What is proximate cause

Insurance is a tricky beast. Unless you spend a vast amount of time studying policy documents, you’re likely only going to have a limited understanding of some of the core mechanisms that influence the coverage you hold. From what risks can be insured, to the length of various policy terms, and even how premiums are calculated, there is a lot of minutia that needs to be understood.

Thankfully the expert insurance brokers at CCW Global have a comprehensive understanding of the details that make your insurance products work, but we want you to also have some idea of the impact of these mechanisms.

That being said, what is Proximate Cause and how does it affect your insurance?

Insurance and Claims

The primary purpose of insurance is to protect you against a specific risk. In fact, the definition of insurance is an equitable exchange of risk for a predetermined fee. Now, some people may be wondering here how, exactly the risk is exchanged.

Car insurance is probably our easiest example here.

When you buy a car, you need to register it in order to drive on public roads. As part of your registration process you will be required to obtain the regulated insurance coverage. While you have some options here, the principle across all products will be the same. If you are at fault for an accident which causes personal injury or property damage then, having paid your premium, the insurance company underwriting your policy will pay your financial liability up to the policy limit.

This is an otherwise complicated way to say that a really, really basic explanation of insurance is that you pay someone else to give you (or other people) money when bad things happen.

As such, and as should immediately be seen, claims form one of the core components of any insurance. In fact, one could argue that claims are the most important aspect of insurance, being the entire reason that the product was developed in the first place. If you’ll excuse an aside here quickly, insurance was first created to protect investors of ship cargo against the loss of their freight. The most important aspect at that time was the policyholder being properly reimbursed against a covered loss.

Not much has changed in the couple hundred years before insurance reared its head as the world’s most commonly utilized financial product, and the same ideas that underwriters were using to create maritime insurance products are still being applied across a vast array of policy types in the modern world.

Claims and (Proximate) Cause

When looking at an insurance claim the most important thing for the insurer is to understand whether the claim is covered by the policy.

This may not be as easy as it first appears.

Let’s say that you have a home fire insurance policy. A fire insurance which specifically excludes claims caused by water damage. In your home you have a sprinkler system. A fire starts in the kitchen, causing the sprinkler system to activate. The water from the sprinklers floods your home causing excessive water damage.

Remembering that the policy specifically excludes claims caused by water damage; is the damage caused by the sprinklers covered by the fire insurance policy?

The surprising answer here is, yes.

For those non-insurance professionals or experts out there, this answer may be fairly confusing. The damage was caused by water from sprinklers, and water damage is excluded from the policy. Why then, in this situation, would the claim be honored? It is because the original cause for the claim was the fire. Without the fire the sprinkler system would not have activated. Ergo, fire was the root cause of the claim, and as the policy covers fire, the claim is covered by the insurance.

This is what we know as Proximate Cause – the identification of the root cause of any claim. This concept is fundamental to insurance, because you have to know whether the claim stems from a covered risk. If the original cause, the ultimate cause, the proximate cause for the claim is excluded, then the whole claim is invalid.

Let’s think about this another way, using a different type of policy which has definite exclusions that are easier to understand.

Pre-existing Medical Conditions and Proximate Cause

In health insurance when you apply for coverage you will typically need to complete a medical history declaration. In this declaration you will provide details about any prior medical conditions, or medical conditions for which you may still be experiencing symptoms, requiring treatment or medication for, or of which you are aware of at the time of application.

These are known as “pre-existing” medical conditions and are normally excluded from any coverage being offered by the insurer. When a pre-existing medical condition is excluded from health insurance coverage, it is also normal for all consequences of that condition to be excluded.

Let’s say that you joined a health insurance plan with a pre-existing grade 4 Acromioclavicular separation, which you had corrective surgery on. Following your declaration of your medical history, the health insurance underwriter would likely exclude the AC separation, and all consequences of the AC separation from coverage under the plan.

As such, if you were to separate the same shoulder in the future, the insurance would normally not cover the costs of the medical treatment needed to repair the shoulder. But what if you suddenly found yourself with backache? That should be covered, correct?

Not necessarily. A shoulder separation damages a large number of muscles, ligaments, and nerves, including pectoral muscles and trapezius. The damage to this area of the body can cause the person afflicted to start favoring different muscle groups – to the point where it would start to be detrimental to their posture. The bad posture would likely cause a backache, and the medical history you provided would be enough for the insurer to investigate what the proximate cause of your backache is.

In this situation it is likely that your shoulder is causing the back pain, and because the pre-existing shoulder injury is the proximate cause for the “new condition,” treatment of the backache would usually be excluded from the policy. Again, it is crucial in insurance to understand the cause of any given claim and that the idea of “proximate cause” will actually influence the claims outcomes of a wide range of different insurance products.

Why should you care about Proximate Cause?

Understanding how your policy works ensures that you know exactly what you are protected against; enabling you to plan and adjust accordingly, even purchasing new cover if needed.

From Car Insurance to Travel Insurance the concept of proximate cause directly influences your ability to receive coverage in various claims situations. Proximate cause will determine who was at fault for a motor vehicle accident, and why an event was canceled. It touches on and is apparent in all aspects of insurance because it is vital to its very definition.

If you need further information about some of the concepts critical to the functioning of insurance, or if you would like to learn more about proximate cause, please Contact Us and speak to one of our expert brokers today.