Lasermax Engineering Pty Limited v QBE Insurance

JUDGMENT OF: Ipp JA at 1; Tobias JA at 11; McColl JA at 12

DECISION: (1) Appeal allowed. (2) Judgment of Einstein J set aside. (3) The separate question, namely, whether on the agreed and assumed facts the damage to the plaintiff's Laser was "directly caused" by fire within the meaning of the Policy be answered, "Yes". (4) Respondents to pay the appellant's costs of the hearing before Einstein J and of the appeal.

CATCHWORDS: INSURANCE - causation - proximate cause - CONTRACTUAL CONSTRUCTION - presumed intention of parties - use of dictionaries. (D)

Legal Profession Act 1978 (NSW) Motor Vehicles (Third Party Insurance) Act 1942 (NSW) LEGISLATION CITED: Motor Vehicles (Third Party Insurance) Act 1943 (WA) Supreme Court Rules 1970 (NSW) Transport Accident Act 1986 (Vic)

American Home Assurance Co v Saunders (1987) 11 NSWLR 363 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Arbuthnott v Fagan (Court of Appeal, 30 July 1993, unreported) Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Australian Casualty Co Ltd v Federico [1986] HCA 32; [1986] 160 CLR 513 Becker, Gray & Company v London Assurance Corporation [1918] AC 101 Boiler Inspection & Insurance Co of Canada v Sherwin-Williams Co of Canada Ltd [1951] AC 319 City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 Container Handlers Pty Limited v Insurance Commission of Western Australia & Ors [2001] WASCA 304; (2001) 25 WAR 42 De Vaux v Salvador (1836) 4 Ad & El 420; (1836) 111 ER 845 Dickinson v Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500 Everett v London Assurance Corporation (1865) 19 CB (NS) 126 Government Insurance Office (NSW) v R J Green & Lloyd Pty Ltd [1966] HCA 6; (1966) 114 CLR 437 HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc & Anor (1998) 43 NSWLR 601 House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44; (2000) 48 NSWLR 498 Insurance Commission of Western Australia v Container Handlers Pty Ltd [2004] HCA 24; (2004) 78 ALJR 821 International Fina Services AG v Katrina Shipping Ltd (The Fina Samco) [1995] 2 Lloyd's Rep 344 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd's Rep 32 Johnson v American Home Assurance Company [1998] HCA 14; (1998) 192 CLR 266 Lasermax Engineering Pty Ltd QBE Insurance (Australia) Limited & Ors [2004] NSWSC 483; (2004) 13 ANZ Ins Cas 61-615 Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60 Lumley General Insurance Ltd v Vintix Pty Ltd (1991) 24 NSWLR 652 CASES CITED: Lynn Gas & Electric Co v Meriden Fire Ins Co 33 NE 690 (1893) Marsden v City & County Assurance Co (1865) LR1CP 232 McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Medlin v State Government Insurance Commission [1995] HCA 5; (1995) 182 CLR 1 National & General Insurance Co Ltd v Chick [1984] 2 NSWLR 86 National Insurance Co of New Zealand Ltd v Espagne [1961] HCA 15; (1961) 105 CLR 569 Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 78 ALJR 1045; Phillips and Stratton v Dorintal Insurance Ltd [1987] 1 Ll LR 482 Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541 Re Etherington and Lancashire and Yorkshire Accident Insurance Company [1909] 1 KB 591 Re Polemis & Furness, Withy & Company Limited [1921] 3 KB 560 Reischer v Borwick [1894] 2 QB 548 Stanley v Western Insurance Co (1868) LR3Exch 71 State Chamber of Commerce and Industry v Commonwealth of Australia [1987] HCA 38; (1987) 163 CLR 329 State Government Insurance Commission v Sinfein Pty Ltd (1996) 15 WAR 434 Symington & Co v Union Insurance Society of Canton Ltd (1928) 97 LJKB 646 Thames & Mersey Marine Insurance Company Ltd v Hamilton, Fraser & Co (1887) 12 App Cas 484 Transport Accident Commission v Hoffman [1989] VR 187 Transport Accident Commission v Jewell [1995] 1 VR 300 Transport Accident Commission v Treloar [1992] 1 VR 447 Vintix Pty Ltd v Lumley General Insurance Ltd (1991) 24 NSWLR 627 Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1977] 1 QB 57 Wilson v Anderson [2002] HCA 29; (2002) 213 CLR 401 Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691

Lasermax Engineering Pty Limited (Appellant QBE Insurance (Australia) Limited (First Respondent) PARTIES: Mercantile Mutual Insurance (Australia) Limited (Second Respondent)

J E Sexton SC/R C Scruby (Appellant) COUNSEL: B M J Toomey QC/M T McCulloch SC (First and Second Respondents)

Maguire & McInerney (Appellant) Hunt & Hunt (First and Second Respondents) SOLICITORS:

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40490/04 SC 50052/03

IPP JA TOBIAS JA McCOLL JA

Wednesday, 16 March 2005 LASERMAX ENGINEERING PTY LIMITED v QBE INSURANCE (AUSTRALIA) LIMITED & 2 ORS FACTS

The appellant carries on business using a Laser to weld, cut and treat materials. It held a policy of insurance (the "Policy") with the respondents that provided cover for inter alia, damage to property caused by fire. A fire occurred on a power pole in the vicinity of the appellant's premises. The fire caused the upper arm of the power pole to fail, allowing wiring on the upper arm to come into contact with the wiring supported by the lower arm. For the purpose of the proceedings it was assumed that the contact between wiring on the two arms of the power pole caused a high voltage/low voltage intermix which in turn led to a power surge to the appellant's premises, which damaged the Laser. At a separate hearing pursuant to Part 31 rule 2 of the Supreme Court Rules to determine the question whether on the agreed and assumed facts, damage to the Laser was directly caused by fire within the meaning of the Policy, the primary judge concluded that the direct cause of the damage to the Laser was the power surge. The appellant appealed. HELD per McColl JA (Ipp JA and Tobias JA agreeing) upholding the appellant's appeal.

1. The law of insurance looks to the proximate and not the remote cause of loss or damage. Marsden v City & County Assurance Co (1865) LR1CP 232, Everett v London Assurance Corporation (1865) 19 CB (NS) 126, Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350, Australian Casualty Co Ltd v Federico [1986] HCA 32; [1986] 160 CLR 513 referred to.

2. The proximate cause is the active, efficient cause that sets in motion a train of events without the intervention of any independent force. National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 , HIH Casualty & General Insurance Limited v Waterwell Shipping Inc & Anor (1998) 43 NSWLR 601, Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350, Re Etherington & Lancashire & Yorkshire Accident Insurance Company [1909] 1 KB 591 referred to.
3. The proximate cause rule is based upon the presumed intention of the parties to an insurance policy.

De Vaux v Salvador (1836) 4 Ad & El 420; (1836) 111 ER 845, Reischer v Borwick [1894] 2 QB 548, Becker Gray & Company v London Assurance Corporation [1918] AC 101, Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 referred to. 4. The proximate cause rule applies notwithstanding the use of the adverb "directly" to modify "caused" in the Policy. Boiler Inspection & Insurance Co of Canada v Sherwin-Williams Co of Canada Ltd [1951] AC 319, City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739, Australian Casualty Co Ltd v Federico [1986] HCA 32; [1986] 160 CLR 513, Vintix Pty Ltd v Lumley General Insurance Ltd (1991) 24 NSWLR 627, Lumley General Insurance Ltd v Vintix Pty Ltd (1991) 24 NSWLR 652, State Government Insurance Commission v Sinfein Pty Ltd (1996) 15 WAR 434 referred to; Insurance Commissioner of Western Australia v Container Handlers Pty Limited [2004] HCA 24; (2004) 78 ALJR 821 considered. 5. On the proper construction of the Policy the expression "directly caused" required the determination of what was the proximate cause of the damage to the Laser.

6. 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. Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691, Australian Casualty Co Ltd v Federico [1986] HCA 32; [1986] 160 CLR 513 referred to.

7. Use of dictionaries in contractual construction considered. Phillips and Stratton v Dorintal Insurance Ltd [1987] 1 Ll LR 482, Provincial Insurance Aust Pty Ltd v Consolidated Wood Products (1991) 25 NSWLR 541, Arbuthnott v Fagan (Court of Appeal, 30 July 1993, unreported), International Fina Services AG v Katrina Shipping Ltd ( The Fina Samco ) [1995] 2 Lloyd's Rep 344, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44; (2000) 48 NSWLR 498 referred to. ORDERS (1) Appeal allowed.

(3) The separate question, namely, whether on the agreed and assumed facts the damage to the plaintiff's Laser was "directly caused" by fire within the meaning of the Policy be answered, "Yes".

