MMI (Aust) Ltd v Rowprint Services

5. The insurance policy here under consideration was, remarkably, almost identical in form and language with the industrial special risks policy considered by this Court in CIC Insurance Ltd. v. Barwon Region Water Authority [1998] V.S.C.A. 77, except that it was not encumbered by the innumerable and confusing endorsements contained on the policy there in question. The present policy has the same structure as that there considered: cf. my judgment at paras.4-7, 10 and 26-27. Here the only issue is whether the respondent's claim was taken outside the policy by reason of property exclusion 16.

8. That raised the question whether the printing press when damaged was "machinery" as qualified by the words appearing thereafter in the exclusion. Machinery is only excluded from cover insofar as "physical loss, destruction of or damage to" that machinery was "occasioned by or happened through" one or more of a series of events described. The question of causation is, of necessity, raised by the use of the expression "occasioned by or happening through", but it is not necessary in the present case to examine the interesting arguments advanced as to causation, on which useful and thought-provoking discussion may be found in the latest edition of Clarke on The Law of Insurance Contracts (3rd ed., 1997) paras.25-1 to 25-9C. The agreed statement of facts, and the respondent's implicit admissions contained thereto, show that whatever occurred which ended in the damage to the cylinders of the printing press must be attributed to the acts of the employee who failed sufficiently to correctly to tighten the bolts which formed part of the press. Any one of the terms "malfunction, failure, derangement, breakdown or non-operation" has to be shown to satisfy one or more of the adjectives "mechanical, electrical, electro-mechanical, electronic or hydraulic". That kind of malfunction, failure, derangement, breakdown or non-operation was not established by the appellant insurer. Human agency was entirely responsible for the malfunction and consequent damage, so that it could not be described as "mechanical", "electrical" or the like. Even if the damage did not have to arise out of the "innate condition" of the machinery, at least it had to be caused by some characteristic which had not been brought into existence by human or other "intervention" immediately or shortly before the machinery broke down, such as the carelessness of an employee.

11. In those circumstances the respondent was entitled to maintain its claim under the policy, so that the appeal must be dismissed.

16. This is an appeal by the defendant in a County Court proceeding in which the plaintiff was seeking to recover under a policy of insurance issued by the defendant for damage caused to a printing press, and consequential losses in the operation of its business. The proceeding was instituted by writ filed on 25 June 1996. It came on for trial on 15 August 1997 and judgment was delivered on the following day. The plaintiff was successful but, because of the need for discussion of the form of the orders, it was not until 27 February 1998 that judgment was formally pronounced in favour of the plaintiff in the sum of $45,079.36 together with damages in the nature of interest fixed at $20,776.03. The defendant was ordered to pay the plaintiff's costs. The defendant now appeals.

19. The plaintiff's claim was made under an Industrial Special Risks policy, and there was no dispute about the existence of the policy: so much was admitted. Section 1 of the policy dealt with physical loss of or damage to property and Section 2 with consequential loss, but it suffices to refer to the provisions of Section 1. Section 1 commenced:-

"In the event of any physical loss, destruction or damage (hereinafter in Section 1 referred to as 'damage' with 'damaged' having a corresponding meaning) not otherwise excluded happening at the Situation to the Property Insured described in Section 1 the Insurer(s) will, subject to the provisions of this Policy including the limitations on the Insurer(s) liability, indemnify the Insured in accordance with the applicable Basis of Settlement."

Nor was it in dispute that the "Property Insured described in Section 1" included the plaintiff's MOZP printing press. As the policy covered only "physical loss, destruction or damage" not otherwise excluded, attention was focussed on the exclusions referred to in the section of the policy entitled "Exclusions to all Sections". That section was divided in two: "property exclusions" and "perils exclusions". The defendant insurer denied liability in reliance upon clause 16 of the property exclusions. That clause - in which "machinery" was defined in such a way as plainly to be satisfied by the printing press belonging to the plaintiff - was otherwise as follows:-

"This Policy does not cover physical loss, destruction of or damage to the following property or loss under Section 2 resulting therefrom:- 16. All Machinery (as defined in this exclusion), electronic data processing equipment or electronic control equipment occasioned by or happening through any mechanical, electrical, electro-mechanical, electronic or hydraulic malfunction, failure, derangement, breakdown or non-operation of whatsoever kind. Provided that Property Exclusion 16 shall not apply to any subsequent loss, destruction of or damage to such Machinery, electronic data processing equipment or electronic control equipment occasioned by or happening through any cause or event not otherwise excluded herein which results from any of the events referred to in this exclusion."

