When a disaster strikes, the insurance industry is expected to
respond quickly and decisively. Unfortunately, the factual chaos
which often results is frequently accompanied by coverage
issues.
A recurring issue is causation due to the chain of events
leading to loss, for example, an earthquake which leads to a
tsunami which leads to flooding.
Determining cause of loss can be a conundrum due to the way in
which the law approaches causation. We summarise below relevant
principles plus contractual drafting tips. The starting point is
that an insurer is only liable for losses caused by an insured
peril. However, a loss may have a range of possible causes
depending on how far back in time one goes. As one judge put it in
relation to an insurance contract, "...the chain of causation
recedes infinitely into the past. The draftsman must have intended
to stop somewhere: and that place must be the point at which an
event ceases to be a cause of the loss, and becomes merely
