Reasons Why The Principle Of Proximate Cause Is The Most Effective
The principle of proximate cause is also another major principle one should take note of when signing an insurance contract.
Now by definition, the principle of proximate cause stipulates that it’s not the latest, but the direct, dominate, operative and efficient cause that must be regarded as proximate.
Now when an insurance policy is bought, it is issued with respect to some peril or misfortune, which may result in loss to the policy holder. No policy covers all types of risk, the insurance company is only liable to indemnify only against the insured perils.
Read more: The Principle of insurable interest
If a person insures his house against fire and unfortunately the house was being damaged by earthquake, using the principle of proximate cause, the insured would not be indemnified.
The terminology “Proximate cause” literally means the nearest cause or direct cause, in an insurance parlance, it relates to the immediate cause of the mishaps, which results in the loss.
Now in general insurance, there are numerous policies on vehicle insurance, property insurance, fire insurance, and many more, but on each policy offers protection from the risks they are mentioned in the policy.
Now if a person has bought fire insurance for his home, the protection will be from the loss caused by fire which may have resulted form the sources mentioned in the policy. In the case where the fire was caused by any other sources that was not mentioned in the policy, then the insured is not liable to be compensated by the insurer.
Also Read: The Principle of Causa Proxima
Just like I mentioned earlier, if a person is insured to be protected against fire occurring due to electrical short circuit and then the fire occurs due to gas leaks in kitchen then the insurance company will not be liable to pay for the losses. In this scenario, only if the loss was caused by short circuit would the loss be recovered.
In other not to be affected by this, all the details that’s related to proximate cause have to be clearly stated and mentioned at the time of entering into the contract, sometimes the causes that are not covered by the policy have to be expressly mentioned and though it’s impossible to mention the whole range of causes that are to be avoided, they are usually assured by implications.
Also the replenishment of compensation proceeds would also strictly depend upon the cases agreed upon.
Factors that can determine the Proximate Cause
Now in a situation when the mishap occurs as a single event, the determination of proximate cause is simple and that particular event can be attributed for the loss. Now in cases where the loss occurs as a chain of event in succession with one event setting off the other, in this case it may be different to determine the exact cause of the damage.
In the case of such an eventuality, the parties have to carefully examine and find out the correct reason for the loss, the extent to which the loss has been caused by the proximate cause and the amount or compensation to be paid based on it.
In some cases, it may happen that the actual peril, which has caused the loss in turn, is caused by another peril.
One thing to note is that while determining “proximate cause” the sequence of events according to their time of occurrence is irrelevant, because the deciding factor is always the correct cause of the loss.
However, many court judgement have often act as precedents in arriving at decisions while making settlements and they have been set our below.
- The insurer is liable indemnify when the peril is a single event and it is insured
- The insurer can also indemnify when the insured peril (the event for which the policy has been taken for protection) occurs first and it’s followed by an excluded peril and the excluded peril here me and the event which has not been covered by the policy) in the case the insurer has to pay for the loss caused by the insured peril.
- The insurer is also liable where both the perils are occurring concurrently and both events are independent of each other.
- Now the insurer is not liable in cases where the excluded peril is the cause of the insured peril and they act consecutively.
- The insurer is not liable where the insured peril is followed by the excepted peril and both cannot be distinguished from each other
- Where both perils are occurring concurrently.
A very good example is of this principle would be the case of Tootal Broadhost Lee and co VS London & Lancashire fire Insurance, in this case, the fire was caused by an earthquake. and in the policy earthquake was not part or covered risk and so the insurer was not liable as the loss was proximate to an expected peril.
But in the case where fire caused an exception (an expected peril) the insurer will be liable for fire damage up to the time of explosion.
Another example was in the case of Marsden vs City and Country Assurance Co. Marsden has insured his plate glass from any risk except fire. Eventually a fire occurred in the neighbouring premise and in the commotion that followed some miscreants broke into the premise by smashing the insured plate glass to commit theft.
As per the verdict, the proximate cause of the loss was mob ambush and not fire, hence the insurer was liable for the loss.
The Principle of Contribution
This principle is also another vial principle one must endeavour to know when about to sign an insurance contract. This is by far the less complex of all the principles I’ve mentioned earlier.
The principle of contribution can be defined as the right of an insurer to call upon others similarly, but not necessarily equally liable to the same insured to share the cost of an indemnity payment.
This principle of contribution operates also as a corollary of the doctrines of indemnity and hence is applicable in case of general insurance. Now with the doctrine of contribution, the indemnity provided for the loss occurring on the assets, which is insured with several insurer s has to be shared among them according to rateable portions of the loss.
Now the amount of total compensation or indemnity provided to the insured by all the insurer should not exceed the amount of loss. Sometimes when the value of the assets is very high , the amount of risk involved is higher and that particular assets if insured by the company forms a significant portion of the company total risk.
This would in turn increase the business (operations) risk of the insurance company, Usually insurance companies try to concentrate on a higher number of policies of lower value for diversification benefits.
Diversification serves to reduce the overall risk level of an insurance company, rather than avoiding business arising from high value assets, insurer follows the practice of underwriting high value assets partially.
When this happens a single insurer takes up a part of the total value of the assets and the assets is insured by a group or two or more insurance companies. This practice has further implications particularly in case of settlement of claims relating to such contracts, the question of how much of the compensation is to be borne by each insurer has to be addressed. It Is here that the principle of contribution is applied to resolve such complications.
The insured would be given the choice either to recover from any insurer on priority basis, after recovering the share of loss from the first insurer, the insured cab approach other insurers as per the doctrine of contribution.
Now in the case where one insurer indemnifies the insured in full, the concerned insurance company can claim the share of compensation from other insurance companies.
Some of the Requisite To Invoke the Principle of Contribution
- The Insured assets/premium (in case if hospitalization insurance) must be common to all the policies
- The risk insured against must be common to all the policies
- The insured owner of the assets must be the same person
- All the policies must be in force during the occurrence of loss
- Where there are two insurers covering the assets equally. In case of loss each has to contribute half of the compensation.