If clause 16 applied, the insurer was entitled to deny liability: if clause 16 did not apply, the plaintiff was entitled to succeed. That was the narrow compass of the dispute at trial and that dispute focussed on the reference in clause 16 to damage which was "occasioned by or happening through any mechanical ... malfunction, etc."

26. There was no doubt but that the printing press did malfunction at or about 2.30 a.m. on 7 December 1993. How that came about was the subject of a statement that was used at trial as an agreed statement of facts. It is convenient to set out that statement in full.

"1. The subject machine is a fully automatic Heidelberg 'Speedmaster' model MOZP printing press manufactured in Germany by Heidelberg Druckmaschinen Aktiengesellschaft. 2. The machine is arranged as two integrated rotating cylinder printing presses mounted on a common base with one paper feed mechanism. 3. Printing is achieved in each press by paper being fed as a single pass through two cylinders. 4. Running clearances are adjustable. 5. The operation of the machine is to draw one sheet of paper at a time and to feed it through the machine. 6. The machine operates at high speed and mechanical inertia is significant. 7. At each stage of the process of paper travel through the machine, paper is held onto the relevant cylinders by grippers which maintain the correct relationship of the paper to the cylinder. 8. Timing of the machine is critical. It is set by mechanical adjustment. 9. A misalignment of timing will result in misdelivery of paper within the machine. 10. To adjust the mode of printing to be performed by the machine the timing must be altered. 11. During normal operation of the machine vibration will be caused by the mechanical components. 12. If the locking screws on the timing adjustment are not sufficiently tight to prevent movement the vibration of the mechanical components of the machine may allow the timing to alter. 13. The machine stopped printing suddenly during the course of a printing run. 14. The sudden stop of the machine was brought about by a number of sheets of paper being jammed between the printing cylinders of the 2nd stage. 15. The machine was damaged by an excess of paper entering between the 2nd stage printing cylinders having accumulated in the space between the reversing drive and 2nd stage cylinders. 16. The excess of paper was caused by a loss of timing of the machine during operation. 17. The loss of timing was most probably caused by an employee of the Plaintiff failing to tighten sufficiently the bolts integral to the operation of the timing device."

30. In addition to this statement (to which I shall refer as the agreed statement of facts), evidence was given at the trial by Mr. Barry Peter Bray, the general manager of the plaintiff. Mr. Bray said that prior to the incident, the printing press was "well maintained" and in "mint condition" and, save for regular services, it had had no repairs or breakdowns. The printing press was designed to allow for two types of printing, known respectively as "straight printing" and "perfector printing". Mr. Bray described it in his evidence thus:-

"It [the machine] could be used for straight printing, which would be, for instance, a two-colour letterhead or a two-colour brochure where it would print a black and a blue or a black and a red, whatever you like. It would print the black on the first bit and the red on the second bit. The other part of the machine is perfecting, where it's used mainly in book work, where you need to print one colour both sides of the sheet, so instead of having to do one parcel one side of the sheet and one parcel the other side of the sheet, the sheet goes into the machine, in the middle of the machine the sheet is inverted, and then goes through the other deck where the other side is printed."

It was when changing the operation of the press from one type of printing to the other that alteration in the timing became necessary. The function of the timing was explained by Mr. Bray in this way. Apparently each cylinder had a set of grippers which grip the paper. He continued:-

"With this perfecting operation it's critical when these grippers open and close, and when you go from perfecting to straight printing that particular gear, which has got six bolts and six large slots in it, is rotated till a certain mark is lined up, then those bolts are locked up by the operator so that the timing can't move on the machine."

