This maxim of causation is applicable for both marine and general insurance. 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. The cause for the accident should be a direct cause for which an insurance is taken and it should not be a remote cause. 3. In principles of insurance, a principle of Principle of causa proxima is the fundamental principle. 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. 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 … of absolute good faith where both parties to the contract must disclose all the material facts truly and fully. Don’t waste Your Time Searching For a Sample, Get Your Job Done By a Professional Skilled Writer. Proximate cause is a key principle of Insurance and is concerned with how the loss or damage actually occurred. insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. I’ve insured my house.”, 7. (It is the proximate cause, not the remote cause that should be looked into is still the guiding principle. He was thrown from his horse while hunting and died after developing pneumonia … For example an insured suffered injuries in an accident. Students looking for free, top-notch essay and term paper samples on various topics. It is a contract of Uberrima fidle i.e. It is important to know that here in the Philippines; they follow the theory of the Causa Proxima. If the insured gets more amounts than the actual loss, the insurance company has right to get back the extra amount paid. In the case of Winicofsky v. Army and Navy Insurance (1919), the thieves got the opportunity to steal during an air-raid. However, in case of life insurance, the principle of Causa Proxima does not apply. At the same time, it can file a law suit against Mr.Tom for $ 1.2 million, the market value of the house. A material fact is one, which affects the judgement or decision of both parties in entering into the contract. Husband and wife have insurable interest in each other’s life. In a legal sense, the term proximate cause refers to a thing that happened to cause something else to occur. The most immediate cause of damages.. say Rs.50,000 or more. EXAMPLE OF PRINCIPLE OF INEMINTY MR. X gets a fire insurance of 1 lac for the goods lying in the factory premises He suffers a loss of rs.1,50,000 . 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. 4. By this rule, the remote cause, which was formerly favored by the courts, is condemned. 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. 8. From this it is clear that no profit can be made out of the insurance contract. Marine Insurance Act 1906 4.1 Insurable interest, assignment and double insurance Candidates should be able to 4. He dies due to this infectious decease. The traditional view in insurance law is set out as follows in Incorporated General Insurance Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) at 862C-D … (W)hen there are two or more possible causes … the proximate or actual or effective cause (it matters not which term is used) must be ascertained, and that is a factual issue … Similarly, a creditor has insurable interest in his debtor. Understand what is insurance, its types and benefits and 7 most important principles of insurance. Insurance is a contract based on utmost good faith. Causa Proxima. Example 1: A tsunami starts in China Sea causing sky rising waves that reach over some parts of the Philippines towards shores and inland. The insurance company will find the nearest cause of loss to the property. 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. The real cause of the loss must be considered while payment of the loss. This must be direct, dominant, operative & efficient. If the loss is caused by more than one reasons, the nearest or the closest cause is taken into consideration. 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. In other words, the question of returning the premium shall not arise in all types of insurance including life insurance. As such, the claim is not payable under personal accident insurance. In the above example, we have stated that if the book value of the damaged property is Rs.40,000 the insured will be compensated for that exact amount only. Marine and life insurance policies can be assigned to someone without the prior consent of the insurance company. 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. 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. LIC Assistant Mains Exam 2019 is scheduled on 22nd of December 2019 and it is high time that you start revising your insurance notes for the section of General/Financial Awareness. There are certain conditions and promises in the insurance contract. 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. Almost immediately there was a cyclonic storm and the ship sank. Example: A trawler vessel was insured against losses resulting from collision. insurance company or the insurer, agrees to compensate the loss or damage sustained to another party, i.e. When a result has been brought about by two or more causes, you must, in insurance law, look to the nearest cause, although the result would, no doubt, not have happened without the remote cause. On breach of warranty the insurer becomes free from his liability. The causa Proxima principle. The ship was insured under a policy that covered perils of the seas, however excluded war risks. The insurance company should pay the actual amount of the policy in the event of death of the policyholder or expiry of the policy. A loss may not be occasioned merely by one event. The balance amount, if any will be given to Mr. John, the insured. 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. But this right is limited to the extent of the payment made by the insurer. Types of Insurance Correspondence … The court held that the proximate cause of death was the disease and the original accident was merely a remote cause. For instance, in case of life insurance, the material facts or factors affecting the risk will be age, residence, occupation, health, income etc. 5. In other words, the relationship should be legal and not illegal. The insurance company will indemnify MR X upto Rs . The insurance company will indemnify MR X upto Rs . Insurable interest is essentially a monetary or pecuniary interest i.e. By continuing we’ll assume you’re on board with our cookie policy, 1. 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. Causa Proxima is a Latin phrase, which means proximate cause. But the Insurance Company will not pay for the loss over and above its book value. 