The Proximate Cause Doctrine: An Analysis of Chinese Marine Insurance Cases

——Amendment of the Maritime Code of the PRC

Wang Zhonghua  Allbright Law Offices (Qingdao)

Tian Kun Qingdao Maritime Court

[Abstract] Causation is a crucial issue in ascertaining whether certain loss or damage is covered in an insurance policy. This paper introduces the trial practice of Chinese court when deciding this issue and propose to adopt the proximate cause concept in amendment of the Chinese Maritime Code.

[Keywords] proximate case; proportion; amendment.

INTRODUCTION

In the law of marine insurance, there may be many factors contributing to the loss. when faced with a claim for coverage under marine policy, insurers looked to determine if there was a single, dominant, or ”proximate” cause of the loss. If so, and that cause of the loss was an included peril of coverage, then coverage was granted. If that cause of the loss was an excluded peril, then coverage was denied. Causation is therefore fundamental in defining the scope of marine insurance contracts.

Most jurisdictions have widely adopted the concept of the 'proximate cause'. Section 55(1) of the Marine Insurance Act 1906 encapsulates the general rule of causation to be applied for the purpose of resolving disputes regarding the cause of loss. It states:

Subject to the provisions of this Act, and unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peri insured against, but, subject as aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.

The New Zealand Marine Insurance Act 1908 and the Australian Marine Insurance Act 1909 following the same provision, which is headed “included and excluded losses” and designed to require a causal link between an insured peril and the loss.

In contrast, the Chinese Maritime Code lacks the express provision of proximate cause, but simply infers a causal link in the provision of definition of a contract of marine insurance. Article 216 provides as follows:

A contract of marine insurance is a contract whereby the insurer undertakes, as agreed, to indemnify the loss to the subject matter insured and the liability of the insured caused by perils covered by the insurance against the payment of an insurance premium by the insured.

In the definition, the phrase of “caused by” is considered to contain a causation trigger.

The Chinese Maritime Courts have applied the proximate cause rule in a number of marine insurance cases. In May 2018, the Supreme People’s of China rendered a judgment of (2017)ZGFMZ No.413, in which the Supreme Court not only answered if a peril fits within the boundaries of coverage, if there could be more than one cause of a loss, but also stated how to determine the applicability of coverage when one of the losses was covered and one was excluded. It is fair to say that the seeds of the current understanding of the rule of causa proxima were sown with Chinese courts.

ONE PROXIMATE CAUSE OF LOSS

When there is only one proximate cause of loss, the task for the court is relatively straightforward: it has simply to determine whether that particular cause of loss is, or is not, an insured risk under the policy in question.

Relating to the burden of proof:

The assured has the burden of proving that he has suffered a loss of the kind covered by the insurance and of proving the extent of the loss;

The insurer has the burden of proving that the loss has been caused by a peril that is not covered by the insurance or by the express exclusions in the policy or in the laws.

Wenzhou Sehnghang Shipping Co., ltd V China Life Property and Casualty Insurance Company Limited (2017)Z72MC No.1934

The plaintiff insured the ship Shenghang86 with the defendant insurers under a time policy of insurance. She sank during the anchoring. The court found she was in a state of unseaworthiness in two respects: (a) she was unseaworthy by reason of insufficiency of crew, to which the assured was privy; and (b) she was unseaworthy by reason of overloaded capacity. At the time of sinking, the wind force scale at the sinking site was five. The alleged 8 scale wind force did not occur at the time and site of sinking, thus the assured did not prove that the alleged 8 scale wind force had a causal link with the sinking. The insurer was not liable for any loss proximately caused by unseaworthiness.

TWO OR MORE PROXIMATE CAUSES OF LOSS

If the loss has been caused by a combination of different perils, and one or more of these perils are not covered by the insurance, the loss shall be apportioned over the individual perils according to the influence each of them must be assumed to have had on the occurrence and extent of the loss, and the insurer shall only be liable for that part of the loss which is attributable to the perils covered by the insurance.

Mr. Qu Rongmo V China Continent Insurance (2017)ZGFMZ No.413

The plaintiffs insured the fishing boats Lurongyu1813 and Lurongyu1814 with the defendants under a policy of ocean fishing boat insurance which included cover for loss of or damage to the boat caused by natural disasters and accidents such as storm, typhoon, lightning, drifting ice, earthquakes, tsunamis, floods, volcanic eruptions, stranding, reefing, sinking, collision, fire, explosion of boilers or other equipment, tubing rupture, etc., but not for loss or damage caused by unseaworthiness of the boat, negligence of boatowner and its representatives, and malicious acts of boatowner, its representatives and master. Whilst boats maintenance and repairing at a dock during closed fishing season, according to the weather forecast the boatowner knew that typhoon was approaching and then decided to shift the boats to a safe dock sheltered from typhoon. During the shifting by boatowner,two masters and one crew, the boats steering gear failed and then were anchored waiting for salvage service. During the period, the wind gradually increased. Under the action of typhoon and big waves, the anchor cables broke, and the boats were out of control. Subsequently, the two boats were blown next to a reef by typhoon and waves and stranded. The repeated salvage failed, and the boats were finally total loss. The plaintiffs claimed damages for the total loss of the two boats, but the defendants denied liability on the ground that the loss was caused by negligence of boatowner and unseaworthiness at the time of the commencement of the voyage.

