Understanding the meaning of Causa Proxima
Causa Proxima is one of the principles of insurance that emphasise how the losses have occurred to check if the resulting damage is due to the causes covered under the purchased insurance. It is a Latin phrase that focuses on the immediate or proximate cause of the damage to the insured goods.
Understanding the proximate cause meaning is crucial for insurers as it helps them differentiate the proximate or immediate causes from the indirect ones that lead to goods/monetary damage/loss.
Suppose a consignment is insured against the damage done by sea, water, and air but does not cover any loss caused due to fire. On the way, the ship catches fire because of some electrical issues, which damages the products, causing losses for the business. In such a case, the damage might have been done, but the cause is not covered under the claims. Hence, when the company claims for the damage, the insurance company can deny the application. This is how the principle of proximate cause/Causa Proxima works.
Role in Marine insurance
In marine insurance, proxima causa, which simply means immediate or proximate cause, plays a pivotal role. The principle guides insurers in validating the claims filed for the insured goods. This cause might not necessarily be the first or the last one to cause damage to goods or monetary losses, but they significantly let the insurers know their liability and check what claims to accept or reject. In short, this principle helps identify the real cause behind the damage or loss and makes insurers approve or disapprove the claims accordingly.
Let us have a look at the role of the principle of proximate cause:
- It helps distinguish the immediate cause or proximate cause from the remote or indirect causes that lead to product damage or monetary losses.
- In the case of a chain of events that causes damage to the consignment, this principle allows insurers to identify the actual cause of the losses and then see if the insurance coverage for which the claim has been made covers that cause or not.
- If the cause falls under the covered risks of the policy, the insurers know they have to compensate for the losses.
- If the immediate cause does not belong to the list of causes covered, insurers can reject the claims.
Advantages
Now that you know the role that this principle plays in marine insurance, let us see its benefits:
- Helps understand the policy better
This principle segregates the immediate or proximate cause from the indirect or later ones, helping the insurer acquire a better understanding of the coverage they have offered to a company. With their understanding of the proximate cause, insurers can easily determine if the claims made are the result of the insured perils.
- Prevents policyholders’ negligence
The way the insurers filter the claims makes businesses a little more alert when it comes to taking care of the goods while they get shipped. Had the principle not been active, the businesses would randomly take risks and be negligent while handling the consignments. Now, when businesses know that the claims are not that easy to make and they must have a real cause to show for compensation, they remain more alert.
- Offers coverage assessment
With the principle of causa proxima, insurers have a precise and transparent coverage assessment to offer.
The causa proxima principle suits every player in the marine insurance industry. It offers a benchmark for insurance companies to maintain so that the basic standards and guidelines for approving or disapproving a claim are uniform across the industry.
Disadvantages
As an insurer or policy seeker, you must know the limitations of the principle of proximate causes. Some of these are:
- Possibilities of misinterpretation
Interpreting the causes correctly might be difficult in some instances. For every claim raised, the interpretation differs depending on the chain of events and the outcome reported.
- Difficult to navigate claims
If strictly followed, this principle might make navigating through the claims tough as there are events that need a broader consideration and emphasising only on immediate or proximate cause does not help.
The principle of proximate causes keeps the industry aligned when it comes to what guidelines or clauses to follow. However, the application of this principle is not consistent. With every nature of the event and the outcome it comes with, the application differs, making it difficult to consider one scenario fitting in all the cases reported for claims.
Conclusion
Despite its limitations, the proximate cause in insurance still manages to keep the industry well-aligned. Because of the guidelines this principle has, insurers get a clear understanding of what exactly needs consideration when it comes to a claim. Accordingly, they explore the claims and decide how to proceed, making the approach similar for every player in the industry.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.