(4) Respondents to pay the appellant's costs of the hearing before Einstein J and of the appeal.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40490/04 SC 50052/03

IPP JA TOBIAS JA McCOLL JA

Wednesday, 16 March 2005 LASERMAX ENGINEERING PTY LIMITED v QBE INSURANCE (AUSTRALIA) LIMITED & 2 ORS Judgment

1 IPP JA: The first issue in this appeal concerns the meaning of the phrase "directly caused" in a policy of insurance. The second issue involves whether, as a matter of fact, loss suffered by the appellant was "directly caused" by an insured event, namely, fire. 2 The relevant clause in the policy concerned provided that the respondents would indemnify the appellant up to a specified limit "in respect of physical loss of damage to … (b) contents … directly caused by the following insured events". "Fire" was one of the insured events. 3 The relevant circumstances were as follows. A fire broke out on a power pole located two power pole spans away from the insured premises (a distance of approximately 55 metres). Fire caused the upper arm on the burnt pole to fail. The wiring supported by the upper arm came into contact with wiring supported by the lower arm. This caused a "high voltage/low voltage intermix". The "intermix" caused a power surge to the premises and damaged a laser machine located in the premises. The question at trial was whether the fire "directly" caused the damage to the laser machine.

4 The trial judge applied ordinary rules of construction in construing the phrase "directly caused". He did not treat this phrase as having any special quality simply because it was contained in an insurance policy. In my opinion, he erred thereby. 5 In State Government Insurance Commission v Sinfein Pty Limited (1996) 15 WAR 434 the Full Court of the Supreme Court of Western Australia (composed of Malcolm CJ, Parker J and myself) considered the authorities then extant relating to the meaning of "directly caused" in policies of insurance (whether issued by private treaty or imposed by statute). The Court drew the following propositions from the authorities: (a) It is a fundamental rule of insurance law that the insurer is only liable for losses proximately caused by the peril covered by the policy. (b) A proximate cause is not the first, or the last or the sole cause of the loss; it is the effective or dominant or operative cause. (c) The phrase "directly caused by" in policies of insurance is to be equated with "proximate cause". 6 On 4 November 1996, the High Court (per Dawson, McHugh and Kirby JJ) [1996] 18 Leg Rep SL2a dismissed an application for special leave to appeal from the decision in Sinfein. Dawson J, in delivering the judgment of the Court, said: "This application concerns the interpretation of the words 'death or bodily injury caused by the driving of the vehicle' contained in a policy of insurance under the Motor Vehicle (Third Party Insurance) Act 1943 Western Australia. We are not persuaded that the majority in the Full Court were in error in reaching the conclusion which they did and they were not in error in having regard to insurance law in the interpretation of the expression in question. In any event, the case turns largely upon its own facts. For all of these reasons, the applicant has not made out a case for granting special leave. Special leave is accordingly refused …" 7 As McColl JA points out in her reasons, which I have had the advantage of reading, no member of the High Court in Insurance Commission of Western Australia v Container Handlers Pty Limited (2004) 78 ALJR 821 expressed any doubt about Sinfein. 8 I adhere to the views expressed in Sinfein. 9 The causative mechanism resulting in the fire was not particularly complex. The loss was not caused by a "concatenation of random acts and omissions" as was the case in Sinfein. The loss was not brought about by any new intervening cause, such as the agency of humans or unexpected acts of God. The fire operated on the installations and mechanisms attached to the power pole so as to cause a power surge which, in turn, caused damage to the laser machine. In this way, the fire was the operative cause of the loss and the effective causative agency. Applying the commonsense approach directed by Medlin v State Government Insurance Commission (1995) 182 CLR 1 (at 6), the fire was the predominant cause of the loss 10 I would therefore uphold the appeal. I agree with the orders proposed by McColl JA, with whose reasons I generally agree. 11 TOBIAS JA: I agree with McColl JA. 12 McCOLL JA: This is an appeal by leave granted on 18 June 2004 from a separate trial conducted pursuant to Supreme Court Rules Part 31 rule 2 of the question whether, on the agreed and assumed facts, damage to the plaintiff's Lumonics AM 356 Laser (the "Laser") was "directly caused" by fire within the meaning of a Commercial/Retail/Industrial policy of insurance (the "Policy"). 13 Einstein J held that, upon the proper construction of the Policy, damage caused to the Laser as a result of a power surge, assumed for the purposes of the Part 31 rule 2 hearing to have been caused by a fire in a power pole, was not "directly caused" by fire: Lasermax Engineering Limited v QBE Insurance (Australia) Limited & Ors [2004] NSWSC 483.

Statement of the case 14 The separate hearing proceeded on the basis of the following agreed and assumed facts: "Agreed facts (1) The plaintiff has an insurable interest in a Lumonics AM 356 Laser ("the Laser).

(2) The Laser was, at all relevant times, located in premises occupied by the plaintiff and known as 152-154 Shellharbour Rd, Kemblawarra ("the Premises"). (3) By a policy of insurance number 31A233731BPK ("the Policy") the first and second defendants agreed, subject to the terms of the Policy, to indemnify the plaintiff, up to the limit specified in the Policy, in respect of damage to machinery, plant and equipment, where such damage was directly caused by fire. (4) The Laser was machinery, plant or equipment within the meaning of the Policy. (5) At all relevant times, the Laser was connected to and powered by electricity supplied by the third defendant to the Premises. (6) Electricity is supplied to the Premises by wires supported by a series of power poles located in the street outside the Premises ("the Power Poles"). (7) The Power Poles are made of wood and have an upper horizontal wooden arm supporting insulators for electrical wiring carrying approximately 11,000 volts ("the Upper Arm") and a lower horizontal wooden arm supporting insulators for electrical wiring carrying approximately 415 volts ("the Lower Arm"). (8) On 11 November 2002 there was a fire, within the meaning of the Policy, on one of the Power Poles which was located two power pole spans away from the Premises at a distance of approximately 55 metres ("the Burnt Pole"). (9) The fire caused the Upper Arm on the Burnt Pole to fail. Assumed facts (10) The wiring supported by the Upper Arm on the Burnt Pole came into contact with the wiring supported by the Lower Arm, causing a high voltage/low voltage intermix ("the Intermix"). (11) The Intermix caused a power surge to the Premises and the Laser. (12) The power surge caused damage to the Laser, the extent of which has not yet been determined."

The Policy 15 The Policy was described as a Commercial/Retail/Industrial policy. It included sections relating to Business Interruption, Theft, Money, Machinery Breakdown, Electronic Equipment, Broadform Liability, Glass, Goods in Transit and General Property. There was an insuring clause in each section. 16 The appellant sought to invoke the cover provided by cl 2.1 in the "Property Section - Fire and other Insured Events". That clause relevantly provided that the respondents would indemnify the appellant up to the limit specified in the Schedule "in respect of physical loss of damage to … (b) contents … directly caused by the following insured events". 17 Clause 3.1 provided that "Fire" was one of the insured events. 18 Clause 1.2 provided that "Contents" included all stock as relevantly defined "belonging to [the appellant] …".

Decision of the primary judge 19 In an ex tempore judgment, the primary judge said (at [15]) that the meaning of the phrase "directly caused" was ultimately a question of construction of the Policy to which the ordinary rules of contractual interpretation applied. He accepted that a liberal interpretation in favour of the insured should be adopted in so far as the ordinary and natural meaning of the words used by the insurers permitted this to be done, referring to Gibbs CJ's statement to this effect in Australian Casualty Co Limited v Federico [1986] HCA 32; (1986) 160 CLR 513 at 520. 20 Before the primary judge the appellant submitted that:

(a) "direct cause" and "proximate cause" were the same or relevantly the same concept and could both be assimilated to the concept "dominant and effective cause";

(b) a "direct cause" need not be the most immediate cause of, or the cause nearest in time to, the event in question; (c) a fire may be the "direct cause" of damage to an item without actually burning that item, and without being on the same premises in which that item is located; and