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. Compensation is not paid if the specified loss does not happen due to a particular reason during a specific time period. Types of Insurance. According to Iowa State University, in a non-insurance lawsuit, the court considers the proximate cause to be the reason for the loss. Principle of Causa Proxima (Nearest Cause). Premium once paid shall not be refunded. 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. General Insurance. It is the law which gives emphasis to the immediate cause and not the remote occurrence of events. This is also called the principle of ‘Causa Proxima’ or the nearest cause. For example if the worth of the assets damaged by fire amounts to Rs.40,000 the insurer will pay Rs.40,000 only even though the whole of the assets are insured for Rs.1,00,000. 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 Subrogation is an extension and another corollary of the principle of indemnity. Unless the cause is identified, the claim cannot be settled. the insured, by paying a definite amount, in exchange for an adequate consideration called as premium. Help. EXAMPLE OF PRINCIPLE OF INEMINTY MR. X gets a fire insurance of 1 lac for the goods lying in the factory premises He suffers a loss of rs.1,50,000 . 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. The insurance is based upon certain principles like insurable interest, utmost good faith, indemnity, subrogation, causa-proxima, contribution, etc. The premium on such policy must have been paid regularly. 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 risk of sea water is insured but the first cause is not. If the real cause of loss is not insured, the insurance company is not liable to indemnify the loss sustained by the insured. Indemnity means security, protection and compensation given against damage, loss or injury. What is a material fact, however, will depend upon the circumstances of each case and has to be decided as such. Indemnification cannot be more than the amount insured. The insurer can benefit out of subrogation rights only to the extent of the amount he has paid to the insured as compensation. In case the insured took more than one insurance policy for same subject matter, he/she can't make profit by making claim for same loss more than once. The contract shall continue and remain in force only when the warranties are fulfilled. Causa Proxima It is a rule of law that in actions on fire policies, full regard must be had to the causa proxima. The Insurance Company has to exercise such rights only in the name of the insured. They are Offer and Acceptance, Legal Consideration, Capacity to Contract, Free Consent, and Legal Object. The maxim is “Sed causa proxima non-remota spectature” i.e. The following conditions must be fulfilled while applying the principle of indemnity: 1. It follows that any value the damaged property has or if the assured can recover from the lost property, the right to such value of property must also pass on to the insurer. 2. Principles of Insurance. 7. 4. Suppose the loss in the case is to the tune of 80,000, then the insured could have been compensated only upto Rs. 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. There are basically two types of insurance. 2 The amount of compensation will be the actual loss or the amount insured whichever is less. The determination of the real cause depends upon the working and practice of insurance and circumstances to losses. The principle of indemnity shall not apply to life insurance. However, fire and accident policies can be assigned to someone only with the prior consent of the insurer. Insurance. 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. Life Insurance. If the property remains undamaged, he could have sold it at a profit i.e. Principle of Causa Proxima: Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. But, if he sells it, he will not have an insurable interest left in that taxicab. 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. The insured, however, can refuse to fulfill the warranty only when it is declared illegal and there shall no reverse effect on the contract. The maxim "causa proxima non rempota spectature." So, if the insured claims full amount of compensation from one insurer then he cannot claim the same compensation from other insurer and make a profit. There are certain warranties, which are not mentioned in the policy. 4 According to the superceded principle, causation of a loss was related to the event nearest in time and directly leading … A partner has an insurable interest on the life of the other fellow partners. 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. According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. Present code sections provide for either excluded risks or covered risks. No specific code section provides for situations in which concurrent or joint causes of damage are present. (546), 4.8 fire, marine and theft insurance and not to life insurance. 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. While taking treatment in the hospital, he contracted an infectious disease which caused his death. In an insurance contract, the amount of compensations paid is in proportion to the incurred losses. For example :- Assume, Mr. John’s house is set on fire due to an electric short-circuit. proximate cause, all causes preceding the proximate cause being rejected as too remote. If the proximate cause is insured, the marine insurance … 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. The real cause of the loss must be considered while payment of the loss. The following case, Leyland Shipping v. Norwich Union Fire Insurance Society Ltd (1918) illustrates that the causa proxima may not necessarily be the last event to occur. Over-insurance is automatically checked. 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. This general rule does not apply to the contract of insurance. Example: A trawler 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. (See for example Diacon and Carter, Success in Insurance, and Hansell, Elements of insurance, and IISA study notes for course 042) The South African writers prefer to pursue the idea of proximate cause from the maxim lure non remota causa sed proxima spectatur, which means that an insurer will only be liable if the ‘fact’ for which a claim is brought, is the result of a proximate cause. For Example: a fire might cause a For example, the insured must be put to a loss if the goods are lost in transit or destroyed by fire etc. AS per this definition the causa proxima means the direct, the most dominant and most effective or efficient cause which results in to a definite loss. In tort law, as Jewitt wrote in Dictionary of English Law: "Causa causans: the immediate cause; the last link or causation.Not the cause (causa sine qua non) of which the proximate cause is an effect, but the nearest cause of the damage or effect for which relief is being sought. also offered here. In an cylinder blast, his house burnt. "Ballentine's Law Dictionary defines causa causans as: Learn the meaning of Principle of Causa Proxima in Hindi in about 2 minutes. 