A contract of insurance is a contract whereby one party named the ‘insurer’ undertakes to pay a certain sum of money to another party known as the ‘insured’ on the occurrence of uncertain future event.
Thus, the ‘insured’ makes his claim for the loss from his ‘insurer’ when the loss is caused on the occurrence of an uncertain event.
Perils of an insurance policy:
But in every insurance policy, the insured has to show that the loss was caused by the perils for which the insurance was taken, so as to make the insurer liable. Hence, the general rule for a loss to be paid under any insurance policy is that, the loss must have been caused by an ‘insured peril’.
Proximate cause:
The legal definition of ‘Proximate Cause’ is contained within the case Pawsey v Scottish Union & National (1908):
“Proximate cause means the active, efficient motion 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
However, the term ‘proximate cause’ simply means the ‘last cause’. But it should be the most effective, dominant or real cause for the loss. That is to say, the peril insured against must be the direct, dominant, efficient or material cause for the insured’s loss.
Therefore, insurer is not liable for the remote causes and the remote consequences even though they relate to the insured peril. Hence, the term of ‘proximate cause’ need to be strictly considered and followed in order to determine the insurer’s liability for a particular loss.
The proximate cause of a loss is to be decided on the facts of each case using common sense and the burden of proving that the loss was proximately caused by an insured peril usually rest on the insured.
for a instance ,Suppose “B” takes fire insurance policy for his stocks and then it gets burned. Thus, the cause of loss is fire that is covered under a fire insurance policy and B is entitled for the loss. But, if the stocks are stolen by a thief, the loss is not payable under the fire policy as the burglary is not a peril covered by the fire insurance policy.
However, there are three type of perils relavent to Proximate Cause which are as follows,
Insured Perils
perils that are stated in the policy as insured.
Excepted or Excluded Perils
perils stated in the policy as excluded , such as riot or earthquake.
Uninsured or Other Perils
perils not mentioned in the policy at all.
thus, when the loss is caused by one peril, there would not be a difficulty in deciding the liability of the insurer. But in real situations, the loss may be the result of two or more causes and it become more difficult to decide the proximate cause for the loss. Then it is necessary to select the most nearest, the most powerful and the most effective cause for the loss.
For an instance, in a marine insurance policy, the cargo of a shipment of oranges and the peril insured against was collision. During the voyage, the ship collides and results in a delay and as well as mismanagement which made the oranges to rot. But the insurer is not liable for the loss as the loss was proximately caused by delay and the mishandling of the shipment and not by the collision which is the peril insured.
Thus, in deciding whether the loss has arisen through any of the perils which were insured against, the proximate cause is to be looked in to and other causes would be rejected after considering them as remote causes.
however, there are some circumstance where a remote cause can be considered as the aproximate cause of a loss:
In Roth v South Easthope Farmers’ Mutual Insurance Co. (1918) lightning damaged a building and weakened a wall. Shortly afterwards, the weakened wall was blown down by high winds. it was held that the Lightning was considered to be the proximate cause.