So your insurance policy completely excludes pollution risks? You might want to look at your policy a little more closely

The Court of Appeal re-affirms that exclusions are not automatic blanket exceptions to all cover: careful analysis of the wording and the cause of a loss can yield surprisingly good results for policyholders (Brian Leighton v Allianz)

17 January 2023

In a case that will be of particular interest to policyholders exposed to environmental risks, Brian Leighton (Garages) v Allianz confirmed that a pollution and contamination exclusion did not exclude cover for a loss caused by a ruptured fuel line, which allowed petrol to contaminate the business premises. 

What happened?

Brian Leighton (Garages) Limited (“BLG”) operated a vehicle repair and refuelling garage. BLG was insured by Allianz for property damage and business interruption. BLG experience a fuel leak at its premises which resulted in the garage being closed for health and safety reasons. The fuel leak was caused by a sharp object (probably a stone), under pressure from concrete slabs on the garage forecourt, puncturing an underground fuel line. Fuel then spread across the premises, contaminating the land and giving rise to the health and safety closure.

Allianz’s policy provided property damage cover on an all risks basis. This meant that damage of any kind was covered unless expressly excluded by the policy. The issue before the Court was whether the claim was excluded by exclusion 9:

“Damage caused by pollution or contamination, but [Insurers] will pay for Damage to the Property Insured not otherwise excluded, caused by

(a) pollution or contamination which itself results from a Specified Event

(b) any Specified Event which itself results from pollution or contamination”.

It was accepted that no ‘Specified Event’ had occurred, so the exceptions in clauses (a) and (b) were not engaged. The debate was focussed on the first part of the clause: namely, was the damage suffered by BLG “caused by pollution or contamination”? 

From a factual point of view, pollution or contamination was undoubtedly part of the causal chain of events – first the fuel pipe was ruptured and the fuel escaped. Both elements of the causal chain were necessary of the loss to arise.

The more contentious legal question was whether the exclusion applied if the pollution or contamination: (i) had any causal impact on the damage, such that it only had to be one part of the causal fact pattern for the exclusion to apply; or (ii) it had to be the proximate cause of the damage (i.e. the dominant cause of the damage).

By a 2 to 1 majority, the Court of Appeal held it was the latter – the exclusion only applied if pollution or contamination was the proximate cause of the damage. Here, however, the rupturing of the pipe by a sharp object was the proximate cause of the damage. The subsequent fuel leak was merely the inevitable consequence of that cause.

Our view

In our view, the Court of Appeal is most likely correct in its conclusions in this case. At first blush it may seem a surprising result. From an initial gloss of the policy it would be easy to assume that the intention of the exclusion was to carve out of cover any and all pollution / contamination related losses and then only write back into cover the circumstances referred to in (a) and (b). 

However, this was an insurance policy and it is well established that the starting presumption is that an insurance policy operates on a test of proximate causation. A lesser or weaker test of causation will only arise where the policy language makes that clear. Here, the policy simply used the phrase “Damage caused by pollution or contamination” – a phrase virtually synonymous with proximate causation. Therefore, the conclusion was that coverage was excluded only where pollution or contamination was the proximate cause.

Insurers who want to depart from proximate causation and exclude a certain causal factor absolutely will frequently use language such as “damage caused directly or indirectly by [x]” to make it clear the exclusion is engaged if the risk is in any way art of the causal chain – not only when it is the proximate cause Crowden v QBE is an good example of this. Allianz chose not to use such language in exclusion 9 – but it did in other exclusions in the policy.

You can read the full judgment here: Brian Leighton (Garages) Ltd v Allianz Insurance Plc [2023] EWCA Civ 8 (11 January 2023)

Key contact

Matthew Walker

Matthew Walker Partner

  • Dispute Resolution
  • Financial Services
  • Insurance

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