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. M.J.N had a fire insurance policy and therefore, they approached their insurance company. Hence it is a responsibility of the insured to protect his insured property and avoid further losses. 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. This test is called proximate cause. The question, which is the causa proxima of a loss, can only arise where there are a succession of causes. The insurable interest is the pecuniary interest (monetary interest) whereby the policyholder is benefited by the existence of the subject matter and shall be put to a loss by the death or damage of the subject matter. 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 CAUSA PROXIMA • In Etherington & The Lancashire & Yorkshire Accident Insurance Co. 1909 – an Insured held a Policy covering accident but not sickness. Both the insurer and the insured, of course, stand on the same footing in relation to the disclosure of material facts. For example :- Mr. John insures his property worth $ 100,000 with two insurers “AIG Ltd.” for $ 90,000 and “MetLife Ltd.” for $ 60,000. The principle of Uberrimae fidei applies to all types of insurance contracts. 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. Suppose the loss in the case is to the tune of 80,000, then the insured could have been compensated only upto Rs. If the cause is not fire but some other cause remotely connected with fire, it is not recoverable, unless specifically provided for. It was held that the proximate clause of the damage was fire. Seven Principles of Insurance With Examples. This document is highly rated by B Com students and has been viewed 159 times. Causa Proxima 1. The rule is that immediate and not the remote cause is to be regarded. Proximate cause is a key principle of Insurance and is concerned with how the loss or damage actually occurred. The person to be insured knows everything, and the underwriter (insurer) Principle of Contribution is a corollary of the principle of indemnity. (309). However, in case of life insurance, the policy amount will be paid to the policyholder in the event of expiry of the term assured. The insurance company shall settle the claim of Mr. John for $ 1 million. 4. By this rule, the remote cause, which was formerly favored by the courts, is condemned. 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. 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. The proximate cause was held to be the theft itself (an insured peril) and not the air-raid (an excluded peril). From above example, we can conclude that, ownership plays a very crucial role in evaluating insurable interest. see the proximate cause and not the distant cause. For example :- Mr. John insures his house for $ 1 million. The term nearest cause here means the cause actually responsible for the loss. LIKE, SHARE & SUBSCRIBE Do check out other videos on this channel. If the cause is not fire but some other cause remotely connected with fire, it is not recoverable, unless specifically provided for. The California Insurance Code contains no such provisions at this time. Norwich Union Fire Insurance Society Ltd (1918) ). Principle of Uberrimae fidei (Utmost Good Faith). 2. 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. 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. 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. ADVERTISEMENTS: The important principle of insurance are as follows: The main motive of insurance is cooperation. 3. He took insurance from Company A worth Rs.3,00,000 and from Company B - Rs.1,00,000. 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. Whatever may be the reason of death (whether a natural death or an unnatural death) the insurer is liable to pay the amount of insurance. The maxim is “ Sed causa proxima non-remota spectature ” i.e. 7. Indemnity means security against loss, or damage. Get a verified writer to help you with Principles of Insurance. The principle of insurable interest states that the person getting insured must have insurable interest in the object of insurance. 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. 4) Principle of Contribution. In other words, the insurance company will pay compensation to the insured only when the cause of accident is directly related to the loss. In a contract of insurance (other than life assurance) the insurer undertakes to indemnify or compensate the insured for losses occurring due to the risk covered. The maxim is “Sed causa proxima non-remota spectature” i.e. The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance. 1 lac. 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. He must not remain inactive and watch his house burning hoping, “Why should I worry? 2. Therefore, the insurance contract must contain all the essential elements of a contract under the law of contract. The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario. the insured, by paying a definite amount, in exchange for … The compensation must not be less or more than the actual damage. Causa Proxima is a Latin phrase, which means proximate cause. Thus, insurance is only for giving protection against losses and not for making profit. Regulated by Law. An insured sustained an injury in a motor accident and was admitted in a hospital. 5. Principle of Causa Proxima (Nearest Cause). The disclosure should also be true and full in form. It means ‘the immediate, and not the remote cause is to be considered.’ This is a maxim of causation that is applied both in marine and general insurance. 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. Actual worth here means the actual book value of the property damaged. Discuss the core concept of all the principles of Insurance 3. If one insurer pays full compensation then that insurer can claim proportionate claim from the other insurers. For example - Raj has a property worth Rs.5,00,000. 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