How courts viewed causation under first-party property policies
has evolved over time, which makes for a fascinating story to students
of insurance.
Bacon's Rule—The Last Cause Controls
Some of the first causation questions to be litigated involved
ocean marine policies issued by Lloyd's of London underwriters covering
sailing vessels in the late 1700s and early 1800s. At that time,
marine policies covered vessels and cargo against the "perils of
the seas"—grounding, collision, allision, inrush of water, and so
forth. But, in many instances, a peril of the sea was itself caused
by some act of negligence on the part of the master or crew. For
example, suppose the night watchman falls asleep in the crow's nest
and consequently the ship runs aground on a sandbar. Is that a loss
caused by a peril of the sea? True, the ship was damaged when it
ran aground, but the underlying negligence of the watchman was what
caused the grounding in the first place. Symbolically, the facts
of the claim can be represented as follows.
So which is the cause of the loss—the negligence of the watchman
(not covered) or the grounding on the sandbar (a covered peril)?
To answer that question, some courts considering these early
marine cases looked to an influential treatise called
Maxims of the Law, written
in 1596 by Sir Francis Bacon (1561–1626). Bacon read a lot of cases
and tried to synthesize the underlying rules he thought courts were
applying in various situations and on various issues, including
causation. His first and foremost rule (Regula
I) was "In jure non remota causa
sed proxima spectator," which translates as, "In law, one
looks to the near cause, not the remote one." He wrote:
It were infinite for the law to judge the cause
of causes, and their impulsions one of another;
therefore it contenteth itself with the immediate
cause, and judgeth of the acts by that, without
looking to any further degree.…
In other words, when asking what was the "cause" of an end result,
courts should only look back one
link in the chain of causation and settle on the event that immediately
preceded the result. Otherwise, you could be looking backward along
the chain of causation forever and never come to an answer. So,
originally, "proximate" meant "close," as in Latin, and the proximate
cause was the nearest cause or the cause immediately preceding the
end result. Remote events further back along the chain should be
ignored, in Bacon's view.
Bacon's theory made sense to courts considering causation questions
under early marine policies. A great many losses can ultimately
be traced to human negligence. If the courts were to follow the
chain of causation to the root cause of every loss, not many marine
claims would be covered, which would greatly diminish the economic
value of taking out insurance to cover ocean commerce. Therefore,
some of these courts adopted Bacon's view and initially held that
the proximate cause of a loss under an ocean marine policy was the
peril that was closest to the happening of the damage. See, for
example:
- Busk v. Royal Ins. Exch.,
2 B & Ald. 73 (1818)
- Howard Fire Ins. Co.
v. Norwich & N.Y. Transp. Co., 79 U.S. 194,
20 L. Ed. 378 (1870)
- Queen Ins. Co. of Am.
v. Globe Rutgers Fire Ins. Co., 263 U.S.
487, 20 L. Ed. 738 (1924) (Holmes, J.) ("[T]he common
understanding is that in construing these [ocean
marine] policies we are not to take broad views
but generally [we] are to stop our inquiries with
the cause nearest to the loss.")
In the hypothetical above, where the watchman fell asleep and
the ship ran aground on the sandbar, courts employing Bacon's rule
would have held that (Cause 2) the grounding on the sandbar was
the proximate cause of the damage to the hull, and that, because
grounding was covered as a peril of the sea, the loss was covered.
Under this view, the underlying negligence of the watchman would
be considered a remote cause that has no legal significance for
purposes of the causation analysis.
Court cases applying Bacon's version of the proximate cause rule
establish a particular pattern. In chain-of-events-type situations,
where an initial peril (Cause 1) directly caused a subsequent peril
(Cause 2), courts employing Bacon's rule would always focus on the
subsequent peril (Cause 2). If the subsequent peril (Cause 2) was
covered, they would hold that the loss was covered. If the subsequent
peril (Cause 2) was not covered or excluded, they would hold that
the loss was not covered or excluded. Table 1 shows this pattern.
Table 1: Bacon's Proximate Cause Pattern
Newton's Rule—The Initial Cause Controls
Not all courts accepted Bacon's theory. There was a competing
line of decisions based on the work of Sir Isaac Newton (1642–1727),
who, in 1687, published Philosophiæ
Naturalis Principia Mathematica, laying the groundwork for
classical mechanics. Newton's first law of motion was that physical
objects will remain at rest unless compelled to change their resting
state by an outside force. Consider a cue ball and a nine ball resting
on the surface of a pool table. Suppose a player takes a stick and
strikes the cue ball, the cue ball strikes the nine ball, and the
nine ball drops into the pocket. Newton would frame the chain of
events as follows.
