Midland Mainline Ltd & Ors v Eagle Star Insurance Company Ltd

An insured loss may have more than one proximate cause. The court should identify the effective or dominant cause by applying common sense. It should not strain to select one dominant cause where two causes are approximately equal in effectiveness.

An insurer may rely on an exclusion where an excluded peril is one of two effective proximate causes, even though the other cause falls within the insured cover. Wear and tear may remain a proximate cause when it creates the dangerous condition that leads a competent authority to impose a safety restriction, although the restriction immediately precipitates the business interruption.

An extension expressed to be subject to all the policy’s terms, conditions and provisions remains subject to the policy’s general exclusions.

Following the Hatfield derailment, Railtrack imposed emergency speed restrictions at sites affected by gauge corner cracking, a form of rolling contact fatigue. Five train operating companies claimed indemnities under a business interruption policy for losses caused by those restrictions.

David Steel J held in [2003] EWHC 1771 (Comm.), reported at [2004] 1 Lloyd’s Rep IR 22, that each restriction was a separate occurrence under the denial of access extension. He also held that rolling contact fatigue was wear and tear but was not a proximate cause of the losses. The general wear-and-tear exclusion therefore did not defeat the claims.

Eagle Star Insurance Company Ltd appealed. The central questions were whether wear and tear was a proximate cause of each loss and whether the general exclusion applied to the denial of access extension.

1. Appeal allowed unanimously. Sir Martin Nourse delivered the judgment. Jacob LJ and Brooke LJ agreed.

2. A loss may have more than one proximate cause. The judge’s references to “the” proximate cause did not demonstrate a contrary approach because he had expressly treated the deterioration as merely an underlying state of affairs. The decisive question was whether that characterisation was open to him.

3. There were two causes of each loss: the wear and tear affecting the track and the emergency speed restriction. The wear and tear caused Railtrack to impose the restriction. Although the restriction immediately caused the interruption, the defective condition of the track remained an effective proximate cause. Alternatively, the two causes were approximately equal in effectiveness and neither was clearly more decisive.

4. The approach in Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] 1 QB 57 applied. A defective condition may remain the proximate cause although later conduct precipitates the loss. Where two effective proximate causes operate and one falls within an exclusion, the insurer may rely on that exclusion. The wear-and-tear exclusion therefore defeated the claims.

5. The Hatfield derailment itself was not a proximate cause of losses arising from restrictions elsewhere. It directly caused only the closure of the section between Alexandra Palace and Stevenage. Even for that section, wear and tear remained a proximate cause.

6. The general exclusion applied to the denial of access extension. The extension, the basic business interruption cover and the premises extension each made the extended cover subject to the policy’s terms, conditions, provisions or exclusions. On ordinary principles of construction, those words had to be given effect. This interpretation was also consistent with the exclusion of wear and tear from the basic cover. The Court affirmed the judge’s primary reasoning on this issue and did not decide his alternative ground.

1. Court of Appeal (Civil Division): In [2004] EWCA Civ 1042, unanimously allowed Eagle Star’s appeal. It held that wear and tear was a proximate cause of each relevant loss and that the general exclusion applied to the denial of access extension.
2. Commercial Court: David Steel J held in [2003] EWHC 1771 (Comm.), reported at [2004] 1 Lloyd’s Rep IR 22, that the train operating companies were entitled in principle to indemnities. He held that wear and tear was not a proximate cause of their losses. Permission to appeal was refused by the judge but subsequently granted by Mance LJ.