Last week a friend called me to say that his laptop had been stolen and though he had insurance for laptop, he did not have theft coverage for his laptop. A few hours later he called back. The laptop had been found by police. But the thief had crashed it. "Thank God" he told me, "I am now going to claim for the repair from the insurer". But he was disappointed when I explained to him that "theft" being the proximate cause of the loss and an excluded peril, the claim would not be paid by the insurance company.
In my friend's case, it was the theft of the laptop and it was the thief who wrecked it. Theft was the 'proximate cause'. My friend did not have coverage for theft, so the insurance company would not honour the claim.
Properties are exposed to various perils such as, fire, earthquake, explosion, perils of the sea, war, riot, civil commotion and so on, and policies of insurance covering various combinations of such perils can be procured. Policies of insurance usually afford protection against some of these perils but, expressly exclude certain perils from the cover, and by implication those excluded perils are not covered. The insurer's liability under the policy arises only if the cause of the loss is a peril insured against but not an expressly excluded or other peril.
Many events and circumstances combine to produce a particular result. So, confusion prevails when there are multiple events that lead to the loss. This is where the doctrine of proximate cause helps. Proximate cause, or the Latin Causa Proxima, relates to the cause of the loss in that the event of the peril insured against must be covered under the insurance contract (policy), and the dominant cause of the event must not be excluded. No insurance claim can succeed unless the loss is proximately caused by a peril insured against.
If the loss is brought about by only one event then there is no problem in settlement of liability. But more often than not the loss is a result of two or more causes acting together or in tandem i.e. one after another. In such cases it is necessary to choose the most important, most effective and the most powerful cause which has brought about the loss. This cause is termed the "proximate cause" and all other causes being considered as "remote".
Proximate cause has been defined as "The active efficient cause that sets in motion a train of events which bring about a result without the intervention of any force started and working actively from a new and independent source".
The perils relevant to an insurance claim can be classified under three headings:
a) Insured perils: Insured perils are specifically mentioned and covered under the policy as the possible cause of the loss or damage to the subject matter of the insurance. For example, a policy can be taken to insure the subject matter from perils, such as fire, lightning, storm and theft.
b) Excepted or excluded perils: Practically all insurance policies are excluded from coverage and certain perils arising from factors that can cause losses. Normally, a separate section of the contract lists and describes all the excluded perils, e.g. riot, strike, earthquake or war.
c) Uninsured or other perils: Those perils are not mentioned in the policy at all. Smoke and water may not be excluded nor mentioned as insured in a fire policy.
PRACTICAL APPLICATION OF THE DOCTRINE: The selection of the proximate cause is not an easy or simple task because loss may be caused by several events acting simultaneously or one after the other. Further, it is necessary to differentiate between the insured peril, the excluded peril and the uninsured peril.
When a single cause gives rise to a claim, the issue is simple. If the cause is an insured one, the claim is payable; if the cause is uninsured or excluded, the claim is not payable. Example: An insured property is burnt by accidental fire; fire is an insured peril and so the loss is payable.
Sometimes, a loss is caused by simultaneous operation of more than one peril (Insured, Uninsured or Excluded) and it may be difficult to dissociate their respective effects. The causes must be independent of each other and each contributes to the loss.
If no excluded peril is involved, provided one of the causes is an insured peril, the others may be uninsured peril, so that the insurers are liable under the terms of the policy. Example: In case of a house being damaged by storm (Excluded peril) and during the storm fire (Insured Peril) started from totally independent cause. If the effects cannot be separated there is no claim.
When an insured peril and an excluded peril operate together to produce the loss, and its effects cannot be separated from the results of the operation of insured perils, there is no liability whatsoever. Example: There is no liability in respect of claims for property robbed by rioters under a burglary policy if the policy excludes riot risk.
If, however, one of the perils is an excluded peril and its effects can be separated from the results of the operation of insured perils, there is liability for the loss caused by the insured peril. Example: Hides might be insured under a marine policy against 'all risks' excluding heating damage. If the hides are damaged by water it is possible that the property will be partly depreciated by moisture in the hold of the vessel and partly through hair on the hides slipping because of heating. If the moisture damage can be isolated and identified then it is recoverable. If, however, this is not possible then there is no liability.
DIRECT CHAIN OF EVENT- UNBROKEN SEQUENCE (SUCCESSIVE CAUSE): Where several events occur in unbroken sequence and no excluded peril is involved, the insurers are liable for all loss resulting from the insured peril. Example: A vessel loaded with hides and tobacco shipped a quantity of sea water which rotted the hides but did not come directly into contact with the tobacco or the packages in which it was contained; the tobacco, however, was spoiled by the reek of the putrid hides. In this case the perils of the sea were the proximate cause of the loss on the tobacco as well as on the hides. Another example: A driver of a truck while parking broke a wall (un-insured peril) of a garment factory. The broken wall fell inside the factory and damaged electrical wiring, the damaged wiring short-circuited and sparked, the sparks caused a fire (insured peril) in the factory. Insurer is liable for loss resulting from the fire only. One more example: Due to short-circuiting and spark, the sparks caused a fire (insured peril) in a textile mills, the fire brigade used water hoses to put out the fire and the water caused damage (uSn-insured peril) to the un-burnt contents. Insurer is liable for all losses (fire, water & etc. damage) resulting from the fire. Â
If, however, an excluded peril precedes the happening of an insured peril, the latter being the reasonable and probable consequence directly and naturally resulting from the excluded peril, there is no claim. Example: An incendiary bomb dropped by an enemy aircraft set fire to a warehouse. The loss was caused by fire, but the proximate cause was enemy action, which is excluded by the policy. The insured was therefore unable to recover the loss.
If an excluded peril follows an insured peril, the insurer is not liable if the loss caused by each is undistinguishable. But if the loss caused is distinguishable, the insurer is liable for the damage caused by the insured peril up to the happening of the excluded peril. Example: Where fire causes an explosion and explosion is an excluded peril, the insurer will be liable for fire damage up to the time of explosion if the fire damage is distinguishable, i.e., the original fire damage is recoverable, but the explosion damage and the subsequent fire damage are not recoverable.
INTERRUPTED CHAIN OF EVENT- BROKEN SEQUENCE: If the chain of events is broken by the intervention of a new and independent cause, liability will depend on whether the new cause is an insured peril or an excluded peril. It means that if the happening of an excluded peril is followed by the occurrence of an insured peril, as a new and independent cause, there is a valid claim for loss caused by the happening of an insured peril. If an insured peril is followed by the happening of an excluded peril, as a new and independent cause, the claim is payable but excluding loss or damage caused by the excluded peril. Example: The insured held a policy covering breakage of plate glass, but the contract excluded damage by fire. A fire occurred in some nearby premises and a crowd gathering, certain persons broke the insured's windows in order to plunder his shop. In this instance, undoubtedly the remote cause of the damage to the windows was the happening of the fire; but another factor intervened. The proximate cause of the damage was the violence of the mob and the insurers were held to be liable under the policy.
There are no hard and fast rules to determine the proximate cause of a loss, since this is a question of fact concerning specific circumstances. The proximate cause should be determined according to common sense principles, as understood by the ordinary man in the street. A learned judge observed, "If you want to find out the proximate cause, do not ask a scientist or a lawyer, ask a man from the street. Probably his answer will be the correct one." This comment helps us to understand the principle of proximate cause easily instead of making it complicated.
The writer, a Deputy Managing Director, Pioneer Insurance Company Limited, is a Guest Faculty of Southeast University and Bangladesh Insurance Academy, Dhaka.
latarik92@yahoo.com
Â