The doctrine of proximate cause, expressed simply, means that if the insured cause is within the risks covered, the insurer is liable in respect of the loss but if it is within the perils exempted the insurer is not liable.
The leading authority is the Leyland Shipping case [1918].
The proximate cause is complicated when concurrent causes, that is, two or more events have caused the loss. Such causes being of equal efficiency. Particular issues arise where the loss results from an excepted peril and from an insured peril, as concurrent causes, in which case the policy exclusion is given effect. This is the well known and often quoted (by IDR teams) the Wayne Tank principle [1974].
However, for consumer insurance claims – is this a fair outcome?
Fairness and general insurance claims
You will immediately note that this rich area of insurance law is more than 100 years old. The Wayne Tank case is more than 50 years old.
Since that time we have seen:
- Claims handling and settling introduced as a financial service;
- the Unfair Contract Terms regime applying to general insurance claims;
- the ongoing development of the GI Code of Practice; and
- the duty to take reasonable care not to make a misrepresentation replacing the more onerous Duty of Disclosure for consumer insurance contracts.
The common theme of these changes is the introduction of fairness, particularly for general insurance products provided to individuals and small business.
AFS licencees must provide their claims handling and settling services efficiently, honestly and fairly. Contract terms in a PDS or SME general insurance product can not create a significant imbalance in the parties rights & obligations. The GI Code requires Code subscribers to be honest, efficient, fair, transparent and timely in dealings with the insured. The duty to take reasonable care requires the insurer to consider the characteristics of the insured when considering innocent misleading representations during the sales process.
Does it sit comfortably to decline an insurance claim to a consumer (and potentially a consumer experiencing vulnerability) applying strict legal doctrines that were developed at a different time and in a different consumer environment?
Clearly the doctrine of proximate cause can not be completely discarded. However, its application can be applied differently to claims for retail clients, consumer insurance contracts and small business standard contracts resulting in a fairer outcome.
Fairness and proximate cause
The Duty of Utmost Good Faith requires insurers to operate with commercial standards of decency and fairness (High Court Allianz v Deloe Vue). There is a school of thought whether this extends to ‘community standards of decency and fairness’ (refer Mann’s Annotated Insurance Contracts Act 9th ed2025 Lawbook Co. at [13.10.5]).
For the purpose of discussion not controversy, how would the proximate cause be considered through a lens of community standards of decency and fairness?
How would this operate in practice, in a claims or complaint context?
- The starting point is in respect of expert’s reports. The expert when considering causation must have a genuine ‘objective’ belief based on their specialist skills, knowledge, qualifications and experience in respect of the potential cause(s) of loss.
- The claims handler or IDR specialist, when considering potential excluded causes of loss, must objectively apply a ‘weighted balance of probabilities’. That is, a consideration of the weight of evidence leading to a certain conclusion.
- I would suggest that fairness would dictate a claims decision-making approach adopting a balance of probabilities skewed in favour of the insured (recognising the imbalance of power & the different consequences of a declined claim on both parties).
- This means adopting a starting approach of ‘I accept the evidence of the insured unless it is subsequently disproved by other evidence’.
- In practice this means rather than adopting a strict 50/50 probability approach to claims decision making (also known as a black and white approach), the equation shifts to say 60/40 in favour of the consumer (if it’s an area of grey, the decision is made in favour of the consumer). This means that the evidence to support an exclusion clause being applied to a claim must achieve a persuasive factor of 60% not 51%. This takes the person making a claims decision away from a position of uncertainty (as to the cause of loss) to increased certainty.
- In a proximate cause situation this would mean a reversal of the Wayne tank principle. Where there are 2 or more concurrent causes of loss and one of those is an insured event, then the claim should be paid. The key is concurrent causes not an exclusion clause where the excluded event is the dominant and effective cause. In the latter case, the claim is clearly excluded.
- This approach to proximate cause, in my view, balances fairness against the application of strict legal principles resulting in detriment to a consumer.
Disclaimer: Reproduction of statements made in this article by media outlets, whether in full or in part, is strictly prohibited without the written express consent of the author. The views, opinions, and positions expressed within this article are those solely of the author and Compliance Advocacy Solutions Pty Ltd and not the views of other individuals, companies or organisations they may be affiliated with. The author and Compliance Advocacy Solutions Pty Ltd make no representations as to accuracy, completeness, currency, suitability, or validity of any information in this article and will not be liable for any errors or omissions or any loss or damage arising from its use or reliance. This article is intended for educational and informational purposes only and should not be relied upon as professional legal advice.