Principle of Causa Proxima (a latin phrase), or in simple English words, the Principle of Proximate or nearest cause , which means when a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer. Marine Insurance Act 1906 4.1 Insurable interest, assignment and double insurance Candidates should be able to It also applies to all contracts of indemnity. Insurance is a contract based on utmost good faith. It applies to all insurance contracts, which are contracts of indemnity. Retrieved from http://studymoose.com/principles-of-insurance-essay, Copying content is not allowed on this website, Ask a professional writer to help you with your text, Give us your email and we'll send you the essay you need, Please indicate where to send you the sample. The essential conditions to be satisfied for a valid insurable interest are the following: 1. The principle of indemnity shall apply only to general insurance i.e. Hence it is a responsibility of the insured to protect his insured property and avoid further losses. These warranties are called implied warranties. We've changed a part of the website. According to the Principle of Loss Minimization, insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc. In an cylinder blast, his house burnt. The principle states that to find out whether the insurer is liable for the loss or not, the proximate (closest) and not the remote (farest) must be looked into. 4. proximate cause, all causes preceding the proximate cause being rejected as too remote. The most immediate cause of damages.. For example :- Mr. John insures his house for $ 1 million. 1. This must be direct, dominant, operative & efficient. Nature of contract: ADVERTISEMENTS: Nature of contract is a fundamental principle of insurance contract. (2017, Jan 30). Causa Proxima is a Latin phrase, which means proximate cause. Causa proxima, non remota spectator is a Latin phrase. Over-insurance is automatically checked. The real cause of the loss must be considered while payment of the loss. Discuss the core concept of all the principles of Insurance 3. For an act to be deemed to cause a harm, both tests must be met; proximate cause is a legal limitation on cause-in-fact. If the proximate cause is insured, the marine insurance … A merchant has insurable interest in his business of trading. Example 1: A tsunami starts in China Sea causing sky rising waves that reach over some parts of the Philippines towards shores and inland. It is also important for the Bank exam, SSC exam and other Government exams. Principle of Causa Proxima (Nearest Cause). (546), 4.8 The insurance company will indemnify MR X upto Rs . M.J.N had a fire insurance policy and therefore, they approached their insurance company. of absolute good faith where both parties to the contract must disclose all the material facts truly and fully. Principle of Uberrimae fidei (Utmost Good Faith). A loss may not be occasioned merely by one event. But the Insurance Company will not pay for the loss over and above its book value. Here the proximate cause of his death is accident or falling from the horseback, the reason being that injury leading to unconsciousness, exposure to severe cold and then pneumonia are all-natural events developing gradually one after another without really being intervened by a new or independent source (The example is based on a judgment given in ETHERINGTON V. LANCASHIRE AND YORKSHIRE … The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario. This test is called proximate cause. In a legal sense, the term proximate cause refers to a thing that happened to cause something else to occur. Proximate Cause is an important principle of insurance, which helps in deciding how the loss or damage happen and whether it is the result of an insured peril or not. According to this principle, the insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith or belief or trust. Both the insurer and the insured, of course, stand on the same footing in relation to the disclosure of material facts. Causa Proxima It is a rule of law that in actions on fire policies, full regard must be had to the causa proxima. Thus, insurance is only for giving protection against losses and not for making profit. Understand what is insurance, its types and benefits and 7 most important principles of insurance. 3. For example, California Insurance … Additional materials, such as the best quotations, synonyms and word definitions to make your writing easier are In this blog post, we have compiled Insurance Notes & MCQs on classification & Principles of Insurance.Go through these and acquaint yourself with the basic insurance terminologies. In principles of insurance, a principle of Principle of causa proxima is the fundamental principle. 4. This general rule does not apply to the contract of insurance. The rule is "causa proxima non remota spectatur" i.e., the proximate or immediate and not the remote cause is to looked to. Principles of Insurance. Premium once paid shall not be refunded. What is a material fact, however, will depend upon the circumstances of each case and has to be decided as such. Facts, which are embodied in the policy itself or facts governed by the conditions of the policy. Insurance Definition: Insurance refers to a contractual arrangement in which one party, i.e. For example an insured suffered injuries in an accident. The court held that the proximate cause of death was the disease and the original accident was merely a remote cause. John’s actual property destroyed is worth $ 60,000, then Mr. John can claim the full loss of $ 60,000 either from AIG