The cause of loss must be direct and an insured one in order to claim for compensation. Which principle of insurance mean the above ?

The correct answer is - Principle of Causa Proxima

Key Points

• Principle of Causa Proxima
  • This principle refers to the nearest or most immediate cause of a loss or damage.
  • In insurance, compensation is only provided if the direct and insured cause is responsible for the loss, not a remote or indirect cause.
  • For example, if a policyholder suffers damage due to a covered peril, like a fire, the insurer will compensate for the loss as the fire is the proximate cause.
  • It ensures that claims are settled based on the most relevant and direct cause, avoiding disputes over unrelated events.

Additional Information

• Principle of Indemnity
  • This principle ensures that the insured is compensated only for the actual loss suffered, up to the policy's limit.
  • The purpose is to restore the insured to their original financial position before the loss occurred.
  • It is commonly applied in non-life insurance like property, motor, and health insurance.
• Principle of Subrogation
  • After compensating the insured, the insurer gains the legal rights to recover the loss from a third party responsible for it.
  • For instance, if damage occurs due to a third party, the insurer can sue the third party to recover the amount paid to the insured.
• Principle of Utmost Good Faith
  • This principle obligates both the insured and the insurer to disclose all material facts honestly at the time of signing the contract.
  • Failure to disclose relevant information can result in the policy being declared null and void.