Proximate Cause in an Insurance Context
Proximate Cause is an important insurance principle which may be the deciding factor whether a loss is covered or not, and hence determining whether the person holding the insurance policy (the insured) would be successful in his claim. For example, under a standard Fire Insurance policy, where the insured perils are fire and lightning, damage must be directly or indirectly attributable to these causes for cover to apply. Proximate cause was defined in the case of Pawsey vs Scottish Union and National of 1907 as an:
“active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of forces started and working actively from a new and independent source”
Case laws relating to property and proximate cause are several due to the subjectivity involved in establishing the proximate cause according to common-sense principles, which may not always be ‘common’. Cases can get very complicated where you have more than one event that led to the occurrence of the loss for the insured, and this creates big problems when trying to establish the train of events, before finally deciding if the policy caters for such peril or it is specifically excluded. In the case of Johnston vs West of Scotland Insurance of 1828, water from hoses used to extinguish the flames in the property led to more damage being caused to the property. The proximate cause was established by the courts as fire rather than water, as there would have been no firemen and water had there been no fire.
In the case of Everett vs London Assurance Company of 1865, a building caught fire, exploded and damaged a third-party property half a mile away from the building. The proximate cause of the damage to the third-party property was found to be the explosion rather than the fire in the building, as there was a break in the chain of events, as not all building on fire actually explode and cause third-party damage.
In policy wording, terms such as “directly or indirectly caused by, resulting from or in connection with...” or “unless damage by a cause not excluded in the policy ensues and then the Company shall be liable only for such ensuing damage” in the policy exclusions are all a reflection of the application of proximate cause in determining whether insurers are willing to pay for a loss or whether it is excluded by the policy.