Ltd. or MetLife Ltd., or he can claim $ 36,000 from AIG Ltd. and $ 24,000 from Metlife Ltd. the loss caused by the happening of the insured risk must be capable of financial valuation. There are basically two types of insurance. Causa proxima non remota spectatur (The proximate and not the remote cause must be looked into) is a maxim of causation long applied in marine insurance and general insurance alike. When a policy is assigned in favour of someone, the assignee becomes entitled to receive the amount of the policy and the policyholder shall be debarred from claiming the right. The proximate cause was held to be the theft itself (an insured peril) and not the air-raid (an excluded peril). This is usually brought up when something has gone wrong, such as an automobile accident in which someone was injured, and refers to the non-injured party’s legal responsibility for the event. If there are concurrent causes or chain of causes, it is necessary to look into the nearest cause and not to the remote cause. According to Iowa State University, in a non-insurance lawsuit, the court considers the proximate cause to be the reason for the loss. The California Insurance Code contains no such provisions at this time. Actual worth here means the actual book value of the property damaged. 7. Your Answer is very helpful for Us Thank you a lot! A person has an insurable interest when the physical existence of the insured object gives him some gain but its non-existence will give him a loss. This principle applies when the loss is the result of two or more causes. For Example: a fire might cause a The disclosure should also be true and full in form. If the insurer gets some amount from a third party after being fully indemnified by the insurer, the insurer shall have the right to receive the entire amount paid by the third party. 2. The students should note the following points in regard to subrogation. Indemnification cannot be more than the amount insured. 4) Principle of Contribution. For example, the insured must be put to a loss if the goods are lost in transit or destroyed by fire etc. Principle of Uberrimae fidei (Utmost Good Faith) Principle of Uberrimae fidei (a Latin phrase), or in simple english words, the Principle of Utmost Good Faith, is a very basic and first primary principle of insurance. Here there are two causes for the damage of the cargo ship – (i) The cargo ship getting punctured beacuse of rats, and (ii) The sea water entering ship through puncture. Principle of Causa Proxima (a Latin phrase), or in simple english words, the Principle of Proximate (i.e Nearest) Cause, means when a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer. 7. An insured sustained an injury in a motor accident and was admitted in a hospital. (Here readers should note that when the property is unfetter insured, the insurance company would pay only the insured amount even though the loss is more than it). For example - Raj has a property worth Rs.5,00,000. They are as follows: In a contract of insurance, it is necessary that the insured must have an insurable interest in the subject matter of the insurance. While taking treatment in the hospital, he contracted an infectious disease which caused his death. Insurance Glossary Defines: Proximate Cause — (1) The cause having the most significant impact in bringing about the loss under a first-party property insurance policy, when two or more independent perils operate at the same time (i.e., concurrently) to produce a loss. A material fact is one, which affects the judgement or decision of both parties in entering into the contract. According to Iowa State University, in a non-insurance lawsuit, the court considers the proximate cause to be the reason for the loss. The principle of insurable interest states that the person getting insured must have insurable interest in the object of insurance. From the above discussion, it is quite evident that the insured is allowed to recover the loss from the insurer only when: 1. the loss has been caused … The company is entitled to the benefit out of such right only to the extent of the amount it has paid to the insured as compensation. The burden, however, falls more on the insured than the insurer because he is in possession of the subject matter to be insured. Get a verified writer to help you with Principles of Insurance. Proximate cause is a key principle of Insurance and is concerned with how the loss or damage actually occurred. For example, where a building worth 5,00,000 USD is insured for 8,00,000 USD and is completely destroyed by fire, the insurer is liable to pay only 5,00,000 USD. Insurance Definition: Insurance refers to a contractual arrangement in which one party, i.e. This principle consists of, to find one or more reasons for the cause, and the nearest cause should be taken into account to decide the liability of the insurer. For example :- The owner of a taxicab has insurable interest in the taxicab because he is getting income from it. They are: Conditions for Applying the Principle of Indemnity, Essentials of the Doctrine of Subrogation, Insurance | Origin & History | Meaning & Definition | Characteristics, Reinsurance & Double Insurance | Meaning | Differences, Challenges Encountered in Indian Rural Insurance Market | Collaborative Actions, 12 Differences between Insurance and Wagering Contract, Meaning & Essential Features of Economic Planning, Audit of Shares – Issued for Cash | Issued for Consideration other than Cash, Single Storey Industrial Building | Merits, Demerits, Suitability, Production Planning | Characteristics | Importance | Phases | Pre-Requisites, Localization of Industries | Meaning | Causes | Advantages | Disadvantages, Special Privileges of Private Company over Public Company in India. 