When a claim occurs under a general insurance policy the insurers will identity the proximate cause of the loss to ensure that the loss or damage has been caused by an insured peril but what is proximate cause and how does this affect the settlement of claims.
Identifying the cause of loss in general insurance claims.
As insurance policies are contracts that provide for the policyholder to be indemnified in the even of loss as a result of an insured event it is a fundamental consideration of claims handling that the cause of the loss be identified in order to establish whether the insurance company is liable under the terms of the policy.
For most claims the cause of the loss in easily established and determining whether this is an insured event under the policy is fairly straightforward. In some cases though, where exclusions may apply to the claim or there is more than one cause and perhaps one or more of these is not an insured event, the proximate cause of the loss needs to be identified. The proximate cause is essentially that initial event that triggered the claim and need not be the event that immediately preceded the loss. The definition from Pawsey v Scottish Union & National Insurance Company (1908) provides a clear understanding of this principal and in following this principal it is possible to see how a loss might appear to have been caused by an uninsured event but in fact the original causation was an insured event. Conversely a loss may occur that the proximate cause was an uninsured event either by exclusion or by a breach of policy warranty or condition.
Even when the claim results from a number of insured events and there is no question over whether the policyholder should be indemnified the correct identification of the proximate cause of a loss can also be important where different policies are in force, perhaps with different insurers or with different policy excesses to ensure that the claim is met under the correct policy and on the correct basis.
What is the definition of proximate cause?
There are a number of definitions but the one that is best known and often cited appears in the case Pawsey v Scottish Union & National Insurance Company (1908) as:
the active and efficient cause 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