The Qingdao Maritime Court ruled in favor of the plaintiff that the total loss arose from typhoon and storm which were covered by the policy. During closed fishing season, the boats were on maintenance and some crew were on vacation. The insufficient crew did not amount to gross negligence. There was no proof of malicious acts of boatowner. The shifting for risk aversion between two docks did not fall within the unseaworthiness at the time of the commencement of the voyage under the exclusion provision of Article 244 of Chinese Maritime Code.

The Court of Appeal overturned the trial judge and ruled that the plaintiff was negligent in instructing the boats to shift meanwhile one boat had no power and the other was insufficient crew when typhoon was approaching. The plaintiff’s negligence had causal link with the stranding. The damage had been caused firstly by the negligence of the plaintiff and then by the typhoon. There were two proximate causes of loss: an included cause of loss (typhoon) and an excluded cause of loss (negligence of boatowner). One without the other would not have caused the loss, but it was too difficult to decide which was direct, effective and dominant cause of loss. The Court of Appeal then ruled at the discretion that the defendant was liable for 50% of the loss.

The Supreme Court,in overturning the decision of the Court of Appeal, ruled that a judge could decide whether an insurance claim was sustainable based on the following elementsand logics:

Identifying the causes of peril, the insured cause or uninsured cause;

Examining the validity of exclusion clause and whether there are causes were expressly excluded by the policy;

Deciding the proportional liability based on efficiency and probability of the insured cause for the loss.

The plaintiff was negligent that he did not man sufficient crew when shifting the boats to another dock. The master and crew were also negligent that they did not keep due care of drainage of the boats’ engine room which resulted one boat lost power. In conclusion, the damage on the evidence had been caused by a combination of typhoon (insured risk/cause),boatowner’s negligence (uninsured risk/cause) and master/crew’s negligence (insured risk/cause), among which typhoon was the dominant cause of loss. By considering the efficiency and probability of the above three causes to the loss, the Supreme Court held the defendant liable for seventy-five percent of the loss.

CONCLUSION

The theory of causation in marine insurance law context has been dramatically developed, the test of identifying the proximate cause of loss has been changed from the last cause occurring before the loss to measuring the efficiency of contribution. On occasion, direct and immediate cause in time sequence are the efficient ones contributing to the consequential loss in the legal sense. The time order in which the perils and loss occurred still remains a helpful reference but need to be replaced by the chain of efficiency. Basically, the different test shall be integrated to use in legal practice. Moreover, the new theory has been developed further. The new liability allocation, such as cause force theory, proportional cause and effect theory and Norway allocation theory have different advantage could be used as a amendment theory of application of this doctrine of proximate cause.

Though the Chinese Maritime Code has not expressly adopted the concept of proximate cause, it contains implied theory of this doctrine. Under judicial practice, it also has been in fact applied by the Maritime Courts. The lack of this doctrine will put the judge in difficulty or in confusion in deciding a case and lead to purely "subjective" judgment or even contentious and adversarial judgment.

Legal certainty, a feature of the rule of civil law, constitutes a requirement for the operational necessities of market interactions.

In this regard, the Supreme Court of the PRC is going forward. On 25 November 2015, the Supreme Court announced the Judicial Interpretation Ⅲ of Chinese Insurance Law, which adopted the proportional cause liability. Article 25 of the Interpretation provides that where it is difficult to determine whether the insured's losses are caused by insured risks, uninsured risks or exclusions, the court may hold insurer proportional liability based on efficiency and probability of combined causes to the loss.

Besides the Supreme Court, some higher court at province level also issued opinions or guidance regarding the proximate cause doctrine. Guidance on trial of insurance disputes issued by Fujian Higher Court states that the cause which is truly proximate is that which is proximate in efficiency not in time nor in space. The insurer is only liable for insured proximate cause but not liable for uninsured or excluded proximate cause. Opinions on trial of insurance disputes published by Zhejiang Higher Court provides that If the loss has been caused by a combination of different causes, the compensation liability of insurers will depend on whether the sustained dominant or effective cause is covered by the policy. Guidance on trial of insurance disputes issued by Guangdong Higher Court states that If the loss has been caused by a combination of different causes, and one or more causes are covered by insurance but others not, the insurer shall be held proportional liability according to the efficiency of the insured cause to the loss.

On 7 September 2018, the amendment of Chinese Maritime Code has been listed in the legislation plan of the Standing Committee of the Thirteenth National People's Congress. The Ministry of Transport of the PRC also sets up a working group to conduct the amendment.

Although every case must be determined on the basis of its own factual grounds, leaving the issue to a determination of fact will leave the law in an indefinite state. In order to enhance the certainty of law in this respect and the coherency of the judicial practice, opinions and guidance, we propose thatthe proportional allocation theory is adopted into Chinese Maritime Code, in the future amendment of which the doctrine of proximate cause may be stated as follows:

The insurer is liable for loss incurred when the interest insured is struck by an insured peril during the insurance period.

If the loss has been caused by a combination of different perils, and one or more of these perils are not covered by the insurance or fall within exclusions, the loss shall be apportioned over the individual perils according to their influence. The insurer shall be liable for the loss pursuant to the proportion of that part of the loss which is attributable to the perils covered by the insurance.