1. If the policy is surrendered, only a lesser amount known as surrender value shall be paid to the policyholder. Husband and wife have insurable interest in each other’s life. Suppose the loss in the case is to the tune of 80,000, then the insured could have been compensated only upto Rs. The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance. It is the law which gives emphasis to the immediate cause and not the remote occurrence of events. Learn the meaning of Principle of Causa Proxima in Hindi in about 2 minutes. (309). Suppose the loss in the case is to the tune of 80,000, then the insured could have been compensated only upto Rs. However, in case of life insurance, the policy amount will be paid to the policyholder in the event of expiry of the term assured. It was also held that even if a fire insurance policy had usual exemptions from loss or damage from the explosion of … Just give us some more time, By clicking Send Me The Sample you agree on the, Malaysian Financial Reporting Standard 116, Financial Planning (Insurance) Case Study, Ask Writer For If the insured received any money or compensation for the loss from any other third party after he has been indemnified by the Insurance Company, the insured should hand over the amount so received from such third party to the Insurance Company. 4. also offered here. The balance amount, if any will be given to Mr. John, the insured. The ship was insured under a policy that covered perils of the seas, however excluded war risks. He took insurance from Company A worth Rs.3,00,000 and from Company B - Rs.1,00,000. The maxim is “ Sed causa proxima non-remota spectature ” i.e. The causa Proxima principle. Almost immediately there was a cyclonic storm and the ship sank. 2 The amount of compensation will be the actual loss or the amount insured whichever is less. Hence, over insurance is avoided. Principle of Uberrimae fidei (a Latin phrase), or in simple english words, the Principle of Utmost Good Faith, is a very basic and first primary principle of insurance. 80,000. The relationship between the policyholder and the subject matter should be recognized by law. The consideration for the contract is the premium paid by the insured. Pursuant to this principle, the cause nearest in the order of causation, without any efficient concurring cause to produce the result, must be considered as the direct cause. This section provides a definition of proximate cause and explains how it should be determined in practice. This is the main idea of this principle. No specific code section provides for situations in which concurrent or joint causes of damage are present. Assignment means the transfer of the right to claim the money from the insurance company. There must be a physical object or subject matter to be insured. If the cause is not fire but some other cause remotely connected with fire, it is not recoverable, unless specifically provided for. • If the proximate cause is the one which is insured against, the insurance company is bound to pay the compensation and vice versa. PROXIMATE CAUSE(CAUSA PROXIMA):-According to this principle,when the loss is the result of two or more causes,the proximate cause of loss should be taken into consideration.The insurance company is not liable for the remote cause.e.g. The principle of subrogation shall not apply to personal insurance such as life, accidents, sickness etc. LIKE, SHARE & SUBSCRIBE Do check out other videos on this channel. According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. The following facts, however, need not be disclosed, though they materially affect the insurance contract. Such warranties are called express warranties. Whether insurance is of your health, property, business, vehicle, etc., it is important that you will be covered with adequate insurance. It is a rule of law that in actions on fire policies, full regard must be had to the causa proxima. If the risk does not occur the insurer need not pay anything to the insured. Causa proxima. Seven Principles of Insurance With Examples. Proximate Cause Example on the Long Island Railroad. The question, which is the causa proxima of a loss, can only arise where there are a succession of causes. The maxim Causa Proxima, Non Remota Spectatur is used to describe the proximate, not … In other words, the insurance company will pay compensation to the insured only when the cause of accident is directly related to the loss. The real cause of the loss must be considered while payment of the loss. Present code sections provide for either excluded risks or covered risks. The question of nomination has particular importance only in case of life policies. In other words, the question of returning the premium shall not arise in all types of insurance including life insurance. If the proximate cause of the loss is fire, the loss is recoverable. According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer. The maxim is “Sed causa proxima non-remota spectature” i.e. Enumerate the various Insurance principles. A partner has an insurable interest on the life of the other fellow partners. (It is the proximate cause, not the remote cause that should be looked into is still the guiding principle. Proximate cause is a key principle of insurance and is concerned with how the loss or damage actually occurred and whether it is indeed as a result of an insured peril. The