36. This last is important to what happened here; for, as noted in the agreed statement of facts (paragraphs 11 and 12), there is ordinarily vibration of the machine when in operation and, if the locking screws on the timing adjustment are not sufficiently tight, that vibration may allow the timing to alter by itself. Mr. Bray said in evidence that it would have been necessary for an employee of the plaintiff to alter the timing on the machine on 6 December 1993 when changing from one type of printing to another. This timing change was effected at 8.15 p.m. and thereafter there was no need for any further timing change before 2.30 a.m. on 7 December (when the machine stopped printing). It was against this background that the parties had agreed that the loss of timing that occurred was most probably caused by an employee of the plaintiff failing to tighten sufficiently the bolts which were critical to ensuring that there was no unintended alteration in timing brought about by vibration.

39. What happened after the machine stopped printing may be briefly described. Mr. Bray attended the plaintiff's premises the following morning and by then a Heidelberg engineer was in attendance. The engineer "re-timed the machine" after which it ran "perfectly". But when the press was used after the engineer had left, it was not printing properly. One of the employees of the plaintiff replaced "a rubber blanket" which is part of the normal maintenance procedure carried out every two days, but still the press did not print properly. The Heidelberg engineer attended again, and it was discovered that the two cylinders on the machine were out of alignment by four thousandths of an inch. This misalignment had been caused by the paper jam between the two cylinders. As it was described in lay terms in argument, there was a very slight dent on the surface of the cylinders which was sufficient to produce a blank on the printed page. Replacements for the two cylinders had to be obtained from overseas. Mr. Bray gave evidence, too, about the quantum of the plaintiff's claim, and that was not in dispute.

42. Most of the foregoing has been taken from the admirable summary which was filed on this appeal and which, in itself, is a very model of what this Court requires. The critical finding made by the trial judge was as follows:-

"I accept the evidence of the Plaintiff that the machine ceased to operate as a result of a timing error between the transfer cylinder and the second impression cylinder during a two-colour printing run. This timing error caused an increasing number of sheets of stock to build up between the cylinders, eventually resulting in some 15 sheets being caught between the cylinders of the machine thereby damaging it and leading to its eventual breakdown. The most likely cause of this timing error was the failure of the restraining bolts to have been adequately fastened by an employee of the Plaintiff when he altered the setting on the machine to change the mode of printing the day before. The machine, whilst running, generates a great deal of vibration, due to the weight of the cylinders and such vibration would have the effect of working any poorly fastened restraining bolts loose. The jamming of the excess quantity of paper into the machine caused it to stop operating at about 2 a.m. on 7th December 1993. I find that the machine had suffered no previous breakdowns and was well maintained and that the damage to it was inflicted by a known cause - employee negligence. This does not seem to be in dispute. What is in dispute is the effect of the conditions of the Policy on these facts."

As argued at trial, the issue was this: there having been a malfunction of the machine at or about 2.30 a.m. on 7 December and the cylinders having been damaged, was that damage properly described as "occasioned by or happening through [a] ... malfunction" within the meaning of property exclusion clause 16, or was that not so because the malfunction was brought about by the loss of timing which, on the balance of probabilities, had itself come about because of the employee's failing to tighten sufficiently the critical nuts and bolts? The judge held that employee error was the only relevant cause of the damage and that therefore the exclusion did not apply. On this appeal the appellant insurer contends that that was error; the respondent insured says not.

47. Below, there were two arguments put by the insurer to support its denial of liability. In the words of the trial judge:-

"As this matter has been argued before me, I have two possible causes for the loss [of] the property insured. Counsel for the Plaintiff submitted that it was the failure by those responsible for the machine to properly fasten the restraining bolts which is the true, cause of the damage to the machine. Counsel for the Defendant submits that since it is the damage to the machine that forms the subject matter of the action, I should focus on that damage. In doing so, it is submitted, it cannot be said that anything but the malfunction, represented by the feeding of multiple sheets at a time onto the cylinder, caused the damage. I shall refer to this as the Defendant's first argument. Counsel for the Defendant has a second argument that, notwithstanding the fact that employee negligence could be seen as a cause, or even a substantial cause of the eventual damage, the Defendant need only show that the paper misfeed and eventual seizure of the machine which followed were also a material cause of the damage. In other words, where there are two causes of the damage, one of which is expressly excluded by the policy, the Defendant is entitled to rely on the exclusion clause."