(d) there can be more than one "direct" or "proximate" cause of an event and that where there are competing "direct" or "proximate" causes of an event, and loss from one such cause is insured against and the recovery of loss from the others is not expressly excluded by the Policy, the insured is entitled to recover. 21 The appellant further contended at first instance that the case was on all fours with Lynn Gas & Electric Co v Meriden Fire Ins Co 33 NE 690 (1893). In that case a policy insured machinery in a factory against damage caused by fire. The factory was large and the machinery was only in one part of it. A fire occurred in a different part of the factory and caused a short-circuit in the electricity supplied throughout the factory, which in turn caused the machinery to malfunction and resulted in damage to it. Knowlton J in the Supreme Court of Massachusetts held that the fire was the "direct, proximate" cause of the damage. 22 The primary judge rejected the appellant's arguments. His Honour accepted (at [22]) the respondents' submission that the words "directly caused by" fire did not have a technical meaning but, rather, the plain English form of the wording of the Policy militated against a technical interpretation. Accordingly his Honour held (at [25]) that "the phrase 'directly caused by … fire' should be construed according to its ordinary and natural meaning". 23 After observing (at [27]) that "[t]he word 'directly' is an adverb of ordinary usage well understood", his Honour referred (at [28] - [30]) to various dictionary definitions of "directly" - a course which he said had been sanctioned in State Chamber of Commerce and Industry v The Commonwealth [1987] HCA 38; (1987) 163 CLR 329 at 348 and Provincial Insurance Australia Pty Limited v Consolidated Wood Products Pty Limited (1991) 25 NSWLR 541 at 553 per Kirby P. 24 Of these definitions, as will become apparent, those upon which his Honour relied were "[w]ithout intervention of a medium or agent: immediately, by a direct process or mode" (The Oxford English Dictionary on line (Oxford University Press 2004 2nd Ed, 1999), "1. Adv in a direct manner: exactly (directly in front of): at once, without delay: presently, in no long time ...". (The Australian Concise Oxford Dictionary) and "[i]n a direct line, way or manner: straight. Without delay: immediately, presently, absolutely; exactly; precisely" (The Macquarie Dictionary, 3rd Ed). 25 He then concluded: "31 What then was the direct cause of the damage to the laser on the assumed and agreed facts? To my mind, the answer is that upon the proper construction of the subject policy, the direct cause of the damage was the electrical surge which caused that damage. The surge was caused by the cross-arm on the power pole falling onto the wires, allowing them to touch and create the surge. The cross-arm fell onto the conductors because of the fire on the pole. Looked at in this way, I accept that the answer is obvious and straightforward. The electrical surge, I accept, could, in turn, presumably have been caused by a number of elements, not just a fire on a power pole. In other words, it was not necessarily, it seems to me, a natural consequence of the fire, that the power surge took place ." (emphasis added) 26 His Honour found support for his conclusion from the variety of descriptions of causal connections appearing elsewhere in the Policy. These ranged from (at [32]) "[t]he weakest … phrase 'directly or indirectly caused by or contributed to by or arising from' under clause 2 of the section headed 'General Exclusions' [to] [t]he strongest … 'caused solely as a result of' in clause 6(1)(a)(iii) in the section headed 'Electronic Equipment Section'." He concluded (at [34]) that the phrase "directly caused by": "… was to choose a clear and more proximate causal connection rather than, for example, to choose words such as 'directly or indirectly, caused by or contributed to by or arising from'." 27 The primary judge referred to authorities in which the words "proximate cause" were construed as meaning "direct cause", so that there was no difference in meaning between the word "direct" and the word "proximate": see City Centre Cold Store v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 at 742 per Clarke J; Boiler Inspection and Insurance Co of Canada v Sherwin-Williams Co of Canada Ltd [1951] AC 319 at 333 per Lord Porter; State Government Insurance Commission v Sinfein Pty Limited (1996) 15 WAR 434 at 452 per Ipp J. 28 Notwithstanding those authorities his Honour (at [36]) adhered to his view that the proper approach was "simply one of construction of the particular policy before the court".

29 The primary judge also held (at [37]) that if the terms of the Policy permitted consideration of "questions of separation, the position would seem to be that there was, clearly, a separation in terms of place [because] the fire took place on the electricity poles [and] … the effect of the surge to the laser took place within the premises". 30 Finally, after referring to a debate between the parties as to how the separate question should be formulated, his Honour expressed the view that neither counsel had identified the question correctly and that the question for the court was: "Upon the proper construction of the subject insurance policy and clause, what was the direct cause of the damage to the laser?".

to which he answered (at [43]) "No". It is obvious that this answer did not respond to the question. No doubt the answer intended was: "not the fire" or "an electrical surge". 31 Before leaving consideration of his Honour's judgment, I note that on two occasions he appeared to stray from the agreed/assumed facts. The first is in that portion of paragraph [31] of his judgment which I have already emphasised (see [25] above). The second is in [39] where he appears to have taken into consideration "the fact that the effect of the power surge, in terms of its possible consequences, may have been arguably different depending upon the precise structure of the Laser". The first of these departures is the subject of the appellant's second ground of appeal.

Issues on appeal 32 The grounds of appeal are that the primary judge erred in:

(2) deciding the separate question on the basis of a fact which was neither agreed nor assumed: namely, that some event other than the fire caused the Power Surge;

(3) failing to treat the phrase "directly caused" as a term of art;

(4) failing to consider whether the damage to the Laser "was directly caused" by both the power surge and the fire. 33 These grounds translate into essentially two questions: first, was the primary judge correct in the meaning he attributed to the expression "directly caused by … fire" in the Policy? Secondly, if he erred in his construction of the Policy, whether on its proper construction and on the agreed and assumed facts, was the damage to the Laser "directly caused … by fire"?

Consideration 34 Resolution of the first issue turns, as the primary judge held, upon the proper construction of the Policy: Leyland Shipping Co Limited v Norwich Union Fire Insurance Society Limited [1918] AC 350 ("Leyland Shipping") at 368 per Lord Shaw; Australian Casualty Co Limited v Federico at 520 per Gibbs CJ, at 525 per Wilson, Deane & Dawson JJ; Johnson v American Home Assurance Co [1998] HCA 14; (1998) 192 CLR 266 at 285 [40] per Hayne J (with whom Brennan CJ, McHugh and Gummow JJ agreed), at 272 [19] per Kirby J; McCann v Switzerland Insurance Australia Limited [2000] HCA 65; (2000) 203 CLR 579 at 589 [22] per Gleeson CJ; National & General Insurance Co Limited v Chick [1984] 2 NSWLR 86 at 97 per Samuels JA; American Home Assurance Co v Saunders (1987) 11 NSWLR 363 at 371 per Kirby J. 35 The Policy was to be construed in accordance with the principles which apply to the interpretation of contractual documents: Australian Casualty Co Limited v Federico at 520 per Gibbs CJ. The primary duty of the court was to endeavour to discover the intention of the parties from the words of the Policy: Australian Broadcasting Commission v Australasian Performing Rights Association [1973] HCA 36; (1973) 129 CLR 99 at 109 per Gibbs J. Its interpretation required attention to the language used by the parties, the commercial circumstances which the document addressed and the objects which it was intended to secure: McCann v Switzerland Insurance Australia Limited at [22] per Gleeson CJ. 36 Before this Court the appellant's argument proceeded from the proposition that the decision below involved a departure from "100 years of judicial learning about what the words 'directly caused by' mean". 37 In Australian Casualty Co Limited v Federico (at 518) Gibbs CJ accepted that "if the precise words used in the policy in question have acquired a settled meaning, this Court should … be slow to introduce confusion into the insurance industry by departing from that meaning". This approach echoes sentiments uttered in Thames & Mersey Marine Insurance Company Ltd v Hamilton, Fraser & Co (1887) 12 App Cas 484 where, in the context of a marine insurance policy, Lord Halsbury said of the words "perils of the sea", that "the meaning attributed to those words for more than half a century by decision makes it more probable that the parties used them in that accepted sense". In like vein, Lord Herschell said (at 494) "[n]othing would be more dangerous … than to depart from a construction which the authorities have put upon words in common use in a mercantile instrument …". 38 The appellant submitted, in effect, that in insurance law "directly caused" is a "term of art" which ought consistently with the above proposition and, absent any contrary indication in the terms of the Policy, be applied to its construction.

