Tektrol Ltd. v International Insurance Company of Hanover Ltd. & Anor

Where an insurance exclusion extends to loss arising directly or indirectly from specified causes, the causal connection may be more remote than proximate cause, but it must remain a cause rather than merely historical background. Separate events may each cause the same business interruption loss. If one cause is excluded, the insurer may rely on the exclusion even though another cause is covered.

In ordinary language, information may be physically lost when computers or records containing it are stolen. “Caused deliberately” concerns whether the relevant act was done on purpose; it does not require an intention to target the particular insured or information.

Tektrol sought an indemnity under a combined all-risks policy for business interruption following the loss of source code essential to its business. A virus deliberately created by a malicious person erased source code held on a laptop and remote server. About a fortnight later, burglars stole computers and a hard-copy print-out containing the remaining copies.

The trial was confined to two preliminary issues concerning whether the business interruption loss was excluded under exclusions 7(b)(i) and 7(b)(ii). The central questions were whether the virus loss was deliberately caused by malicious persons, whether physical theft constituted “loss” of information, and whether either event was sufficient to exclude the whole claim.

1. Preliminary issues answered affirmatively. Tektrol’s claim for an indemnity failed because the virus loss was excluded under exclusion 7(b)(i), and the burglary loss was independently excluded under exclusion 7(b)(ii).
2. The words “directly or indirectly” in exclusion 7 extend beyond proximate cause. The causal chain must nevertheless stop when an event becomes merely historical. Applying Coxe v Employers’ Liability Assurance Corporation Ltd [1916] 2 KB 629, Spinney’s (1948) and ors v Royal Insurance Co Ltd [1980] 1 Lloyd’s Rep 406 and Oei v Foster [1982] 2 Lloyd’s Rep 170, both the virus and the burglary were causes of the consequential loss.
3. Where two separate causes produce one loss, an exclusion applicable to one cause is sufficient to exclude the loss. The principle in Wayne Tank and Pump v Employers Liability Ltd [1974] 1 QB 57 applied even though the virus was an indirect, rather than proximate, cause. The causes need not be exactly coextensive in time, consistently with The “Aliza Glacial” [2002] 2 Lloyd’s Rep 421.
4. “Caused deliberately” refers to the state of mind accompanying the act causing the loss. The virus creators deliberately created and transmitted the program, and it was enough that they knew activation could erase computer data. They did not need to intend harm to Tektrol or target its source code. The reasoning in Charlton v Fisher [2001] 1 Lloyd’s Rep I.R. 387 provided support.
5. “Loss” in exclusion 7(b)(ii) includes physical loss of information-bearing computers, records, programmes or software. Exclusion 13 addressed hardware and did not confine exclusion 7 to electronic loss. The burglary was not a Defined Peril because the burglars were not malicious persons within the policy definition.

The parties were directed to prepare a draft order, with ancillary matters or disputed terms to be addressed on handing down.

First-instance decision. No prior appellate decision is stated in the judgment.