The judge saw no need to consider the second argument; for in his Honour's view there plainly was one dominant cause and therefore, applying City Centre Cold Store Pty. Ltd. v. Preservatrice Skandia Insurance Ltd. (1985) 3 N.S.W.L.R. 739 at 745 per Clarke, J. (and see too Wayne Tank & Pump Co. Ltd. v. Employers Liability Assurance Corp. Ltd. [1974] 1 Q.B. 57 at 68-9 per Cairns, L.J.), he saw no need to consider the consequences of there being two causes of approximately equal weight. His Honour said:-

"When I ask myself what was the dominant cause here, there can be only one answer - the negligent tightening of the bolts. The act of operating the machine thereafter which caused the paper to jam and damage the machine was simply "the trigger - the precipitating event". There would have been no trouble whatsoever if the bolts had been tightened properly. In such circumstances, the insurer is not entitled to rely on the exclusion clause."

A little later in the judgment, after considering further the operation of the exclusion clause in light of the malfunction's having been precipitated by the employee's conduct, his Honour concluded:-

"In my view, such a clause is designed to specifically address the breakdown of any machinery through the ordinary course of attrition and not where some other dominant cause has been clearly identified."

Accordingly the insurer failed in its defence and judgment was given for the insured.

56. On appeal the insurer put much the same arguments as below and sought to persuade us that they had been wrongly rejected. The main thrust of the submission was simply this: that the printing press did without doubt malfunction which did without doubt damage the cylinders and on that account the exclusion clause must have applied, which justified the insurer's denial of liability. In argument counsel pointed out that the machine had been running for many hours before the paper jammed and the cylinders were damaged. If, he said, the press had ceased that particular run before the paper jammed and the timing had then been manually changed once more, the press would not have sustained any damage by reason of the employee's earlier failure to tighten the critical bolts sufficiently. If this was an oblique challenge to the existence of the causal link between the employee's error and the damage to the machine, it flew in the face of the facts. That damage did occur and if the question is what caused it, the finding below was very clear: it was the employee's carelessness. The question is not whether, and if so how, the damage which did occur might have been avoided.

59. More probably appellant's counsel was seeking to do no more than emphasise the importance of the functioning of the machine to the occurrence of the damage, and so much may be accepted if only because it was the vibration during running that seems to have precipitated the unintended change in timing and thus the jamming of the paper and the consequential damage to the cylinders. Counsel also emphasised the use in the exclusion clause of the words "occasioned by or happening through" to denote the relevant causal link. These words were common enough within this policy, though sometimes they appeared in conjunction with "directly or indirectly" (for example, in perils exclusion 1(a)), but they stood in contrast to other expressions used within the same policy - in particular "caused by" in property exclusion clause 13, "caused by or arises out of" in perils exclusion clause 3 and "caused by or contributed to by or arising from" in perils exclusion 2; compare also "arises out of" which is used in property exclusion 2(e) and "which results from" and "resulting from", one or other of which appears in the first two lines under the heading PROPERTY EXCLUSIONS (in the introductory reference there to consequential loss under Section 2), in perils exclusion 10 and in the respective provisoes to property exclusion clause 16 and perils exclusion clauses 4 and 7. Counsel accepted, at least for the argument, that the words "caused by" did require a search for the "proximate cause", meaning nowadays not the latest cause "but the direct ... real or common sense, ... dominant ..., operative or efficient one": National & General Insurance Co. Ltd. v. Chick [1984] 2 N.S.W.L.R. 86 at 97-8 per Samuels, J.A., City Centre Cold Stores at 742-3 per Clarke, J., Wayne Tank at 66 per Lord Denning, M.R.. But, according to the submission, that was not the inquiry when the words were not "caused by" but "occasioned by or happening through". That phrase, said counsel, had the effect of "stretching" the causal association between the potential excluded cause and the loss: Cooper v. General Accident Fire and Life Assurance Co. (1922) 128 L.T. 481, Spinney's (1948) Limited v. Royal Insurance Co. Ltd. [1980] 1 Lloyd's Reports 406 and Switzerland General Insurance Co. Ltd. v. Lebah Products Pty. Ltd. (1983) 2 ANZ Ins. Cases 60-498.