Causation and the law of insurance 39 In the law of insurance it early became, and has remained, the rule to look to the proximate and not the remote cause of loss or damage in order to determine the liability of underwriters (causa proxima non remota spectatur): Marsden v City & County Assurance Co (1865) LR1CP 232 at 239 per Erle CJ, at 240 per Willes J and Byles J, at 241 per Keating J; Reischer v Borwick [1984] 2 QB 548 at 550 per Lindley LJ; Leyland Shipping at 365 per Lord Atkinson; Australian Casualty Co Limited v Federico at 534 - 535 per Brennan J; Insurance Commissioner of Western Australia v Container Handlers Pty Limited [2004] HCA 24; (2004) 78 ALJR 821 ("Container Handlers") at [45] per McHugh J; at [78] per Gummow J; Colinvaux's Law of Insurance, 7th Ed (1997) at 4-31. The rule applied to policies of fire insurance: Everett v London Assurance Co (1865) 19 CB (NS) 126; E R H Ivamy, Fire & Motor Insurance, 4th Ed at 147. 40 Lord Sumner preferred to use the expression "direct cause" than "proximate cause", saying, in Becker, Gray & Co Limited v London Assurance Corporation [1918] AC 101 at 114: "It must be admitted that the terminology of causation in English law is by no means ideal. It would be the better for a little plain English. I think 'direct cause' would be a better expression than causa proxima. Logically the antithesis of proximate cause is not real cause but remote cause. Lord Ellenborough uses causa causans as its equivalent in Gordon v Rimmington ; Abbott C.J. speaks of "immediate" cause in Walker v. Maitland ; Lord FitzGerald of "direct and immediate" cause in Cory v. Burr ; and my noble and learned friend Lord Loreburn of "direct" cause in Sanday's Case . Many similar expressions might be quoted…." 41 Accordingly, in this context, the words "proximate cause" and "direct cause" came to be used interchangeably: see State Government Insurance Commission v Sinfein Pty Limited at 443 - 444 per Malcolm CJ at 443 per Ipp J; J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd (The Miss Jay Jay) [1987] 1 Lloyd's Rep 32 at 37 per Lawton LJ at 39, Slade LJ. 42 Thus, construing a policy which provided cover in respect of "bodily injury caused by an accident", Gibbs CJ said in Australian Casualty Co Pty Limited v Federico (at 521) that: "… the words 'caused by an accident' naturally refer to the proximate or direct cause of the injury, and not to a cause of the cause, or the mere occasion of the injury". 43 Bankes LJ explained the rationale of this approach in Re Polemis & Furness, Withy & Company Limited [1921] 3 KB 560 at 570 - 571, observing: "Direct cause excludes what is indirect, conveys the essential distinction, which causa causans and causa sine qua non rather cumbrously indicate, and is consistent with the possibility of the concurrence of more direct causes than one, operating at the same time and leading to a common result …". 44 Proximate in this context meant proximate in efficiency rather than in time: National Insurance Co of New Zealand Ltd v Espagne [1961] HCA 15; (1961) 105 CLR 569 at 593 per Windeyer J. As Sheller JA explained in HIH Casualty & General Insurance Limited v Waterwell Shipping Inc & Anor (1998) 43 NSWLR 601 at 608, "[t]he qualities of reality, predominance and efficiency of a cause prevail over proximity in time in determining what cause or causes are proximate". Hence the proximate or direct cause is described as the "dominant" cause (Leyland Shipping at 363 per Lord Dunedin) "that which is proximate in efficiency" (Leyland Shipping at 369 per Lord Shaw) and "the real effective cause" (Re Etherington and Lancashire and Yorkshire Accident Insurance Co [1909] 1 KB 591 at 598 per Channell J). 45 The proximate cause rule was not divorced in the cases from the terms of the particular policy under consideration. Rather, it was "understood to be the mutual intention of the parties to such contracts" (De Vaux v Salvador (1836) 4 Ad & El 420, 431 (1836) 111 ER 845 at 849 - 850 per Lord Denman), was based upon "the intention of the parties as expressed in the contract into which they have entered" (Reischer v Borwick at 550, per Lindley LJ), was "the real meaning of the parties to a contract of insurance" (Becker, Gray & Co Limited v London Assurance Corporation [1918] AC 101 at 112 per Lord Sumner), was "based upon the intention of the contracting parties to be gathered from the language of the contract itself taken in connection with the surrounding circumstances" (Leyland Shipping at 365 per Lord Atkinson); and depends upon "the presumed intention of the parties to a commercial document": Colinvaux's Law of Insurance at 4-31; see also Lynn Gas & Electric Co v Meriden Fire Ins Co at 691. It was to be "applied with good sense so as to give effect to, and not to defeat, those intentions": Reischer v Borwick at 550, applied by Lord Atkinson in Leyland Shipping at 365. Clearly, however, it would not apply if it would defeat the manifest intention of the parties. 46 It is consistent with this approach that the proximate cause rule is capable of applying even where the word "directly" expressly qualifies the word "cause" in a policy. In Boiler Inspection & Insurance Co of Canada v Sherwin-Williams Co of Canada Limited (at 333) in construing a policy which responded to "loss on the property of the assured directly damaged by such accident ... excluding ... (e) loss from any indirect result of an accident", Lord Porter said: "Whatever meaning the word 'direct' may have in qualifying the word 'result', it does not imply that there can be no step between the cause and the consequence. It is unnecessary to multiply examples. Leyland Shipping Co v Norwich Union Fire Insurance Society [1918] AC 350, sets forth the principle … To the like effect are Lord Wright's words in delivering the judgment of the Board in Canada Rice Mills Ltd v Union Marine and General Insurance Co ([1941] AC 55, 71): 'It is now established by such authorities as Leyland Shipping Co v Norwich Union Fire Insurance Society , and many others, that causa proxima in insurance law does not necessarily mean the cause last in time, but what is 'in substance' the cause, ... or the cause 'to be determined by common-sense principles'." 47 In City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd, above, Clarke J applied Boiler Inspection & Insurance Co of Canada v Sherwin-Williams Co of Canada Limited in construing a policy which responded in the case of loss "caused by or as the direct consequence of ... (c) directly caused by impact by vehicles…". He accepted (at 742) "the notion of direct cause equates that of proximate cause." Giles J took the same approach in respect of a policy responding to damage "directly caused by" earthquake in Vintex Pty Limited v Lumley General Insurance Limited (1991) 24 NSWLR 627 at 648; although cf Lumley General Insurance Limited v Vintex Pty Limited (1991) 24 NSWLR 652 at 659 per Meagher JA (with whom Clarke JA agreed, albeit while re-asserting at 656, the view he had expressed in City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd that there could be two or more effective causes for the purposes of insurance law); see also State Government Insurance Commission v Sinfein Pty Limited at 445 - 446 per Malcolm CJ, at 452 per Ipp J. 48 The ubiquity of the rule of proximate cause can be seen from Callinan J's judgment in McCann v Switzerland Insurance Australia Limited, where (at 640 - 641, [195]) he observed: "… the test of 'proximate efficiency'… has … been applied in insurance law in Australia [See, eg, National & General Insurance Co Ltd v Chick [1984] 2 NSWLR 86 at 97; City Centre Cold Store Pty Ltd v Preservatrice Skandia Insurance Ltd (1985) 3 NSWLR 739 at 742, per Clarke J], England [See Lord Denning in Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] QB 57 who applied "effective or dominant cause" as "settled" law in England], New Zealand [See, eg, Techni-Chemicals Products Co Ltd v South British Insurance Co Ltd [1977] 1 NZLR 311 at 319], Canada [See, eg, Co-operative Fire & Casualty Co v Saindon [1976] 1 SCR 735] and the United States [See, eg, Sabella v Wisler (1963) 377 P 2d 889 (Calif) as applied in Garvey v State Farm Fire and Casualty Co (1989) 770 P 2d 704 (Calif); distinguishing State Farm Mutual Automobile Insurance Co v Partridge (1973) 514 P 2d 123 (Calif)], is not inconsistent with that test."