Newton would say that what caused the nine ball to drop was Cause
1, or the kinetic energy imparted to the cue ball by the player's
strike. Cause 2, the subsequent collision between the cue ball and
the nine ball, merely transmitted the kinetic energy of the player's
strike from one to the other, making Cause 2 an instrumentality
in the chain of events. But Cause 2 was not the underlying cause,
in Newton's view.
Newton's theory of causation slowly permeated judicial thought.
As early as the mid-19th century, American courts began rejecting
Bacon's maxim "non remota causa sed
proxima spectator" in favor of the more modern or scientific
view that the proximate cause was the first event that set the chain
of events in motion culminating in the end result. See, for example:
- Montgomery v. Firemen's
Ins. Co., 55 Ky. 427 (Ct. App. 1855) (explaining
that "older cases" adhered to a rule that "a loss
was to be attributed to the cause immediately operating
at the time of its occurrence," but the "modern
decisions" had "established the more reasonable
doctrine" that a loss is covered if "the peril insured
against puts the destructive cause in operation")
- Aetna Ins. Co. v. Boon,
95 U.S. 117, 24 L. Ed. 395 (1877) ("if two causes
conspire, and one must be chosen, the more scientific
inquiry seems to be, whether one is not the efficient
cause, and the other merely instrumental or merely
incidental, and not which is nearer in place or
time to the consummation of the catastrophe")
Court cases applying Newton's version of the proximate cause
rule establish a different pattern. Where an initial peril (Cause
1) directly causes a subsequent peril (Cause 2), courts employing
Newton's rule would always focus on the initial peril (Cause 1).
If the initial peril (Cause 1) was covered, they would hold that
the loss was covered. If the initial peril (Cause 1) was not covered
or excluded, they would hold that the loss was not covered or excluded.
Table 2 demonstrates this phenomenon.
Table 2: Newton's Proximate Cause Pattern
Differentiating Newton from Bacon
Adapted for use as a rule for interpreting causation language
in a first-party property policy, Newton's theory of causation from
classical mechanics was not completely satisfactory and required
a few tweaks. For one thing, the word "proximate" means "close"
in Latin. To differentiate Bacon's idea of the proximate cause as
being the one nearest in time to the happening of the loss (i.e.,
Cause 2), courts employing Newton's idea of proximate cause as being
the initial cause that set the chain of events in motion (i.e.,
Cause 1) had to come up with a new label.
Here, judges borrowed from the works of Aristotle (384–322 B.C.).
In his Lectures on Physics, Book
II, Aristotle wrote that the word "cause" has several meanings
in the philosophic sense. One meaning of the word "cause" is "the
primary source of the change or coming to rest." In his
Lectures on Metaphysics, Book V.2,
he wrote that in this sense, "causation" can be understood as "That
from which the change or the resting from change first begins."
In his Lectures on Meteorology, Book
IV, Aristotle called the agent that brings about a change
in the state of matter the "efficient cause." Aristotle's definition
of the efficient cause as being "that from which the change first
begins" aptly described Newton's idea, that the scientific cause
of an end result was the first event setting the chain of events
in motion. Hence, courts adopted the phrase "efficient
proximate cause" or "efficient
cause" to describe Newton's concept in their decisions.
Exception for Human Negligence
Another problem was that, under Newton's theory, the underlying
negligence of the policyholder could be cited as the initial peril
that set the chain of events in motion. If a named perils policy
did not list negligence as a covered peril, insurers could argue
that a good many property losses would not be covered. To combat
this, courts simply carved out an exception to Newton's rule for
human negligence. That is, courts decided that human negligence would
be simply ignored when deciding causation questions under a named-perils
policy.
For example, in Federal Ins. Co. v. Tamiami
Trail Tours, Inc., 117 F.2d 794 (5th Cir. 1941), the negligence
of the insured in failing to properly maintain a bus led to a fire,
which caused damage to the vehicle. The named perils policy covered
losses caused by fire but did not expressly cover losses caused
by negligence. The insurer invoked Newton's rule that the initial
negligence of the policyholder set the chain of events in motion
and ultimately led to the loss. It argued that, since negligence
was not covered, the loss was not covered. However, the court ruled
that human negligence was not cognizable as a separate peril for
purposes of the causation analysis. The court explained:
An overwhelming percentage of all insurable losses
sustained because of fire can be directly traced
to some act or acts of negligence. Were it not for
the errant human element, the hazards insured against
would be greatly diminished. It is in full appreciation
of these conditions that the property owner seeks
insurance, and it is after painstaking analysis
of them that the insurer fixes his premiums and
issues the policies. It is in recognition of this
practice that the law requires the insurer to assume
the risk of the negligence of the insured and permits
recovery by an insured whose negligence proximately
caused the loss. In the absence of fraud or gross
negligence on the part of the insured, his negligence
is no defense against his recovery. [Footnote omitted.]
