The Wayne Tank Principle
As published in the New Zealand’s Law Talk magazine on 7 October 2017.
The Leggs burnt green waste from their landscaping business and lifestyle block on their Canterbury property. While the fire initially reduced to ash, sufficient combustible material remained that it reignited some weeks later in a strong wind. The root cause was embers within the heap staying hot enough to ignite branches or other rubbish, which blew on to nearby vegetation.
Some of the material in the burn heap came from the lifestyle block, but the larger portion was from the landscaping business. It was not possible to say whether the causative embers and retained heat derived from lifestyle block material, or the landscaping business, or both.
Neighbouring properties were significantly damaged and the Fire Service and Selwyn District Council incurred considerable cost.
The Leggs were not negligent, but were strictly liable under s 43 of the Forest and Rural Fires Act 1977 (now repealed). They sought cover from their liability insurers, AMI, who insured the lifestyle block, and Lumley, the insurer of the landscaping business.
The High Court found both insurers liable.
AMI considered that there was no cover because its policy excluded legal liability:
“arising out of or in connection with any … business or trade not directly connected with your farming”
AMI maintained that the liability arose in connection with the landscaping business, which was not directly connected with the lifestyle block farming operations that it insured.
“In connection with”
The core issue in the Court of Appeal was the meaning of “in connection with” and the causal potency it signified, for the purposes of the exclusion.
The Court of Appeal found that “in connection with” cannot be closely defined in the abstract. Its meaning is influenced by the policy wording and the circumstances. “In connection with” may not involve overt causation, and requires less direct causal link than “arising out of”.
The nature and closeness of the required connection depends on context and purpose. If not causal the connection must be consequential (in the sense of significant).
In the AMI policy, “in connection with” required a real and substantial connection between the legal liability and the excluded activity. The Court of Appeal could not point to any non-causal connection that in the circumstances would trigger the exclusion. It therefore found that the exclusion required a causal connection between the liability and the landscaping business.
What caused the fire?
Causation analysis involves inductive reasoning, probability and common sense.
The landscaping waste made up more of the heap, included stumps capable of forming large smouldering embers and increased the risk of smouldering continuing. AMI could not prove that the specific embers that reignited came from the landscape business, but it did not have to.
The Court of Appeal found an effective causal connection between the landscaping business and the liability.
Had the heap comprised only lifestyle block waste it might still have stayed hot. But the lifestyle block waste was not an independent factor that would have caused the loss in any event.
In effect there were two interdependent causes – the landscaping waste and the lifestyle block waste – with neither clearly proximate nor dominant.
Exclusion prevails where there are two interdependent causes
The Court of Appeal applied the Wayne Tank principle: where there are two effective and interdependent causes, one covered and one excluded, the exclusion prevails to deny cover (Wayne Tank & Pump Co Ltd v The Employers’ Liability Assurance Corporation Ltd  QB 57).
The Wayne Tank principle does not require the insurer to prove that the excluded cause is proximate or dominant, merely effective, or a material contributing factor (Body Corporate 326421 v Auckland Council  NZHC 862).
This was consistent with the exclusion. For the exclusion to bite, the connection had to be significant and causal. The landscaping waste was not necessarily the proximate or dominant cause, but “in connection with” did not require that. The liability fell within the exclusion.
The excluded cause was an effective cause. There was no finding that the lifestyle waste was an independent cause.
The Wayne Tank principle applied and AMI was entitled to decline the claim.
The effect of an exclusion is to save the insurer from matters which are covered but for the clause. The Wayne Tank principle is therefore logical and in its essence reflected the objective meaning of the policy.
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