Causation and compulsory third party insurance policies 49 The meaning of the expressions "caused by" and "directly caused by" has been considered in the context of legislation requiring the owners of motor vehicle to hold policies insuring against liability for death or bodily injury. Prior to the High Court's decision in Dickinson v Motor Vehicle Insurance Trust [1987] HCA 49; (1987) 163 CLR 500 such statutes typically required the policy to provide indemnity in respect of death or bodily injury "caused by or arising out of the use of a motor vehicle". Since that decision some legislatures have amended the relevant statutes (and concomitantly the policies they mandate) to introduce a requirement that the death or bodily injury be "directly caused". 50 The respondent submitted that Container Handlers in which the High Court considered the expression "directly caused by…[a] vehicle", in the Motor Vehicles (Third Party Insurance) Act 1943 (WA) supported the primary judge's decision because of the emphasis all members of the Court placed on the significance of the word "directly" as modifying the word "caused". That decision should be understood in the context of the construction exercise in which the Court was engaged, as well as in the light of earlier decisions. 51 The construction of compulsory motor vehicle third party insurance policies has typically turned on the interpretation of the statute pursuant to which the policy was required to be held. Thus the focus has been on the legislative purpose to be discerned from the statute: see, for example, Government Insurance Office (NSW) v R J Green & Lloyd Pty Limited [1966] HCA 6; (1966) 114 CLR 437 at 442 - 444 per Barwick CJ. In that exercise, "the object of a court is to ascertain, and give effect to, the will of Parliament": Wilson v Anderson [2002] HCA 29; (2002) 213 CLR 401 at [8] per Gleeson CJ. In contrast, the exercise of construing a private contract of insurance focuses on the parties' presumed common intention, objectively determined by reference to the text of the contract, the purpose and object of the transaction and, where relevant, the surrounding circumstances: Wilson v Anderson, above, at [8]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 78 ALJR 1045 at [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. 52 Kirby J emphasised this distinction in Container Handlers (at 840 [99]) when he said: "In construing a policy, issued in terms adopted by a parliament to achieve legislative objectives, the interpreter enters a different realm of discourse. The object there, is not, as such, to uphold a bargain fairly defined between private parties. Ultimately it is to uphold the purpose of the legislature enacting that form of policy." 53 Gleeson CJ spoke to different effect in McCann v Switzerland Insurance Australia Limited (at [22]) where his Honour observed that "[a] policy of insurance, even one required by statute, is a commercial contract which should be given a businesslike interpretation". McCann v Switzerland Insurance Australia Limited concerned a professional indemnity policy which was required to be held s 41 of the Legal Profession Act 1987 (NSW) (see Hayne J at 609 [92]). Although s 41 required the policy to be approved by the Attorney-General, the wording of an approved insurance policy did not, as is frequently the case in respect of compulsory motor vehicle policies, reflect the terms of the Legal Profession Act itself. 54 Authorities which considered the expression "caused by or arising out of the use of a motor vehicle" accepted that it invoked the proximate cause rule. They also assimilated the concepts of "proximate" and "direct" cause. Most of the leading decisions were considered in the Full Court of Victoria's decision in Transport Accident Commission v Hoffman [1989] VR 197. 55 In Government Insurance Office (NSW) v R J Green & Lloyd Pty Limited at 447, Windeyer J said in respect of the compulsory third party policy in the form required by the Motor Vehicles (Third Party Insurance) Act 1942 (NSW) which provided cover for "all liability incurred by [the insured] in respect of the death or bodily injury to any person caused by or arising out of the use of the motor vehicle": "The words 'injury caused by or arising out of the use of the vehicle' postulate a causal relationship between the use of the vehicle and the injury. 'Caused by' connotes a 'direct' or 'proximate' relationship of cause and effect". 56 In Dickinson v Motor Vehicle Insurance Trust the High Court construed the expression "in respect of the death or bodily injury to any person caused by or arising out of the use of the motor vehicle" as it appeared in the compulsory third party policy required by the Motor Vehicles (Third Party Insurance) Act 1943 (WA). The Court (at 502 - 503) approached the exercise essentially as one of statutory interpretation. It drew a distinction between the expressions "arising out of" and "caused by", saying (at 505): "The test posited by the words 'arising out of' is wider than that posited by the words 'caused by' and the former, although it involves some causal or consequential relationship between the use of the vehicle and the injuries, does not require the direct or proximate relationship which would be necessary to conclude that the injuries were caused by the use of the vehicle: State Government Insurance Commission v Stevens Bros Pty Ltd ( 1984) 154 CLR 552 at 555, 559; 52 ALR 441." 57 Applying that interpretation, the High Court held that injuries caused to a child left in a stationary vehicle, which subsequently caught fire as a result of another child playing with matches, arose out of the use of the vehicle. 58 Following Dickinson v Motor Vehicle Insurance Trust, several decisions have considered the significance of amendments to motor vehicle third party insurance legislation which have inserted the adverb "directly" before the words "caused by" or "arising out of". 59 In two of these cases, Transport Action Commission v Treloar & Ors [1992] 1 VR 447 and Transport Accident Commission v Jewell [1995] 1 VR 300, the Full Court of the Supreme Court of Victoria considered the effect of amendments made in 1988 to the Transport Accident Act 1986 (Vic) which replaced the words "caused by, or arising out of a … vehicle" in the definition of "transport accident" with the words "directly caused by, or directly arising out of the driving of a motor car …". In both cases the Full Court accepted that the amendments reflected a legislative intention to alter the ambit of the previous provision: Transport Action Commission v Treloar & Ors at 452 per McGarvie and Gobbo JJ; at 462 per Brooking J; Transport Accident Commission v Jewell at 306 - 307 per Tadgell J (with whom Ormiston J agreed), at 816 per Smith J. 60 Their Honours have expressed a degree of bewilderment, however, as to the legislative purpose of inserting "directly" before "caused by" since "the authorities already establish that the bare words 'caused by' require a direct or proximate relationship": see Transport Action Commission v Treloar & Ors at 462 per Brooking J; Transport Accident Commission v Jewell at 306 per Tadgell J. 61 While recognising that the amendment should be given effect, both decisions, in my view, have treated the expression "directly caused by" as conveying the notion of proximate cause. 62 Thus in Transport Action Commission v Treloar & Ors McGarvie and Gobbo JJ concluded (at 452) that under the amended definition, a transport accident would only directly arise out of the driving of the relevant vehicle if there was "a direct and sufficient non coincidental nexus to enable it to be fairly said that the incident arose out of the driving". Brooking J did not seek to elucidate the words 'directly caused by, or directly arising out of, the driving': Transport Action Commission v Treloar & Ors at 466 - 467. 63 In Transport Accident Commission v Jewell, Tadgell J concluded (at 307) that the joint judgment in Transport Action Commission v Treloar & Ors was authority for the proposition "that an incident resulting in personal injury might be held to have been 'directly caused by' the driving of a motor vehicle even though the injury was not produced by any collision or other physical contact between the person injured and the vehicle." However he held (at 307) that "… [a] claimant injured by a motor vehicle in an incident occurring after its driving must demonstrate a temporal or other connection between the incident and the driving sufficient to prove the driving directly caused the accident". 64 Smith J only considered (at 316) the significance of the word "directly" in the expression "directly arising out of". He felt bound by the joint judgment in Transport Action Commission v Treloar & Ors to hold that "Parliament intended to introduce a more vigorous test of causation than would normally apply from the use of the words 'arising out of' ". His Honour thought it was not possible to define the test further but identified matters relevant to determining whether the definition applied as including "whether there were intervening factors, and their nature, and the period of time elapsed between the driving and the incident … [and] the significance of the driving as a causal factor". 65 The issue arose again in State Government Insurance Commission v Sinfein Pty Limited. In that case the Full Court of the Supreme Court of Western Australia considered the meaning of the expression "directly caused by … the vehicle" in the policy of insurance required by s 4(1) of the Motor Vehicle (Third Party Insurance) Act 1943 (WA) (the "Motor Vehicles Act"). Both Malcolm CJ (at 446) and Ipp J (at 452) held that the term "directly caused by" reflected Parliament's adoption of the concept of proximate cause in insurance law. 66 Parker J referred to Transport Accident Commission v Treloar and Transport Accident Commission v Jewell and noted (at 462) that those cases had not sought to define the expression "directly caused". His Honour concluded (at 462) that: "…'directly caused by' was intended by the legislature to provide, and, in, the statute and in policies of insurance reflecting the statutory provision should be construed as requiring, a more proximate or direct relationship between a death or bodily injury and a motor vehicle or its driving than would be comprehended by the words 'caused by'." 67 The Motor Vehicles Act was considered in the High Court in Container Handlers. The facts can be taken from McHugh J's judgment (at 822 [1], 824 [10]) (footnotes omitted): "1. During the course of transporting a truck on a low loader attached to a prime mover in outback Western Australia, Mr Ashley Sutton suffered a 'brutal injury' when, after having stopped to repair the low loader, a jack slipped and caused an axle of the low loader to fall, crushing his left hand against the chassis. The injury was the result of the negligence of Container Handlers Pty Ltd ('Container Handlers'), the owner of the prime mover and low loader, and its employee, Mr Jason Reibel. Mr Reibel was the driver of the prime mover which was hauling the low loader. Mr Sutton and Mr Reibel were carrying out the repair work after Mr Sutton noticed smoke and fumes coming off one of the left rear wheel hubs of the low loader. Mr Sutton said that there was a lot of grease everywhere and that the wheels 'were sort of out of shape, so it looked pretty serious.' When Mr Sutton told Mr Reibel what he had seen, Mr Reibel said that they would have to take both wheels off the low loader. The injury to Mr Sutton occurred shortly after Mr Reibel and Mr Sutton commenced the repair work. … 10. Mr Reibel inspected the wheels and decided that they would have to come off and that the axle would have to be chained so as to prevent it from dragging along the road. Mr Sutton assisted Mr Reibel to remove both wheels. Mr Reibel put a chain through two load-securing holes located in the side of the low loader. There were hooks on the ends of the chain. Mr Reibel's plan was to jack up the axle and then connect the hooks with each other to form a cradle to hold the axle. Mr Reibel jacked up the axle while Mr Sutton attempted to connect the hooks. Mr Sutton was precariously positioned in the wheel hub area of the low loader. He steadied himself by placing his left hand on the chassis. It soon became evident that the chain was not long enough. While Mr Reibel was attempting to jack the axle higher so that the ends of the chain would meet, the axle slipped off the jack. This caused the trail arm assembly that was connected to the axle to drop onto the chassis, crushing Mr Sutton's hand." 68 Mr Sutton successfully sued Container Handlers for damages for negligence. Container Handlers brought third party proceedings against its insurer seeking indemnity pursuant to the policy of insurance the Motor Vehicles Act required it to hold. It was unsuccessful at first instance, but succeeded in its appeal to the Full Court of the Supreme Court of Western Australia. The High Court granted special leave. 69 Section 4 (1) of the Motor Vehicles Act required Container Handlers to hold a contract of insurance under which it was insured for "any liability which may be incurred by the owner or any person who drives the motor vehicle in respect of the death of or bodily injury to any person directly caused by, or by the driving of, the motor vehicle". Section 6(1)(c) required the policy to be in a form substantially similar to that contained in the Schedule to the Motor Vehicles Act. That policy only responded if the injuries suffered by Mr Sutton were "directly caused by, or by the driving, [a] motor vehicle". Further, pursuant to s 3(7) of the Motor Vehicles Act, bodily injury to any person was not to be taken to have been "caused by a vehicle" if it was "not a consequence of the driving of that vehicle or of the vehicle running out of control". Plainly there was no question of the vehicle having run out of control. 70 In the High Court, Container Handlers conceded that the driving of the motor vehicle did not directly cause the injury to Mr Sutton so that the only question on the appeal was whether the injury was directly caused by the motor vehicle (see McHugh J, at 826 [16]). However, because of the inter-relationship between the policy and s 3(7), "even if the vehicle directly caused the death or bodily injury, the statutory policy only applied if Container Handlers could show that the death or bodily injury was a consequence of the driving of the vehicle or the vehicle's running out of control": see McHugh J at 827 [22]), 829 [30]). 71 The High Court allowed the appeal. In separate judgments, each member of the bench held that the injury to Mr Sutton was not a consequence of the driving of the vehicle: McHugh J (at 823 [3], 835 [66]); Gummow J (at 839 [94]); Kirby J (at 843 [117]); Callinan J (at 845 - 846 [132]); Heydon J (at 851 - 853 [156] - [162]).