insurance company should pay the actual amount of the policy in the event of death of the policyholder or expiry of the policy. No insurance claim can succeed unless the loss is proximately caused by a peril insured against. If one insurer pays full compensation then that insurer can claim proportionate claim from the other insurers. Fact, which could be inferred from the information disclosed. Norwich Union Fire Insurance Society Ltd (1918) ). The term nearest cause here means the cause actually responsible for the loss. PROXIMATE CAUSE(CAUSA PROXIMA):-According to this principle,when the loss is the result of two or more causes,the proximate cause of loss should be taken into consideration.The insurance company is not liable for the remote cause.e.g. Life Insurance. For example, if a trespasser opens a gate on another person's property, and a stray dog walks through the open gate and kills the property owner's dog, the trespasser is responsible for the dog's death, even though the trespasser did not kill the dog himself. 3.19 Restrictions on the transaction of insurance Candidates should be able to – explain the restrictions on transacting international marine insurance business and the freedom of insurance. The subject matter should be subjected to risk. For example :- Assume, Mr. John’s house is set on fire due to an electric short-circuit. The following conditions must be fulfilled while applying the principle of indemnity: 1. 4.9 The insured must stand in such relation to the subject matter insured that he will be benefited, by its safety and will suffer by its destruction. General Insurance. An insurance contract […] The insured alone is in possession of the facts and it is his duty to make a frank and full disclosure of such facts. If the real cause of loss is not insured, the insurance company is not liable to indemnify the loss sustained by the insured. He must not remain inactive and watch his house burning hoping, “Why should I worry? Similarly, in case of life insurance the individual has unlimited financial interest in his own life. Don't be confused, we're about to change the rest of it. insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. He dies due to this infectious decease. An example of proximate cause being confirmed in a factual causation case can be found in Palsgraf v. Long Island Railroad. Both the parties must disclose all material facts relating to the subject matter of insurance. The determination of the real cause depends upon the working and practice of insurance and circumstances to losses. At the time of loss, the buyer of marine insurance has to look at the nearest or proximate cause. The amount of compensations is limited to the amount assured or the actual losses, whichever is less. EXAMPLE OF CAUSA PROXIMA • In Etherington & The Lancashire & Yorkshire Accident Insurance Co. 1909 – an Insured held a Policy covering accident but not sickness. 2. The insured must not neglect and behave irresponsibly during such events just because the property is insured. Regulated by Law. Causa Proxima is a Latin phrase, which means proximate cause. Thus, the doctrine of subrogation means effect in the substitution of the insurer in the place of the insured, as the rightful claimant of the rights, possession etc. There are certain conditions and promises in the insurance contract. The doctrine of subrogation is corollary to the principle of indemnity. This is a principle of insurance laying that the insurer is liable only for those losses which have been proximately caused by the peril insured against. In simple words, the insured person must suffer some financial loss by the damage of the insured object. insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. Prepare a chart showing various Principles being followed in ... For example, in vehicle insurance, the Insurance Company pays the cost of repairing the The Insurance Company has to exercise such rights only in the name of the insured. In insurance, “Causa Proxima” means a. Utmost good faith b. The insurer can benefit out of subrogation rights only to the extent of the amount he has paid to the insured as compensation. However, in case of life insurance, the principle of Causa Proxima does not apply. But this right is limited to the extent of the payment made by the insurer. Insurance is defined as the equitable transfer of risk of loss from one entity to another, in exchange for a premium. 1) UTMOST GOOD FAITH: Contract of Insurance, is a contract of "uberrima fides" (utmost good faith) and strictest proof of good faith is required in courts of law. 8.1 Proximate Cause Definition The person to be insured knows everything, and the underwriter (insurer) Proximate cause, or the Latin Causa Proxima, relates to the cause of the loss in that the event of the peril insured against must be covered under the insurance contract (policy), and the dominant cause of the event must not be excluded. Proximate cause is a key principle of Insurance and is concerned with how the loss or damage actually occurred. It is important to know that here in the Philippines; they follow the theory of the Causa Proxima. According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. Besides, the contract of insurance has certain special principles. This is a maxim of causation that is applied both in marine and general insurance. The compensation must not be less or more than the actual damage. Insurance. Understanding Insurance Principles: Loss Minimization And Causa Proxima (Part 3) Leave a comment In the advent of any occurrence of uncertain event, it is the utmost duty of the insured to make sure that if controlled, minimality of loss on the … 3. Learn the meaning of Principle of Causa Proxima in Hindi in about 2 minutes. If insurance company wins the case and collects $ 1.2 million from Mr. Tom, then the insurance company will retain $ 1 million (which it has already paid to Mr. John) plus other expenses such as court fees. Causa Proxima 1. Insurance contract is not made for making profit else its sole purpose is to give compensation in case of any damage or loss. The policyholder must have monetary relationship with the subject matter. The house is totally destroyed by the negligence of his neighbour Mr.Tom. 80,000. 