Knowing the Principles of Proximate Cause

Every risk covered by insurance must have events that cause financial losses for the insured or customers.  Of course, not just any event can be recognized as the cause of loss, but the event must meet certain principles, namely proximate cause.  Proximate cause   serves to find out the earliest major events that cause the occurrence of loss of the object borne.     It is these initial events that are then used to determine whether they include events covered by insurance.

For example, a house is insured for fire risk without any additional guarantees including floods, earthquakes, storms, and hurricanes.  One day the house was in a fire.  When a fire occurs, conditions are in the midst of hurricanes.  Responding to this event, the insurance company will find out the main cause of the fire whether it is due to a hurricane or an electrical short circuit.   If the main cause turns out to be a hurricane then the insurance company can reject the claim filed because the proximate cause does not include the guaranteed risk.

Therefore, it is very important to understand the proximate cause so as not to cause misperceptions between the insured and the insurance company at the time of filing a claim. 

Definition

The International Risk Management Institute (IRMI) defines proximate cause as the nearest cause that is the cause that has the most significant impact in incurring losses based on first-party property insurance policies, when two or more independent hazards (stand-alone) operate at the same time or simultaneously resulting in a loss.

Another term also used to describe proximate cause is causa proxima taken from the legal ruling "causa proxima non remota spectatur".  The meaning is "causa proxima or proximate cause and not causa remota or remote cause that is noticed".

In general, in every event that gives a loss there are a number of remote causes (distant causes) that play an indirect role in generating losses.  However, when the proximate cause of that loss has been determined, then the remote causes of that loss can be ignored.

An example is when a ship runs aground because the lights in a lighthouse are dead/ extinguished.  Proximate causes of loss/damage to the ship is the sudden collapse of the ship (accidental stranding), while the lamp in a state of off/extinguished is a remote cause. This ruling was taken in the case of "lonicles v. Universal Marine Insurance Association (1863)".

 Another example is a ship colliding and being taken to port for repairs.  The ship transported a number of goods in the form of fruits.  To facilitate repairs, the fruits are unloaded ashore and then loaded back onto the ship after completion. Due to delays in the forwarding of these items to their destination as a result of the ship's repair process, the fruits become rotten. The proximate cause of the loss/damage of these fruits is delay, while the collision that causes the delay and the process of unloading and reloading the fruits is remote causes (distant causes) to the loss/damage of the fruits, as the judge ruled in the case "Pink v. Flemming (1890)".

The definition of proximate cause made by the judge in examining the standard legal case with respect to the proximate cause of the case "Pawsey v. Scottish Union and National (1907)" is expected to be a reference in solving proximate cause cases. The definition of proximate cause in question is an active and efficient cause that drives a series of events that give birth to an outcome, without the intervention of a force originating and actively working from a new and independent source."

Based on the definition of proximate cause above, then a cause is qualified to be a proximate cause if it meets two conditions, namely first, the cause is a dominant cause or active and effective cause in generating a loss.  Second, do not disconnect the chain of events between the cause with its own loss.

Some of the terms in proximate cause are concurrent causes and remote causes.  The explanation is as follows:

a. Concurrent Causes

In the context of proximate cause, what is meant by concurrent causes is when there are two or more causes that operate simultaneously, but each cause stands alone (independently) against the object of coverage, and simultaneously also operates continuously until the causes result in loss/damage to the object of coverage.

In determining how far or how much the policy corresponds to the loss, it is necessary to pay more attention to the following:

·         How causes operate simultaneously. For example, the storm (fire) and the storm (storm) or riot (riot)

·         The status of each of these causes. Whether a danger guaranteed by the policy an insured peril or a peril insured against, or a danger excluded by the policy (an excluded peril or an excepted peril) a danger that is not mentioned in the policy at all (an uninsured peril or other peril)

·         It is possible to be able to separate part of the loss caused by each of these causes.

An example is a house that is insured under a normal/general fire policy experiencing loss/damage caused collectively (concurrently) but independently (independently) to each other by fire (an insured peril) and storm (an uninsured peril).  If it is no longer possible to distinguish between the part of loss/damage caused by fire and the part of loss/damage caused by storm, then all losses/damages are guaranteed by the policy because there is no excluded peril involved.  If the distinction or separation can still be/part of the possibility to be done, then only part of the loss/damage is caused by the fire alone guaranteed by the policy.

If the same house suffers losses/damage caused together (concurrently) but independent (independently) to each other by fire (an insured peril) and riot (an excluded peril), and it is still possible to do a separation between the part of the loss/damage caused by each of those causes, then only part of the loss/damage caused by the fire alone is guaranteed by the policy. If such separation is no longer possible, then all losses/damages are not guaranteed by the policy because an excluded peril is involved in the event.

b. Remote Cause

IRMI defines a remote cause as a remote cause i.e. in the case of first-party property, a danger that occurs before the nearest cause.  For example, in the sequence of events this type of situation in which a hazard is followed by (but does not cause) a second unexpected hazard at the time the policy is issued.  In such a situation, the court argues that the second danger is the substitute cause so that it becomes the closest cause of the loss.  Coverage for loss depends on whether the replacement cause is covered.  In such a situation, the initial danger that is not chosen as the nearest cause is referred to as a distant cause.

          As mentioned in the beginning that the rule "causa proxima non remota spectatur" is used in applying the principle or doctrine of proximate cause to insurance policies made in the UK, especially policies stipulating that losses on the object of coverage are guaranteed/covered if the cause of proxima (the proximate cause) of the loss is a danger guaranteed by the policy (a peril insured againts or an insured peril).