72 All members of the Court considered the expression "directly caused … by … [a] motor vehicle" which appeared in both s 6(1)(b) of the Motor Vehicles Act and the policy. That exercise was significantly influenced by the legislative history and the purpose of the Act: see McHugh J (at 835 [63]). 73 The expression "directly caused by, or by the driving of, [a] motor vehicle" was introduced into the Motor Vehicles Act in 1987 following the decision in Dickinson v Motor Vehicle Insurance Trust. Prior to the 1987 amendment, both the Motor Vehicles Act and the statutory policy used the phrase "caused by or arising out of the use of such [a] motor vehicle". 74 All members of the Court adverted to the fact that the 1987 amendments were intended "to overcome the decision in Dickinson and to tighten the scope of the statutory policy": see McHugh J (at 826 [14], 833 [51], 835 [63]); Gummow J (at 837 - 838 [76] - [81]); Kirby J (at 841 - 843 [101] - [102], [105], [107], [115]); Callinan J (at 845 - 846 [130] - [133]); Heydon J (at 849 [149], [152], 851 [154]). As McHugh J explained at 835 [63] (footnotes omitted): "Although cases in other States may be useful when considering whether death or injury is a consequence of the driving of a vehicle, those cases must be read in the light of the legislative history and purpose of the Act. That history and purpose is found in the scope of the Act as perceived when it was enacted in 1943, the decision in Dickinson and the Amendment Act enacted in response to that case. According to the second reading speech for the Amendment Bill, the Act was originally perceived as confined to indemnifying against the consequences of negligent driving. However, Dickinson held that injuries sustained by a passenger when a stationary car caught fire while the driver was absent arose out of the 'use' of the vehicle. This was seen as repudiating the purpose of the Act. To overcome the effect of Dickinson , the legislature repealed all expressions such as 'caused by the use of', 'arising out of the use of', 'in the use of a motor vehicle', 'caused by or arises out of the use of' and 'as the result of the use of a motor vehicle'. It then narrowed the indemnity by requiring that death or injury be directly caused by the driving of the vehicle or, if directly caused by the vehicle, that death or injury be a consequence of the driving of the vehicle or of the vehicle's running out of control. The legislative history of the Act shows, therefore, that the indemnities given by policies issued under the Act no longer cover liabilities that merely arise out of the use of motor vehicles. To come within the indemnity given by a policy, there must be a causal connection between the death or injury and the driving of a motor vehicle." 75 Only McHugh J expressly considered the content of the requirement that the bodily injury be "directly caused by … [a] vehicle". His Honour remarked (at 826 [18]) on the curious notion of attributing causal capacity to an inert object such as a motor vehicle which required human intervention to cause an effect. He concluded (at 827 [21]) that the expression "directly caused by … [a] vehicle" "looks to the vehicle as the harm-causing instrument and requires a direct and immediate connection between the vehicle as the harm-causing instrument and the death and bodily injury". 76 He reached that conclusion for two reasons. First, because of the use of the expression "directly caused by … [a] vehicle" in apposition to the expression "directly caused by … the driving of … [a] vehicle" in both the Motor Vehicles Act and the policy. In his Honour's view (at 827 [19]) the apposition of the two expressions indicated that the "first limb means what it says and that, for the purposes of the Act, the vehicle itself can be regarded as causing death or bodily injury". Secondly, his Honour considered that the fact the expression "directly caused by … [a] vehicle" had been substituted for expressions such as "caused by the use of" and "arising out of the use of" which "had implied a causal connection between a human actor and the death or bodily injury" and "the absence of a reference, express or implied, to an actor in the first limb in s 6(1)(b) and the Schedule indicate[d] that it is the vehicle itself that is deemed to cause the death or bodily injury": at 827 [19], [21]. Thus he said (at 829 [32]) the question whether an injury was "directly caused by … [a] vehicle" "looks to the direct connection between the injury and the motor vehicle". Accordingly he held (at 830 [38], [39]) that the Full Court correctly concluded that Mr Sutton's injury was "directly caused by the low loader because its axle fell and crushed his hand against the chassis". 77 Gummow J (at 839 [90], [93]) noted the use of "directly" to qualify the phrase "caused by … [a] motor vehicle", indicating (at [93]) that the adverb was concerned with "the quality of the connection between [the] cause and the injury". Kirby J (at 841 - 842 [105], [107]) considered the insertion of the word "directly" (to which the court had to give "due meaning") to modify the words "caused by", reflected the legislative purpose"… [to restrict] the Commission's liability by reference to the limiting notions of causation (directly) and locomotion (driving) of the insured motor vehicle". 78 Callinan J, too, emphasised (at 845 - 846 [131] - [132]) that weight should be given to the legislature's "repeated use of the word 'directly' ". In his Honour's view (at 846 [133]) the combined effect of the word "directly" and s 3(7) was that the insurer could only be liable if the injury or death was directly caused by the operation of a motor vehicle while it was under the control of a driver. Mr Reibel's conduct could not be so characterised because he was removing the wheels on the low loader in order to prepare the vehicle for driving. 79 Heydon J referred (at 850 [151]) to the Second Reading Speech given when the 1987 amendments were introduced and observed (at 851 [152] footnotes omitted): "It is evident from this Second Reading Speech that the Deputy Premier was concerned to remove the words 'arising out of' from the Act because they were, as the High Court said in Dickinson v Motor Vehicle Insurance Trust , wider than the words 'caused by'. The suggestion by the High Court that 'arising out of' does not require the 'direct or proximate relationship' conveyed by the word 'caused' evidently stimulated Parliament not merely to narrow the indemnity, by limiting recovery by the word 'caused', but also either to emphasise that narrowing of indemnity or further to limit the indemnity by requiring that the death or injury be 'directly caused' . It is plain that at the very least the amendments were not to be construed as favourable to any possibility of wide recovery." (emphasis added) 80 His Honour was critical (at 851 - 852 [157]) of the Full Court for failing "to give full effect to the word 'directly' in the policy, and [construing it] as if it meant 'directly or indirectly' ". He illustrated the vice of the Full Court's approach by referring to its statement that "arguably it was the way in which the vehicle was driven along rough roads in extreme heat which caused the wheel hub to overheat so as to require its removal and the securing of the axle" and commenting "[t]he word 'directly' points against the inclusion of so long a causal chain". 81 I note that Roberts-Smith J who delivered the judgment of the Full Court, had accepted, in accordance with the decision in State Government Insurance Commission v Sinfein Pty Limited that the expression "directly caused by … [a] vehicle" required the application of principles of proximate cause: Container Handlers Pty Limited v Insurance Commission of Western Australia & Ors [2001] WASCA 304; (2001) 25 WAR 42) at 50 - 51 [22] - [26]. Applying that test, his Honour had concluded (at 56 [51]) that there was "a sufficient proximate or direct connection between the driving and Sutton's injuries for them to have been regarded as directly caused by the driving". Although the High Court ultimately concluded that the Full Court had erred in not treating s 3(7) as limiting the scope of cover under the policy, no member of the Court expressed any doubt about the earlier Full Court decision in State Government Insurance Commission v Sinfein Pty Limited. 82 The respondent correctly contended that Container Handlers emphasised that where the word "directly" was used, it must be accorded due weight. I accept that but, as I have sought to explain, at least in the realm of private contracts of insurance, the concepts or proximate and direct cause are interchangeable and the use of the word "directly" in a policy has been held not to exclude the interposition of steps between the cause and the consequence. 83 Nothing in Container Handlers, in my view, detracts from the proposition that the expression "directly caused by" in an insurance contract is, subject to the terms of the policy, to be construed as referring to the concept of proximate cause. In particular it is not authority for the proposition that "directly" now means "immediately" for the purposes of insurance law, in the sense that there can be no step between the cause and the consequence: cf Boiler Inspection and Insurance Co of Canada v Sherwin-Williams Co of Canada Ltd.

