Page 165 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Insurance Laws and Practices

Notes Pre-requisites to the application of the principle of contribution:
The subject matter of all policies must be common.
The peril insured for, must be common to all policies.

The policies must be affected in favour of a common insured.
The policies must be in force at the time of loss.
The policies must be legally enforceable.

9.1.6 Proximate Cause/Causa Proxima

You need to know that it is very important to state the perils against which the insurance cover
is granted. The perils have to be specially mentioned in the insurance policy. When the actual
loss takes place, the insured has to prove that the loss has occurred due to the insured peril and
against not expressly or impliedly excluded peril.

Did u know? If stocks are stolen, the loss will not be indemnified under the fire policy, as
burglary is not the insured peril. If a bomb dropped by an enemy in war burns stocks, then
the loss is caused by war, which is an excluded peril under standard fire policy.
Hence, the insurance company is not liable to pay a loss caused by an uninsured peril or an
excluded peril. In actual situations, a loss may be caused by more than one cause. The difficulty
arises in determining the loss which was the nearest to the loss. The insurance companies
indemnify the proximate cause of loss and not the remote cause.

Example: The following examples distinguish between ‘proximate cause’ and ‘remote
cause’:
A person insured under a personal accident policy went out hunting and met with
an accident. Due to shock and weakness, he was unable to walk; he fell down on the
ground. Whilst lying on the wet ground, he contracted cold, which developed into
pneumonia, which caused his death. The court held that the proximate cause of
death was the original accident and pneumonia (a disease which is not covered
under the policy) only a remote cause. Hence, the claim was paid.

An insured suffered accidental injuries and was taken to hospital. While undergoing
treatment, he contracted an infectious disease, which caused his death. In this case,
the court gave the ruling that the ‘proximate cause’ of death was the disease and the
original accident only a ‘remote cause’. Hence, the claim was not payable under a
personal accident policy.
Self Assessment

Fill in the blanks:
1. The policy issued by the insurer to the insured is the proof of the ………………………………
between them.

2. Care should be taken by both sides that something which is ………………………. cannot
be insured.
3. In marine insurance, the …………………………………………… must exist, at the time of
loss.

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