62. I must say that this argument, that the words "occasioned by or happening through" in the exclusion clause allowed some "stretching" of the causal chain, seemed to me to tend in favour of the insured, rather than the appellant insurer. As the trial judge commented, in this case "the event most proximate in time to the occurrence of the damage was the jamming of some 15 sheets of paper into the press". If the jamming of the press constituted, as the trial judge said, a "failure, malfunction or non-operation" of the press, the link between that and the damage could not have been closer. What need then for some "stretching" of the causal chain, reaching back as it were to some anterior event? If relevant at all, the concept of reaching back to some anterior event must surely have aided the respondent, rather than the appellant; for it was the former who was pointing to the anterior event (the employee's conduct) and claiming that that was the only relevant cause of the damage.

65. Of course the appellant's submission was clearly enough intended to meet, if not to answer, the finding below that the dominant cause of the damage was employee error, not the malfunctioning of the machine. For that purpose, it could be enough (without any "stretching" of the causal chain back or forth) that the words "occasioned by or happening through" were such as to allow a looser connection between damage and cause than perhaps do the words "caused by"; for then, there might be no need in this case to identify the proximate or dominant cause - and that is what was contended. It was enough, it was urged, that the loss of timing and the consequent jamming of paper (which was a malfunction of the machine) was a cause of the damage; for then the exclusion clause was called into play, according to such cases as Wayne Tank at 67 per Lord Denning, M.R., and at 69 per Cairns, L.J. and City Centre Coal Store at 743 per Clarke, J.; contrast HIH Casualty & General Ins. Ltd. v. Waterwell Shipping Inc. [1998] NSWSC 436; (1998) 43 N.S.W.L.R. 601. In Sutton on Insurance Law in Australia (2nd ed., 1991) para. 15.7, the learned author opines that if any one of several causes of the loss or damage is an excluded event then the exclusion clause operates to deny indemnity. And that result could only be the clearer here, as I followed the argument, because the exclusion clause used the phrase "occasioned by or happening through" and not "caused by".

68. It can be seen that much of the appellant's argument turned on concepts of causation; indeed they were said to be the central issue. Yet to my mind such considerations serve in the end to complicate the resolution of this appeal. Causation is not really the problem. It is plain enough what happened; according to the agreed statement of facts and the findings made, there was a sequential chain of events which led to the damage, commencing (so far as relevant) with the employee's error in failing to tighten sufficiently the critical bolts to preclude any unintended change in timing and ending with the paper jam that damaged the cylinders. That chain of events was unbroken, leading naturally from the one event to the next, and so much is common ground. The trial judge found that the employee's conduct was the dominant cause, and probably that was so, though I do not think it need be decided. For ultimately this case must depend upon the proper construction of the exclusion clause, and it is there, in my opinion, that the answer to the insurer's case is found. The respondent submitted on appeal (if not so plainly below) that the exclusion clause applied to a malfunction only if that malfunction was "due to the innate condition of the machine", which was not the case where the malfunction had been precipitated (as clearly it was) by the employee's failing to tighten the bolts as he should. In my view, that submission should be accepted and on that view the appeal fails on the point of construction.

