Property Insurance

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Proximate Cause is an important principle of insurance, which helps in deciding how the loss or damage happen and whether it is the result of an insured peril or not. The important point to consider here is that proximate cause is the only nearest cause and not the remote cause. It mainly revolves around the claim administration and, more precisely, diagnosing the role of the peril in a claim.

In the case of fire insurance, there are certain perils specifically mentioned (insured perils) whilst some perils are excluded (known as an exclusion) and some may be covered and some may not be. It is not always known that a loss is caused by a single insured or uninsured peril in order to find out whether a claim should be payable or not. Different situations might arise when the number of perils gets involved in the situation, some are covered and some are not.

Read More: How to file a claim under Fire Insurance?

The situation becomes more complex when an insured peril is followed by an uninsured peril, or uninsured peril is followed by an insured peril, or simultaneously gets mixed. The principle of proximate helps in solving such kind of situation and helps the insurer to decide whether a claim is payable or not, and if payable, then to what extent.

Vital Points to Remember –

  • If you have a fire insurance policy, it is your responsibility to establish the proximate cause in order to decide whether a claim is covered by the insurer or not
  • As per the proximate clause, there should be a series of events which brings about some results, without any intervention of force and it should work actively on a new and independent source
  • It becomes the duty of the insurance policyholder to demonstrate that an insured peril has caused some losses or damages. In case the insurer wants to reject the claim, they must prove that the peril (which caused damages) falls under the exclusion list

Case: 1

Mr. Rajiv Saran bought a fire insurance policy for the furniture of his house but did not buy any policy for covering electronic items. A fire erupted in his building, following which there were frequent electrical fluctuations and due to which his refrigerator broke down after a few days. In such a situation, he was expecting his claim to be paid through the fire insurance policy, however, he was disappointed when it did not happen.

As the fire insurance policy did not include ‘breakdown-related’ perils, the proximate cause was decided as ‘breakdown’ and not the ‘fire’ directly. As Rajiv got selective in coverage, his insurer also got selective in paying claims.

Read more: Which Assets are Not Covered by The Fire Insurance Policies?

Case: 2

Luckily, firemen were able to remove the undamaged stock from a burning building and protecting it from the fire. It was stacked in the open yard and was subsequently damaged by rainwater. Here the proximate cause of the damage was the fire or the rain?

If the rain had damaged the goods before the policyholder had an opportunity to protect it, then here the proximate cause of the damage would be fire, which was covered under the fire insurance policy. However, if stocks were left uncovered for a long period, the rain would be considered as a new and independent cause of damage.

Case: 3

A fire on a distant premise caused a slight explosion at M.J.N Engineering premise, which caused another fire and a terrible explosion of dynamite which damaged a certain portion of goods and machinery. It was held that the proximate clause of the damage was fire. M.J.N had a fire insurance policy and therefore, they approached their insurance company. It was also held that even if a fire insurance policy had usual exemptions from loss or damage from the explosion of some kind, the insurer settled the claim. As, the explosion was an incident occurred due to an insured peril, i.e., fire, the insurance company was liable to compensate for all the losses and damages up to a certain limit.

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