Construing the Policy 84 The question which then arises is whether the words "directly caused by … fire" in the Policy reflect the historical usage of that expression. 85 The primary judge approached the exercise of construction primarily by recourse to dictionary definitions of the adverb "directly". That led to his Honour concluding, in substance, that the adverb required him to look for the immediate, as in the most proximate in time and space, cause of the damage to the Laser. 86 In my view that was an erroneous approach. His Honour was required to consider the meaning of the phrase "directly caused by … fire" in the context of the Policy as a whole. In that task recourse to a dictionary could have limited utility. There was an extensive history of construing the words "caused" and "directly caused" in an insurance context as meaning proximate or direct cause. While the words might not, as the appellant submits, be described as terms of art, they have acquired an accepted meaning - one which is presumed to reflect the intention of the parties to a contract of insurance. 87 The conclusion that it was the presumed intention of the parties to the Policy to invoke the concept of proximate cause by use of the expression "directly caused by … fire" accords, in my view, with the language used by the parties and the objects of the Policy. 88 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 it did not limit cover to the circumstance that the property covered be burnt by fire. Thus it is 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: see Symington v Union Insurance of Canton (1928) 97 LJKB 646. The extent of the application of the concept of proximate cause in connection with fire policies was illustrated in Stanley v Western Insurance (1868) LR3Exch 71 at 74 by Kelly CB who accepted that: "… any loss resulting from an apparently necessary and bona fide effort to put out a fire, whether it be by spoiling the goods by water, or throwing the articles of furniture out of window (sic), or even the destroying of a neighbouring house by an explosion for the purposes of checking the progress of the flames in a word, every loss that clearly and proximately results, whether directly or indirectly from the fire, is within the policy". 89 Other losses which are typically covered by a fire policy are losses caused by the fall of the walls or other parts of the building in which the fire occurred as a result of structural weakness resulting from the fire (Ivamy, Fire & Motor Insurance at 147 footnote 3) and loss by theft when, due to confusion because of the fire, property stolen is withdrawn from the effective control of the insured whether the theft takes place on the premises where the fire has occurred or during the removal of the property from the premises in an attempt to keep it safe (Ivamy, Fire & Motor Insurance at 149). 90 Once it is accepted that the Policy did not limit cover to property actually burnt by the flames, it is apparent, in my view, that the word "directly" looked to "the quality of the connection between [the] cause and the injury" Container Handlers at 839 [93] per Gummow J. "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. This was consistent with the approach taken in the authorities and texts to which I have referred.

91 It also accords, in my view, with the Policy as a whole. I do not agree with the primary judge's conclusion that the variety of descriptions of causal connections used in the Policy support a conclusion that the words "directly caused by" were used in a narrower sense than that encompassed by the concept of proximate cause. 92 The primary judge concluded (at [33] - [34]) that the use of the expression "directly caused" was to choose a "clear and more proximate causal connection" than in other words found in the Policy such as "directly or indirectly, caused by or contributed to by or arising from, being a collocation of other causal expressions". So much may be accepted. However, it is important to consider the context of those other usages. Bald comparisons do not serve to illuminate the exercise of construction. 93 To take one example the primary judge regarded as significant. His Honour regarded the expression "caused solely as a result of'" in clause 6(1)(a)(iii) in the Electronic Equipment Section as the strongest expression of causal connection. It should be noted, however, that the full wording was "caused solely as a result of Insured Damage". "Insured Damage" was a defined term (cl 1 of the Electronic Equipment Section) which itself used the words "caused by". Thus in order to understand properly the sense in which cover was provided in that Section it would be necessary to determine the combined work of the words "caused solely as a result of [sudden and unforeseen physical loss or damage … caused by …]". 94 His Honour's list of expressions of causal connection in the Policy could be multiplied if necessary. This is because, as I earlier noted, the Policy included sections relating to Property, Business Interruption, Theft, Money, Machinery Breakdown, Electronic Equipment, Broadform Liability, Glass, Goods in Transit and General Property. Each Section had its own insuring clause, definition clause and other provisions particularly relevant to that section. On one view there were in fact 10 policies, the terms of which were conveniently set out in one document. 95 It would be an arid exercise, however, to explore the many different ways in which the concept of causal connection was expressed in the different sections of the Policy. There is no doubt that they appear to be intended to convey different degrees of causal connection, each of which is no doubt at least referable to the nature of the risk. Each of these expressions must be read in its own particular context: cf McCann v Switzerland Insurance Australia Limited at 594 [49] per Gaudron J; see also Kirby J at 603 [85]; Callinan J at 642 [200]. 96 Within the sub-clauses in the insuring clause in the Property Section there are various descriptions of causal connection apparently intended to both to extend and limit the expression "directly caused by …". 97 Clause 3.7 provides cover for loss or damage "directly caused by … earthquake" including "[f]ire occasioned by or in consequence of earthquake, subterranean fire or volcanic eruption". That clearly imposes a lesser requirement of causal connection than "directly caused" (cf McCann v Switzerland Insurance Australia Limited at 641 [196] per Callinan J). It may permit consideration to be given to a longer causal chain than that encompassed in the search for the proximate cause. However, in my view, that underlines the proposition that the use in the Policy of the expression "directly caused by" preserves the concept of proximate cause. 98 Causal connections are also used to describe exclusions. Thus riots and strikes are insured events (cl 3.9) but "excluding damage caused directly or indirectly by total or partial cessation of work …". Similarly cover is provided in respect of impact (cl 3.5) "but not if the loss or damage is caused by You or by a person acting with your express or implied consent …". The use of extended descriptions of causal connections in both exceptions was clearly intended to give them broad ambit. Words which weaken the link between loss and event are more likely to be found in exclusions from cover than in the definition of cover: Kelly and Ball, Principles of Insurance Law at [8.0020.25].