71. Appellant's counsel submitted that the word "malfunction" in the exclusion clause, should not be "read down", as he put it, in the manner suggested by the respondent. The judge was disposed to accept the argument that, unless read down, the exclusion clause would be so wide as to deprive the insurance of much, if not all, of its effect, with the result that to read the clause down was necessary if only to avoid the absurdity of its "providing no cover at all". The insurer disputed this, and perhaps rightly so. It is by no means clear on this appeal what other property was covered by the policy beyond the printing press and so it is difficult to assess the significance, in relation to cover generally, of allowing this particular exclusion clause a wide operation in respect of the printing press. Secondly, it can be accepted readily enough (although this may not have been conceded at trial) that the exclusion clause would have no operation if the printing press were damaged by what was labelled in argument an "external force", such as a passing truck which crashed through the wall or a ceiling which collapsed, and which it was argued by the respondent would probably cause the press to malfunction. In such cases the exclusion clause would not operate anyway, not because of the need to read down the word malfunction but because if the machine did malfunction as a result of the incident the damage to the printing press would not have been caused by the malfunctioning, but by the incident (the impact of an external force, whether it be the passing truck or the falling ceiling).

74. Such possibilities therefore do not themselves demonstrate any need to find some limit to the concept of "malfunction", although, if (as the respondent's counsel told us was the case) the insurer submitted below that in such cases the exclusion clause would apply, that might well explain the judge's view that reading down was necessary to avoid absurdity. To support the argument based on absurdity, the respondent referred us to Alex Kay Pty. Ltd. v. G.M.A.C. [1963] VicRp 66; [1963] V.R. 458, but that was a very different case in that the width of the exclusion clause there, if given full reign, was nothing short of breathtaking. In my view it is not the need to avoid absurdity that justifies the conclusion that malfunction has no application to the present case. It is simply the need to construe the document as a whole, giving it effect according to the presumed intention of the parties as gathered from the language of their bargain and the purpose of their contract. Suffice it to refer to Automobile Fire & General Ins. v. Davey [1936] HCA 16; (1936) 54 C.L.R. 534 at 541, Codelfa Constructions Pty. Ltd. v. State Rail Authority [1982] HCA 24; (1982) 149 C.L.R. 337 at 352-3, Carlingford Australia General Ins. Ltd. v. E.Z. Industries Ltd. [1988] VicRp 44; [1988] V.R. 349 at 352 per Gobbo, J. Appellant's counsel accepted that if there were ambiguity the exclusion clause should be read contra proferentem.

77. We were told that the exclusion clause here in question is by no means unusual. Though the example of sudden impact is readily dismissed as of no consequence to the proper meaning of the words used, the problem remains of applying the exclusion clause in cases less clear. As the judge said, what if heat from a fire in the building caused undetected buckling of a sensitive part of the printing press, which caused it to damage itself when it was later operated; or what if an employee bumped the machine with a fork-lift and, while causing no discernible damage at all to the machine, in fact put off balance some sensitive part with the result that when it was being operated some 20 minutes later, the paper jammed and the cylinders were damaged? In such cases, can it be the answer that the damage was the product of the malfunctioning of the machine so that the exclusion clause applied? The judge thought not, and I agree.

80. As earlier mentioned the judge took the view that the exclusion clause was "designed to specifically address the breakdown of any machinery through the ordinary course of attrition", so that is how his Honour construed the word "malfunction". Yet this, said appellant's counsel, could not be correct because perils exclusion clause 4(b) already excluded "wear and tear", so that there was no point in the policy's excluding elsewhere malfunction "through the ordinary course of attrition". Two answers may be made to this contention. First, it cannot be surprising in policies of insurance to find some overlap between different clauses; commonly they are cobbled together from a number of sources and then overlap is only to be expected. Secondly, it may be too narrow to refer to "the ordinary course of attrition"; for myself, with respect, I prefer counsel's formulation on appeal which was malfunctioning "due to the innate condition of the machine". Indeed, in the course of argument Callaway, J.A. suggested another possible distinction, between endogenous malfunctioning and exogenous malfunctioning. Fortunately perhaps, it is unnecessary for the resolution of this appeal to chose between these various possible distinctions, which are subtly different; they all lead to the same conclusion in this instance. The conclusion is that property exclusion clause 16 has no application where the malfunctioning is but the direct result of an external cause like the employee's conduct in this case. It may be that where damage is the result of the functioning of the machine otherwise than in the intended fashion, the exclusion clause will apply if nothing more is known, but where the cause of the malfunctioning is known and that cause is altogether independent of the machine itself, the exclusion clause does not apply. That was the case here. It is known what caused the damage; it was the loss of timing and jamming of the paper as a direct result of the employee's failing to tighten the critical bolts as he should have done, and so it was not the malfunction of the machine within the meaning of clause 16.

