Definition - What does Proximate Cause mean?
Proximate cause refers to a direct cause of loss, without which the loss would not occur; therefore, it is a highly relevant principle in the insurance industry. For an act or event to be considered a proximate cause, it does not necessarily have to directly precede a loss or begin a chain of occurrences leading to the same. Establishing a proximate cause is important in determining whether coverage applies or if liability can be imposed on the negligent party.
Insuranceopedia explains Proximate Cause
In terms of property insurance, establishing a proximate cause may be crucial to determine coverage in cases wherein more than one peril contributes to a loss. As a policy may exclude certain perils, if the one determined to be the proximate cause is not covered in the policy, the insurer would not have to pay out benefits, while the inverse would hold true as well.
As for liability insurance, if the negligent act of a certain party is said to be the proximate cause of harm to another party, it serves as a legal basis to hold the former liable. Liability insurance would help cover the defense costs as well as any damages awarded to the plaintiff.