the injuries were caused by the use of the vehicle.’ 435 What does ‘proximate cause of loss’ mean? For an insured to be liable under an insurance policy, it is incumbent on the insured to demonstrate that the loss suffered was caused by an insured peril. In liability insurance, the insured’s loss will usually equate to the insured’s legal liability to pay compensation to a third party.

433 Insurance Commission of Western Australia v Container Handlers Pty Ltd (2004) 218 CLR 89 . 434 (1987) 163 CLR 500. 435 Ibid 505.

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