Page 84 - DCOM309_INSURANCE_LAWS_AND_PRACTICES

Unit 5: Principles of Insurance

It would therefore be correct to assess the loss as per the terms and conditions of the individual Notes
policy and pay the claims accordingly. If by following this method the total sum of the liability
of the Insurers is more than the claim amount then the Insurers shall pay in proportion to the
amount of liability of each.

Self Assessment

Fill in the blanks:
9. The common …………………….. allows the insured to recover his full loss within the sum
insured from any of the insurers.
10. There should be an …………………………… between policies.

5.6 Principles of Proximate Cause

You must note that there are three types of perils related to a claim under an Insurance policy:
1. Insured Perils: These are the perils mentioned in the policy as being insured e.g. Fire,
lightening, storm etc. in the case of a fire policy

2. Excepted Perils: These are the perils mentioned in the policy as being excepted perils or
excluded perils e.g. Riot strike, flood etc. which may have been excluded and discount in
premium availed.
3. Uninsured Perils: Those not mentioned in the policy at all either in Insured or excepted
perils e.g. snow, smoke or water as perils may not be mentioned in the policy. Insurers are
liable to pay claims arising out of losses caused by Insured Perils and not those losses
caused by excepted or Uninsured perils.

Example: If stocks are burnt then the cause of loss is fire which is an insured peril under
a fire policy and claim is payable. If the stocks are stolen, the loss would not be payable as
burglary is not an Insured peril covered in fire policy. Burglary policy is needed to take care of
‘theft’.
It is therefore important to identify the cause of loss and to see if it is an Insured peril or not
before admitting a claim.

5.6.1 Need to Identify Proximate Cause

Remember, if the loss is brought about by only one event then there is no problem in settlement
of liability but more often than not the loss is a result of two or more causes acting together or
in tandem i.e. one after another. In such cases it is necessary to choose the most important, most
effective and the most powerful cause which has brought about the loss. This cause is termed the
Proximate Cause and all other causes being considered as “remote”. The proximate cause has to
be an insured peril for the claim to be payable.
The following illustration may help in distinguishing between the proximate cause and the
remote cause:
(i) “A person was injured in an accident and was unable to walk and while lying on the
ground he contracted a cold which developed into pneumonia and died as result of this.
The court ruled that the proximate cause of death was the accident and Pneumonia (which
was not covered) was a remote cause and hence claim was payable under the Personal
Accident Policy.”

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