99 The various modes of describing the concept of causal connection in the Property Section of the Policy serve to underline the proposition, in my view, that "directly caused by … fire" in the insuring clause invokes the concept of proximate cause. 100 Accordingly, in my view the natural and ordinary meaning of the expression "directly caused by" in the Policy is that it is to be equated with "proximate cause". That construction should be preferred to a literal construction such as that which the primary judge adopted which, in my view, would defeat the object of the contract of insurance and flout commercial commonsense: see Antaios Cia Naviera SA v Salen Rederierana AB [1985] AC 191 at 201 per Lord Diplock; International Fina Services AG v Katrina Shipping Ltd (The "Fina Samco") [1995] 2 Lloyd's Rep 344 at 350. 101 The respondent ultimately conceded that the relevant wording attracted the concept of proximate cause. It argued that the construction of the Policy the primary judge preferred was not predicated on the proposition that that there could be no intervening step between the cause and the consequence but, rather, that his Honour had merely concluded there were "too many intervening steps" between the fire and the damage to the Laser. I cannot accept that submission. His Honour refused to follow (at [35] - [36]) the authorities which have interpreted the words "proximate cause" as meaning "direct cause", saying that "the proper approach" to the separate question was "simply one of construction of the particular policy before the Court". His Honour also rejected the appellant's argument that the case was on all fours with Lynn Gas & Electric Co v Meriden Fire Ins Co, an argument which would have been compelling if he had been applying the test of proximate cause. However, even if his Honour's judgment was capable of that interpretation, for the reasons which follow, in my view, he erred in concluding that the damage to the Laser was not directly caused by fire. 102 The respondent argued that the primary judge was looking to the last cause, the electrical surge, as being the ultimate cause. That submission exposes the error into which the primary judge fell. Applying the Policy wording, his Honour was required to look to the cause which was proximate in efficiency rather than in time. 103 It is plain that in concluding the damage to the Laser was not "directly caused by … fire" within the meaning of the Policy but was caused by the electrical surge, the primary judge was construing "directly caused" in the Policy as requiring identification of the immediate cause of the damage, rather than requiring identification of the real, effective or dominant cause of the damage to the Laser. In my view his Honour applied the wrong test.

The use of dictionaries in contractual construction 104 Before leaving the construction of the Policy, I should note that, in my view, the error into which the primary judge fell was to rely upon the dictionary definition of "directly" at the expense of looking at the word in context. The linguistic approach inherent in the use of dictionaries as an aid in contractual construction has been criticised as tending to distract from the exercise of discerning the intention of the parties from an examination of the context in which the words under consideration appear. In Life Insurance Co of Australia Ltd v Phillips [1925] HCA 18; (1925) 36 CLR 60 at 78 Isaacs J said "dictionaries are not a substitute for the judicial determination of the interpretation and then construction of statutes and other documents". 105 In House of Peace Pty Ltd v Bankstown City Council [2000] NSWCA 44; (2000) 48 NSWLR 498 at 505 [28] Mason P (with whom Stein and Giles JJA agreed) observed, in the context of the use of dictionaries in aid of statutory interpretation, that while dictionaries "can illustrate usage in context, [they] can never enter the particular interpretative task confronting a person required to construe a particular document for a particular purpose". 106 Lord Steyn, too, has been critical of the use of dictionaries in contractual construction. In Phillips and Stratton v Dorintal Insurance Ltd [1987] 1 Ll LR 482 at 484 - 485 Steyn J (as his Lordship then was) observed: "Words and phrases in contractual documents do not usually have one immutable meaning. Often there is more than one meaning available for selection. One cannot then simply turn to a dictionary for the answer. In choosing the appropriate meaning, the contextual scene is usually of paramount importance …". 107 His Lordship repeated this proposition in Arbuthnott v Fagan (Court of Appeal, 30 July 1993, unreported), observing "dictionaries never solve concrete problems of construction. The meaning of words cannot be ascertained divorced from their context". The English Court of Appeal referred to his Lordship's statement in Arbuthnott v Fagan with approval in The Fina Samco at 350. In Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896 at 912 Lord Hoffmann emphasised the necessity to construe words in a contract by reference to their context, observing: "The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its word. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax."

Determining cause in fact 108 The conclusion that "directly caused by …" requires identification of the proximate cause leads to the second issue in the appeal: whether on the proper construction of the Policy and on the agreed and assumed facts, the damage to the Laser was "directly caused … by fire". 109 The Court applies common sense standards in determining what is the proximate cause. The question whether an event is one to which a policy responds requires "a consideration of what the words of the policy convey, as a matter of contemporary language read in the context of the whole policy, to a reasonable non-expert in [Australia]": Australian Casualty Co Limited v Federico at 525 per Wilson, Deane and Dawson JJ. 110 "Causation is to be understood as the man in the street, and not as either the scientist or the metaphysician, would understand it": per Lord Wright in Yorkshire Dale Steamship Co Limited v Minister of War Transport [1942] AC 691 at 706, referred to with approval by Samuels JA in National & General Insurance Co Limited v Chick, above, at 98; see also City Centre Cold Stores Pty Limited v Preservatrice Scandia Insurance Limited, above, at 742; HIH Casualty & General Insurance Ltd v Waterwell Shipping Inc & Anor at 608 per Sheller JA; Leyland Shipping at 362; Becker, Gray & Co Limited v London Assurance Corporation, above at 112; Wayne Tank & Pump Co Ltd v Employers' Liability Assurance Corp Ltd [1977] 1 QB 57; Vintex Pty Limited v Lumley General Insurance Limited at 648; Lumley General Insurance Limited v Vintex Pty Limited at 658 per Meagher JA (with whom Clarke JA agreed); SGIC v Sinfein Pty Limited, above, at 445 - 446 per Malcolm CJ, at 454, 457 per Ipp J, at 461 per Parker J. 111 As Lord Shaw put it in Leyland Shipping at 369: "The true and overruling principle is to look at the contract as a whole and to ascertain what the parties to it really meant. What was it which brought about the loss… And this not in an artificial sense, but in that real sense which the parties to a contact must have had in mind when they spoke of cause at all …. What does 'proximate' here mean? To treat proximate cause as if it was the cause which is proximate in time is … out of the question. The cause which is truly proximate is that which is proximate in efficiency. That efficiency may have been preserved although other causes may mean time have sprung up which have not yet destroyed it, or truly impaired it, and it may culminate in a result of which it still remains the real efficient cause to which the event can be ascribed ." (emphasis added) 112 In concluding in Lynn Gas & Electric Co v Meriden Ins Co that the fire in that case was the "direct proximate" cause of the damage, Knowlton J said (at 691): "When it is said that the cause to be sought is the direct and proximate cause, it is not meant that the cause or agency which is nearest in time or place to the result is necessarily to be chosen … The active, efficient cause that sets in motion a train of events which brings about a result without the intervention of any force started and working actively from a new and independent source is the direct and proximate cause referred to in the cases … The question always is, was there an unbroken connection between the wrongful act and the injury - a continuous operation? In suits brought on policies of fire insurance it is held that the intention of the parties must have been to insure against losses where the cause insured against was a means or agency in causing the loss, even though it was entirely due to some other active, efficient cause which made use of it, or set it in motion, if the original, efficient cause was not itself made a subject of separate insurance … This is the only particular in which the rule in regard to remote and proximate causes is applied differently in actions on fire insurance policies from its application in other actions. A failure sometimes to recognise this rule as standing on independent grounds, and established to carry out the intention of the parties to contracts of insurance, has led to confusion of statement in some of the cases." (emphasis supplied) 113 Ultimately, the question whether a loss was caused by a peril to which an insurance policy responds is a question of fact. However Knowlton J's description of the exercise as requiring a determination as to whether the fire was the efficient means or agency in causing the loss is a useful encapsulation of the task required. 114 To recapitulate the critical agreed and assumed facts: the 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 the Laser. 115 In my view, applying Lord Shaw's approach in Leyland Shipping (at 369) and the common sense standards to which I have already referred, the real and effective cause of the damage to the Laser was the fire. It was the "active, efficient cause" (Lynn Gas & Electric Meriden Insurance Co) which set in motion the train of events which brought about the damage to the Laser. There was no intervening force which started from a new and independent source. The effective agency which brought about the result was the fire. It was the fire which triggered the sequence of events which led to the power surge and hence (on the assumed facts) the damage to the Laser. 116 The respondent sought to argue that the fire was not the proximate cause of the damage to the Laser because the fire did not come into contact with any item of property within the appellant's premises. The primary judge appears also to have accepted an argument to this effect when he referred (at [37]) to there having been "a separation in terms of place" referring to the fact that the fire was on the electric poles located outside the premises, while the "effect of the surge to the laser took place within the premises". 117 The answer to this proposition is that the Policy responded even if the fire was not on the appellant's premises. Once that is understood then, even though it might be accepted that geographical distance has a bearing on whether the damage was "directly caused", the search is still for the real, effective cause. 118 There was also some debate in the course of argument concerning the time lapse between the fire and the power surge, a matter to which the primary judge himself referred (at [38]). It is correct, as Mr Toomey QC submitted, that there was no agreed or assumed fact concerning the time which elapsed between the two events. That indicates, in my view, that the parties did not regard any lapse of time as relevant to the determination of the separate question. 119 In my view, the primary judge erred in concluding that the fire did not directly cause the damage to the Laser.

(3) The separate question, namely, whether on the agreed and assumed facts the damage to the plaintiff's Laser was "directly caused" by fire within the meaning of the Policy be answered, "Yes".

(4) Respondents to pay the appellant's costs of the hearing before Einstein J and of the appeal.

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