Understanding the Principles of Insurance   

Insurance has developed over the centuries and is a highly technical subject. The guiding light of Insurance is its six significant principles. The same principles are also applied to motor insurance.  

In motor insurance, the insurer may be a composite insurer writing classes other than motor insurance or a specialist insurer writing only motor insurance. The insurer will typically take the risk from the insured when writing the contract. The company promises to indemnify the insured in case of financial losses due to an accident or operation of peril. You can select any insurance plan that is tempting to you, like car insurance first month free no deposit, but the most important thing is to know which risks are covered and which are not covered by the policy you buy.

Insurance principles play an essential role in framing the insurance contract and claim settlement. Understanding these principles of Insurance will help understand the entire subject of motor insurance from the proper perspective. It is also helpful for the judiciary to arrive at the judgment relating to the insurance contracts. Justice cannot be done to any topic on insurance without understanding these principles. 

Understanding the Principles of Insurance – Proximate cause

A tricky principle is known as the principle of “Proximate Cause.” The purpose of this principle is to identify the peril (cause of loss), whether it is an insured peril (covered) or an excluded peril (not covered), and sometimes it may be unnamed peril. Even unnamed perils are also not covered under the insurance policy. 

It is usually challenging to pinpoint the cause of loss responsible for the loss or damage if there is more than one cause or overlapping causes. The Proximate cause can be the first cause or last cause, or maybe the dominant cause. Its also defined as the cause that leads to a chain of events leading to loss without the intervention of another event. Suppose landslide risk excluded from the policy, whereas the flooding risk included in the policy. 

If a landslide causes flooding that damages the vehicle, the risk excluded. Even though the flooding is a covered peril, the cause of the flooding is a landslide, and landslides not covered under the policy.

Examples of the proximate cause 

Following the two most quoted examples will clarify the purpose and application of the principle of proximate cause. A man purchases a personal accident policy (which is an accidental death cover): 

• In the first example, he is riding a horse in a cold region, and he falls from the horse. His leg is severely fractured, and being in a remote area, he cannot find any help, and he catches pneumonia and dies due to severe cold. 
• In the second example, the person help, shifted to a hospital, and catches pneumonia during his treatment at the hospital. After a few days, he dies due to pneumonia. 

Here the insurance company has to decide as to which claim is payable. There are two causes of death, accident, and pneumonia in both cases: one is accidental, and the other is due to a disease. The first case treated as accidental, and the claim is payable. Instead, the second case treated as a death due to disease, and the claim is not payable. However, if the coverage is for life insurance and death “due to any cause,” both cases would have been covered by the Insurance Policy. 

Insured and excluded risks

Almost all the insurance policies may have insured risks, and some may have excluded risks. To identify whether a claim is payable or not, we need to know the cause of the loss. Once we know the cause of the loss, we will be able to say whether a particular loss is payable. Proximate cause helps us identify the root cause of loss in case of more than one cause or overlapping causes of loss. The identification helps us determine whether the cause of loss is coming under the insured peril, excluded peril, or unnamed peril.

For example –

ANZ Engineering Corporation has taken a health insurance policy, excluding work-related accidents or diseases. One of their workers, Mr. Y, suffers severe back pain early morning and admitted to the hospital. The doctors, after thorough investigations, conclude that Mr. Y has an acute multiple discs prolapse. 

The insurance company tried to find the cause of his medical condition. They discovered that Mr. Y is working as a loader and unloader at ANZ Engineering Corporation. So, they judged the proximate cause of the disc prolapse is related to his job function. The policy taken by the ANZ Engineering Corporation expressly excludes any loss arising out of work-related diseases or accidents. The insurance company invokes this condition and denies the claim. 

If the injury or disease is related to work, then the claim will be admissible under the workers’ compensation policy; and the same should be lodged under the WC policy.

The same goes for auto insurance and claims evaluation. Always read the fine print, so there are no surprises at the worst of times. It also helps if you choose the right insurance company with a reputation that precedes it, such as Young America Insurance.