Taking negligence out of the fact pattern leading up to the damage
to the bus, the only peril left was fire, which was a covered peril.
Treatment of All Risks Policies
That took care of the initial negligence problem under named
perils policies. But, as for all risks policies, most courts take
the opposite view, reasoning that all risks policies are different
from named perils policies. Under an all risks policy, losses caused
by any cause of loss whatsoever are covered unless there is a specific
exclusion. If an all risks policy does not specifically exclude
negligence, most courts presume that the insurer meant to provide
coverage where human negligence was the initial peril that initiated
a chain of events leading up to the loss.
See
Associated Eng'rs, Inc. v. American Nat'l Fire Ins. Co.,
175 F. Supp. 352 (N.D. Cal. 1959); General
American Transp. Corp. v. Sun Ins. Office, 239 F. Supp. 844
(E.D. Tenn. 1965).-->
While that line of thinking has surface appeal, it is based on
an incomplete understanding of causation theory and leads to a serious
interpretation problem. Suppose human negligence precipitates an
excluded peril. For example,
consider what happened in Safeco Ins. Co.
v. Guyton, 692 F.2d 551 (9th Cir. 1982). Officials with the
California Water District were negligent in maintaining a levee.
When rains from Hurricane Kathleen inundated the area, the levees
broke, flooding parts of the City of Palm Desert, California. Framing
the facts, we had:
The court applied Newton's rule of causation and held that the
first cause that set the chain of events in motion, the negligence
of the officials, was the "proximate cause" and that, because the
all risks homeowners policy did not specifically exclude negligence,
the flooding losses were covered.
In practical effect, recognizing human negligence as a root cause
under an all risks policy means that the policyholder can very easily
argue around policy exclusions. A good many property losses are
precipitated by human negligence. If negligence causes flood, and
the courts accept negligence as the proximate cause, then there
is no effective way an insurer can ever exclude flood. Insurers
created so-called anti-concurrent causation (ACC) language in 1984
in an effort to combat this wrong-headed application of Newton's
causation theory. But ACC language is difficult for policyholders
to understand and for courts to apply.
A better, more reasoned approach is to treat named perils and
all risks policies the same. Human negligence should be ignored
under either kind of policy. Or, stated more precisely, the risk
of human negligence should be considered subsumed in the subsequent
peril, whatever that peril turns out to be. If negligence causes
a fire, and the policy covers fire, the risk of negligence should
be considered subsumed in the subsequent fire that the insurer chose
to cover. If negligence causes a flood, and the policy excludes
flood, the risk of negligence should be considered subsumed in the
subsequent flood that the insurer chose to exclude. That way, human
negligence could not be used by either side to wrongfully avoid
policy coverages or wrongfully circumvent policy exclusions.
A minority of courts applies the same exception to all risks
policies as they do to named perils policies. That is, they hold
that human negligence that sets a chain of events in motion is not
cognizable as a separate peril for purposes of causation analysis
under an all risks policy (which is the better reasoned view). See,
for example:
- E.B. Metal & Rubber
Indus., Inc. v. Federal Ins. Co., 84 A.D.2d
662, 444 N.Y.S.2d 321 (App. Div. 3d Dep't 1981)
- Chadwick v. Fire Ins.
Exch., 17 Cal. App. 4th 1112, 21 Cal. Rptr.
2d 871 (1993)
- In re Katrina Canal
Breaches Litig., 495 F.3d 191 (5th Cir. 2007)
Conclusion
For most of the 19th century, courts in America and England struggled
to settle on which theory of causation they would employ in a first-party
property case. By the early 20th century, the debate in the case law
largely died out, with almost all courts adopting Newton's rule
in the end. Overwhelmingly, courts now hold that, in chain-of-events-type
cases, where an initial peril causes another peril, which causes
the loss, the efficient proximate cause is (Cause 1) the initial
peril that set the chain of events in motion. Sometimes, a stray
court may apply a line of thinking reminiscent of Bacon's rule and
will select the last event in the chain of events immediately preceding
the loss as the proximate cause, but today those instances are exceedingly
rare.