Introduction
Liability policies of every colour (Professional Indemnity, Director’s and Officer’s Liability, Public Liability etc.) use causal connectives. Examples of this can include the following in respect of coverage clauses:
Or the following for exclusions:
While there are similarities, the selection and use have a large impact on coverage, and that is because the causal connective will express how narrow or broad the connection to the trigger needs to be in order to cover a ‘Claim’, or else to exclude a ‘Loss’ (explained in more detail below).
Typically, you will find that a broker’s own proprietary policy wordings will use broad causal connectives when it comes to coverage clauses and extensions, but when it comes to exclusions, they will instead favour the opposite. This is done to ensure that coverage is as broad as possible. Whereas, insurers may try do the antithesis of this, and will instead look to narrow coverage clauses and expand exclusions. This is not done to avoid paying claims, but instead insurers start off with a base wording which they can look to enhance for additional premium.
How Causal Connectives Are Used
Causal connectives are used in many ways, but here is an example using “insolvency” as the event trigger; in this case we are talking about an exclusion.
There are three limbs to these exclusions:
Impact Of Causal Connectives
The selection of the causal connective will determine how closely associated the covered ‘Loss’ etc. must be to the event limb. In short, how closely associated the proximate cause must be. Using the above insolvency exclusion as the example, please consider the following assessment of the three examples used in 2):
a. The use of the word ‘directly’ suggests that the cause of the loss or the claim must be primarily linked to insolvency. The inclusion of ‘indirectly’ widens the effect of the exclusion considerably such that losses (consequential losses) may be excluded which do not directly flow from the insolvency; they may arise from special circumstances which are more remote.
b. The term “arising out of” can be difficult to determine and has been dealt with in different ways by Commonwealth courts. Some case law has suggested that the words should be construed differently in an exclusion clause as compared to a clause relating to cover, namely pointing to a strict ‘proximate cause’ test. However, other decisions have seen a broad interpretation, extending the application of the exclusion to a result less immediate than a direct or proximate relationship of cause and effect. It has been considered as having wider effect than just ‘caused by’ (albeit still requiring some causal element).
c. The use of “in any way connected with” is one of the broadest causal connectives. The effect is that the event limb may need only to be an ancillary connection to the claim/loss in order for the exclusion to be triggered.
Brokers will prefer that the causal connective used for this exclusion is “directly arising from” given their preference that exclusions should be direct to the specific cause the insurers are seeking to exclude. Insurers will typically prefer a broader exclusion which would involve the inclusion of “in any way connected with” language. Sometimes, both sides might agree to “directly or indirectly arising from” as a middle-ground.
Concluding Comment
An understanding of causal connectives is vital when considering how close (in terms of the proximate cause) an insured/broker/insurer wants the event limb to be relative to what is intended to be covered or excluded. Using causal connectives without due analysis, thought or (where appropriate) negotiation, could affect the intended coverage significantly.
These matters are not simple, and a knowledgeable insurance broker will identify, explain and mitigate wordings accordingly.