83. For these reasons I consider that property exclusion clause 16 had no application to the claim made under the policy by the respondent insured for damage to its printing press. Accordingly I would dismiss the appeal.

88. The damage in this case was the damage to the cylinders. The chain of causation was as follows: employee negligence leading to a loss of timing through the natural vibration of the press, leading in turn to the paper jam which was the immediate cause of the damage. If the proper enquiry were as to the proximate cause of the damage, it would be the employee negligence. The case would be analogous with Leyland Shipping Co.Ltd. v. Norwich Union Fire Insurance Society Ltd. [1918] A.C. 350, the facts of which are too well known to bear repetition. Moreover the employee negligence would be the only proximate cause. It may be accepted that the loss of timing was a "mechanical ... malfunction" within the meaning of property exclusion 16, but it is less clear that the paper jam was also a mechanical malfunction. The paper jam was certainly a malfunction of the press, in the sense that the press was not functioning as it should, but it was not a malfunction of the mechanism. It resulted from such a malfunction. Assuming that that doubt is well-founded, the question is whether the damage to the cylinders was occasioned by or happened through the loss of timing.

91. The words "occasioned by or happening through" have a wide meaning: cf. Switzerland General Insurance Co. Ltd. v. Lebah Products Pty. Ltd. (1982) 2 A.N.Z. Insurance Cases 60-498 at p. 77,826. A motor car may be stolen or a shop may be looted, the proximate cause of the loss being theft. The "occasion" of the loss may nevertheless be riot or civil commotion: see, for example, Cooper v. General Accident Fire and Life Assurance Corporation Ltd. (1922) 128 L.T. 481 and Spinney's (1948) Ltd. v. Royal Insurance Co. Ltd. [1980] 1 Lloyd's Rep. 406, esp. at pp.441-442. Loss or damage may also "happen through" a cause that is not the proximate cause. It is a more difficult question whether, and if so in what circumstances, the words include a mere link in a chain of causation that began with the proximate cause, although it is true that such a link may be the immediate occasion of the loss or damage and in a sense the latter happens through it. It is easier to see how the words, and similar expressions, may refer to a cause or set of conditions anterior to the proximate cause or to a concurrent cause, less important than but operating together with the proximate cause. See also the cases referred to in Clarke, The Law of Insurance Contracts (3rd ed. 1997), s25-7.

94. There are some expressions in insurance policies, as in charterparties, that have a more or less fixed meaning. I do not think that the words "occasioned by or happening through" are in that category. They are to be interpreted in their context, with due regard to other provisions in the policy. In the present case, for example, the expression "directly or indirectly occasioned by or happening through" also appears among the exclusions, although I agree with Phillips, J.A. that exclusions are often cobbled together and caution is required in comparing the language of different clauses. Mustill, J. made a similar point in the Spinney's Case at p. 435.

97. Property exclusion 16 appears in the part of the policy that contains what are described as "exclusions to all sections". They are divided into "property exclusions" and "perils exclusions". The other property exclusions are particular kinds of property in transit, money, vehicles and trailers, livestock, animals, birds and fish, standing timber, growing crops and pastures, land, bridges, canals, docks and other works, mining property, property that is being processed, gates, fences and the like, property in the open air, property undergoing construction, empty premises, off-shore rigs and boilers and related equipment. Sometimes the description of the property excluded includes reference to a particular peril, but the essential point is that the "property exclusions" are descriptive of property loss or destruction of which, and damage to which, are not covered by the policy.

100. Thus the complete context in which the words with which this appeal is concerned appear is:

This Policy does not cover physical loss, destruction of or damage to the following property or loss under Section 2 resulting therefrom: -

16. All Machinery (as defined in this exclusion), electronic data processing equipment or electronic control equipment occasioned by or happening through any mechanical, electrical, electro-mechanical, electronic or hydraulic malfunction, failure, derangement, breakdown or non-operation of whatsoever kind.

