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Difficulty: MediumBasic Principles of Insurance

A merchant insured his commercial warehouse against fire outbreak. During an electrical storm, lightning directly struck an adjacent tree which fell on the warehouse roof, severing live electrical wires and triggering a fire that consumed the stored goods. In determining whether the insurer is legally liable to compensate the merchant, which principle of insurance is primarily applied to determine the direct and dominant cause of the loss?

  1. Proximate causeAnswer
  2. B
    Indemnity
  3. C
    Subrogation
  4. D
    Contribution

Answer

Proximate cause
Proximate cause (Causa Proxima) is the fundamental principle of insurance used to determine the actual, dominant, and direct cause of a loss. When a chain of events leads to damage, insurers evaluate the proximate cause to establish whether the origin of the loss is an insured peril under the policy contract.

Step-by-Step Solution

1
Analyze the scenario to identify what legal issue is raised regarding the insurance claim.
The insurer must decide if the fire was caused by an insured peril by identifying the direct and efficient cause of the sequence of events.
Insurance policies only cover losses where the proximate cause is an insured risk.
2
Match the requirement of identifying the direct, dominant, and active cause to the corresponding insurance principle.
The principle that evaluates the direct cause of a loss is the principle of Proximate Cause (Causa Proxima).
Proximate cause looks at the effective cause of loss without any break in the chain of causation.

Key Concept

Principle of Proximate Cause
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Topics

Basic Principles of Insurance

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