Proximate Cause Determined in a Fire Insurance Policy

Real estate properties are exposed to several perils, such as earthquakes, explosions, fires, riots, wars, bushfires, etc. These perils often cause significant damage to our assets and properties. To navigate the losses incurred due to such perils and protect our properties, we opt for insurance policies.

One such insurance policy is a fire insurance policy. However, these policies do not cover every damage caused by all of the perils that may exist. They have principles and rules which enable the insurer to promote fairness and allow policyholders to recover from the losses.

One of these principles in fire insurance is the principle of proximate cause. This principle is one of the two most fundamental principles of fire insurance. It determines the proximal cause of loss or damage that is covered within the policy. It helps identify the primary cause of the incident and further helps decide whether it falls within the policy’s scope.

There could be more than one peril present in a certain incident, which can operate simultaneously or one after the other. In such cases, it is important to determine the dominant or the most proximal cause to avoid complications. Here, the proximate cause in insurance comes into play to help the insurer determine whether the loss is payable or not.

Proximate cause directly impacts the insurance claims. If the cause falls under the insured perils, only then the policyholder can receive compensation. Here are some of the impacts of proximate cause on insurance claims:

Determining Coverage: As mentioned, it directly impacts the payability of the insurance claims based on the peril being insured or excluded. If it falls under the covered perils, the claim remains valid and the policyholder will receive their compensation.

Concurrent Causes: In certain circumstances where there is more than one cause to an event, the proximate cause principle helps the insurer determine the dominant cause and thereafter determine its coverage.

Analysis of Chain of Events: When more than one peril operates simultaneously, resulting in a chain of events, it helps determine a timeline and identify if any intervening events modified the outcome.

Exclusion Analysis: Proximate cause helps the insurer in the evaluation of policy exclusions. In a case where the incident falls under covered peril, the claim can be denied if any exclusion is a dominant cause.

Let us understand the concept better with an example. Consider a hypothetical situation where the outcome was a house fire. Even if the fire was an insured incident, its proximate cause will determine its validity.

Here, if the house fire was caused due to a fault in electrical wiring, the claim will be valid only if the peril explicitly falls under the category of insured peril. However, if the particular policy excludes faulty electrical wiring, the claim will be denied.

But, if the house fire had been the outcome of lightning or a bushfire, the claim would have been valid. The insurer would settle the claim as it falls under the category of insured peril.

• The fire insurance policyholders are responsible for determining the proximate cause to decide whether the claim is valid.

• As per the Proximate Cause Principle, a series of events must take place which resulted in the occurrence of fire. The proximate cause must actively work without any interference or force on a fresh and independent source.

• It is the policyholder’s responsibility to display that the proximate cause that resulted in the fire was an insured peril. In case the insurer decides to reject the claim, it becomes their responsibility to prove that the cause falls under the category of exclusions.

In conclusion, the proximate cause is one of the most important principles of marine insurance in determining whether the claim is payable or not. Thus, it is crucial to determine the proximate cause for both the insurer and the beneficiary.

A proximate cause will actively play a role in the outcome without any force or interference. In case of concurrent events, where two or more perils result in fire and damage, insurers carry out investigations to determine the proximate cause.

In this article, we went through the key considerations of proximate cause and understood various scenarios where the proximate cause can determine the claim’s validity.

To avoid going through the pain of losing your valuable assets in such a tragic incident, protect them with a well-designed fire insurance policy. One can purchase a two-in-one policy where they can protect their assets from fire as well as burglary. Opting for SME insurance from Tata AIG can help increase safety with its broad coverage and efficient claims.

Do fire insurance policies offer protection against wildfires?

Yes, fire insurance includes wildfires as insured perils and offers coverage for damage caused by such events.

Are fire insurance policies customisable?

Yes, these plans are customisable and policyholders can opt for the best suitable option to avail maximum coverage.