14. The doctrine of proximate cause, which is common to all branches of insurance, must be applied with good sense so as to give effect to and not to defeat the intention. A principle of Causa Proxima. Compensation is not paid if the specified loss does not happen due to a particular reason during a specific time period. In other words, the relationship should be legal and not illegal. Principle of Causa Proxima (Nearest Cause) This is a very important principle of insurance which an insured person should be aware about. Contribution c. Prevent the causes of loss d. Closely connected perils Every person has an insurable interest in his own life. However, in case of life insurance, the principle of Causa Proxima does not apply. 2. On breach of warranty the insurer becomes free from his liability. The insurer’s liability gets void (i.e legally revoked or cancelled) if any facts, about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured. The cause for the accident should be a direct cause for which an insurance is taken and it should not be a remote cause. From above example, we can conclude that, ownership plays a very crucial role in evaluating insurable interest. (6) Causa Proxima (Proximity Rule). Types of Insurance Correspondence … Therefore, the insurance contract must contain all the essential elements of a contract under the law of contract. Insurance is basically a contract, between the insurer and insured. This principle is applicable only when the damaged property has any value after the event causing the damage. If the proximate cause of the loss is fire, the loss is recoverable. A ship was severely torpedoed and was in the process of sinking. In this tragic scenario, Mr. John must try his level best to stop fire by all possible means, like first calling nearest fire department office, asking neighbours for emergency fire extinguishers, etc. Dec 07, 2020 - Relevance of Proximate Cause - Insurance Contract - Principles of Insurance, B com B Com Notes | EduRev is made by best teachers of B Com. Principle of Causa Proxima (Latin phrase) or in simple English words, the Principle of Proximate Cause (nearest) means when a loss is caused by more than one causes, the proximate or the nearest or the closest cause should be taken into consideration to decide the liability of the insurer. The insurance is based upon certain principles like insurable interest, utmost good faith, indemnity, subrogation, causa-proxima, contribution, etc. In the event of death of the policyholder, the nominee shall become entitled to receive payment from the insurance company. ADVERTISEMENTS: The important principle of insurance are as follows: The main motive of insurance is cooperation. For example, if a trespasser opens a gate on another person's property, and a stray dog walks through the open gate and kills the property owner's dog, the trespasser is responsible for the dog's death, even though the trespasser did not kill the dog himself. Example of Principle of proximate cause. However, in case of life insurance, the principle of indemnity does not apply because the value of human life cannot be measured in terms of money. Secondly, if one insurance company pays the full compensation then it can recover the proportionate contribution from the other insurance company. If the insured gets more amounts than the actual loss, the insurance company has right to get back the extra amount paid. The question, which is the causa proxima of a loss, can only arise where there are a succession of causes. It means that the buyer before contracting to purchase anything must satisfy himself as to the nature and quality of the goods he is purchasing. The rule is that immediate and not the remote cause is to be regarded. At the same time, it can file a law suit against Mr.Tom for $ 1.2 million, the market value of the house. According to this doctrine, after the insured is compensated for the loss caused by the damage to the property insured by him, the right of ownership over such damaged property shall pass on to the insurer. Principle of Causa Proxima: Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. 1 lac. Insurance companies are regulated by statutory laws in almost all the countries. For instance, in case of life insurance, the material facts or factors affecting the risk will be age, residence, occupation, health, income etc. Marine and life insurance policies can be assigned to someone without the prior consent of the insurance company. If the loss is caused by more than one reasons, the nearest or the closest cause is taken into consideration. In principles of insurance, a principle of Principle of causa proxima is the fundamental principle. In case of loss, the insurer is liable to pay the actual amount of loss, subject to the maximum amount for which the policy is taken. The insurance company will find the nearest cause of loss to the property.