Provided that Property Exclusion 16 shall not apply to any subsequent loss, destruction of or damage to such Machinery, electronic data processing equipment or electronic control equipment occasioned by or happening through any cause or event not otherwise excluded herein which results from any of the events referred to in this exclusion.

For the purpose of Property Exclusion 16, Machinery means:

any apparatus whether or not functioning independently or as any component part of a collection of apparatus which generates, contains, controls, transmits, receives, transforms or utilises any form or source of energy or power."

That is the only occasion on which the words "occasioned by or happening through" appear in the property exclusions, either on their own or together with the words "directly or indirectly". There are, however, other causal references such as "arising out of" and "caused by".

113. The precise meaning of property exclusion 16, and in particular the proviso, is not easy to discern; but in general terms the clause is directed to mechanical failure of the kind of apparatus that is described in the definition of "machinery" in the third paragraph. In the light of that definition, I think it would be difficult to maintain that a malfunction, failure, derangement, breakdown or non-operation resulting from a power failure did not fall within the exclusion. Accordingly, if a power failure is external, and not to be regarded as an integral part of the relevant system, the distinction I suggested in the course of argument between endogenous and exogenous causation would not be determinative. The respondent's formulation is closer to the mark, namely that the clause is directed to a malfunction "due to the innate condition of the machine". Part of the innate condition of a machine may be, for example, that it runs on electricity.

116. Earlier in this judgment I said that the loss of timing was a mechanical malfunction. It might be thought, therefore, that all that is required is to decide whether the words "occasioned by or happening through" do include a mere link in a chain of causation that began with the proximate cause. If property exclusion 16 appeared among the perils exclusions that might be so, but it does not. It is a property exclusion. In the relevant part of the policy the insurer was concerned to exclude classes of risk by reference to kinds of property and, in clause 16, by reference to the characteristics of a particular kind of property, namely machinery. Those characteristics were that it was likely to malfunction, fail, suffer derangement, break down or stop operating. Such risks are innate to machinery in a way that employee negligence is not.

119. Property exclusion 16 does not encompass every malfunction, failure, derangement, breakdown and non-operation but only those that are mechanical, electrical, electro-mechanical, electronic or hydraulic. The emphasis is on the machinery itself. It may also be significant that the last three words of the first paragraph are "of whatsoever kind", not "howsoever caused". Indeed it is arguable that the appellant's construction fails at the threshold by reading the clause as if it did say "howsoever caused", thereby attributing an unnecessarily wide meaning to the words that are actually used.

122. The safest way to decide this appeal is as a matter of impression, rather than by attributing particular meanings to particular phrases in the policy, by purporting to explain its operation in all conceivable circumstances or by paying too much attention to the practical effects of different constructions on the respondent. (Its business is described in the schedule to the policy as "principally printers and any other ocupation incidental hereto". We know that the declared value of all the property insured was $2,026,000, but we do not know much more about the factual matrix in which the contract was made.) As a matter of impression, the insurer was concerned to exclude mechanical failure. I appreciate that it is a feature of most machines, even today, that, just as they are likely to break down, so too they have operators who are likely to be negligent; but, if the insurer desired to exclude employee negligence, or sabotage or vandalism, followed by mechanical failure, that should have been done expressly or by an appropriate perils exclusion.

125. So to approach the task of construction is to recognise that it involves a question of degree. Here the only proximate cause was employee negligence. Everything else flowed from that. To say that the damage was occasioned by or happened through a mechanical malfunction is like saying that the death of a person shot with a flint lock musket was occasioned by or happened through fire: cf. Boiler Inspection and Insurance Co. of Canada v. Sherwin-Williams Co. of Canada Ltd. [1951] A.C. 319 at p.337. The position would be different if a machine malfunctioned because of faulty maintenance 12 months earlier and the malfunction caused damage. That damage might be occasioned by or happen through the malfunction notwithstanding the negligence or inattention of the person responsible for the maintenance.

128. For these reasons I agree that the appeal should be dismissed.