A fire on a power pole approximately fifty five metres from the appellant’s premises caused the upper arm on the burnt pole to fail, the wiring on that upper arm came into contact with wiring on the lower arm thus causing a high voltage/low voltage intermix. The intermix caused a power surge to the premises which power surge caused damage to a Laser.

The real and effective cause of the damage to the Laser was the fire.

The law of insurance looks to the proximate and not the remote cause of loss or damage. The proximate cause is the active, efficient cause that sets in motion a train of events without the intervention of any independent force. The proximate cause rule is based upon the presumed intention of the parties to an insurance policy. The proximate cause rule applies despite the use of the adverb “directly” to modify “caused” in the policy. On the proper construction of the policy in the present matter, the expression “directly caused” required the determination of what was the proximate cause of the damage to the Laser. The question whether a policy of insurance responds in fact is essentially a question of commonsense to be determined by the standards of a reasonable non-expert.

At its most elementary level the proposition that the phrase “directly caused by … fire” did not mean the “cause” could only be the most immediate cause, that is to say, that there could be no step between the cause (fire) and the occurrence (damage to the Laser), lies in the fact that the policy did not limit cover to the circumstance that the property covered be burnt by fire. Thus it was plain that the parties intended a loss could be caused by fire even where the property damaged was not itself burnt, as long as other property was burnt.

Once it was accepted that the policy did not limit cover to property actually burnt by the flames, it was apparent that the word “directly” looked to “the quality of the connection between [the] cause and the injury”. “Directly caused” clearly excluded indirect or remote causes, but did not mean there could be no step between the fire and the damage. It called attention in considering whether the policy responded to what was the “real, efficient” i.e. the proximate, cause of the damage to the Laser.

Ultimately, the question whether a loss was caused by a peril to which an insurance policy responds is a question of fact requiring a determination as to whether the fire was the efficient means or agency in causing the loss. On these facts, it was.

Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited & 2 Ors [2005] NSWCA 66

Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited & 2 Ors – NSW Caselaw