Discuss about a Report on Risk Management- Analysis of Insurance Contracts?
An analysis on the established theory of insurance contracts has been made through the argumentative essay. The established theory taken here is the causative theory which involves two types of insurance parties which are first and third party instances. Through this, the efficient proximate cause is studied through case analysis. The efficient proximate cause taken here for the study is ‘peril causes direct loss. There are three types of perils which are immediate peril, intervening peril and initiating peril. The insurance policies that are covered by fire and its related causes are the cases taken for study. The immediate peril refers to causes that have an instant perilous effect on the disaster. The intervening peril is those that intervene and thereby accelerate the intensity of the peril. Initiating perils are those that initiate and cause a peril. The fire insurance covers only those damages that are related to the peril. The efficient proximate cause does not apply to third-party policies while causative cause does not apply to first-party policies (Best & Barnes, 2007).
Perils are devastations that are caused due to various reasons like a flood, lightening, earthquake, and other such reasons. Properties are generally insured against such perils. These perils are generally mentioned which being insured. Insurance is made on properties that include specific perils. Those perils that are not included under insurance are called as excluded perils. (Brown & Gottlieb, 2008). Causation is connecting the peril that is the cause of the disaster and the loss of property or life.
Types of Policies:
Perils that are covered through various policies are
Fire policy: This covers damages from lightning, fire, explosion, aircraft damage, strike, riot, storm, cyclone, hurricane, tempest, flood, earthquake, landslide and impact damage (Patukale, 2009).
Mediclaim policy: This reimburses medical expenses that are incurred as an inpatient as a direct result of sickness or accident that has occurred or is contracted from any part world.
Householders’ shopkeepers’ policy: This includes fire and its allied perils, housebreaking, burglary, baggage and personal accident and public liability (Loomba, 2014).
Insurance may be of two types which are
Life insurance and
In property insurance, the policy considers the chain of events that caused the loss to property and the real cause of the loss to property. Efficient proximate causation is the direct causes that have resulted in that peril
Types of Insurance
Property insurance through first-party insurance is when the insurer is sued for the own loss of the insured. First party insurance is made on one’s life, health, fire or disability. The policy is made on those that are mentioned in the contract of insurance.
Third-Party Insurance Law distinguished
When the insurance policy is purchased t protect oneself from another parties actions, it is called third-party insurance. Here the insured is the first party and the insurance company is the second party while getting protection from the claims of another party is termed as third party claim .
Law of Causation
The actual clause is the ‘cause in fact’. Causation connects the conduct with the result. It relates and connects the resulting effect and the conduct. The result may be an injury or damage. The damage should not be too remote; it should be a breach of duty thereby causing the damage. Causation is a component of tort. When there is liability insurance, there should be some harm that has occurred that has caused a loss to the claimant and this loss will be determined by the insurer in determining whether the loss will have to pay off. If the cause is covered by the policyholder, then the insurer will cover the loss and pay the amount of loss that is being claimed. The actual cause is the ‘cause in fact’ which is measured through the clause ‘but for. Here the plaintiff claims that he might not have been injured –but for- the action of the defendant (Currier & Eimermann, 2010). This is why the causation rule applies for third-party insurance liability policy.
Two approaches in causation analysis
There are two approaches to have causation is handled by the courts. They are
Efficient proximate causation and
Any remote reason that has caused the cause is done through the causation analysis and this is ruled in different ways in the courts of law.
The cause that has caused the damage to property may be a proximate reason or a remote reason called as proximate causation and remote causation (Thoyts, 2010). Multiple-causation is when there is a substantial reason for the loss is more than one. The judge then selects from the various cause, determines if there is a real connection between the cause of loss and the damage. The claim is then made only if there is a true result of the loss to that property claimed (Kalis, Reiter, & Segerdahl, 2015).
Efficient proximate cause:
‘Causa Proxima, no remote spectator’ is a Latin maxim on which the efficient proximate cause is based upon. This Latin phrase says that the immediate cause is taken for consideration while any remote cause cannot be considered while evaluating the cause of loss to property. If there are more than one cause, the efficient proximate cause is that which has initiated and set the other causes to occur. The loss is pointed to the efficient proximate cause though there may be other reasons that ultimately followed. The argument made here is that in the efficient proximate cause, the third party policies cannot be considered while, in the concurrent causation doctrine, first-party policies will not be considered (Best & Barnes, 2007). The proximate cause is that cause which is due to the primary peril and is nearest in time to the result (Huebner, 1922).
Rules inefficient proximate cause of loss:
If the peril causes loss directly and it is covered, coverage will be provided through the policy. If the peril does not cause loss directly, it will not be covered by the policy (Mann & Roberts, 2010).
Some rules are
The efficient proximate cause of loss might be peril that occurred before the peril nearer to the place or time of loss. The Efficient proximate cause of loss is peril that occurs without the concurrence of unforeseen circumstances.
The efficient proximate cause of loss is a loss from a peril which has no intervening or intermediate or controlling cause.
The efficient proximate cause of loss is peril acted upon by a subsequent peril(s) and may operate immediately to produce a .
The efficient proximate cause of loss is connected essentially with the loss.
The immediate peril is just incidental to the peril.
Initiating peril does not become an efficient proximate cause of loss when the subsequent peril not immediately stimulated intervenes and causes loss.
When there is independent perils, the efficient proximate cause of loss is the immediate or nearest peril
The intervening cause of loss peril is independent if it intervenes into the natural event sequence.
Initiating peril becomes proximate cause of loss when it naturally acted upon irrespective of whether it is a covered or excluded peril.
Concurrent Causation Doctrine Analysis:
Concurrent causes are those causes that are equal or almost equally efficient to the loss. To constitute a concurrent proximate cause, each of the peril must be a necessary condition to the loss too (Song, 2014).
The traditional rule, over the years, has been applied to both first parties as well as to liability insurance. As per the traditional rule, when a covered peril is combined with a peril that has not been included, the loss is not covered by the insurance. So, it is required of the insured to show that his loss was caused only by the covered peril. In turn, it becomes the duty of the insurer to investigate and prove that causes that are not listed in the policy also play a role in the peril. If proved, then the losses will not be compensated for. A variation of the traditional rule has been applied by the traditional rule.
The methodology used to study the efficient proximate cause is through case analysis. The case analysis is made to study the initiating peril, the intervening peril, and the immediate peril. Each peril is analyzed through an independent case study and the fire policy that covers these policies is seen. The fire policy may be due to fire, thunder, storm, earthquake, etc. These reasons should be through a natural reason from an external source and not due to natural heating or spontaneous combustion. It also does not include theft, burglary, and larceny or due to the actions of any other person involved in the loss. (Arunajatesan & Viswanathan, 2009)
Case Study I- Initiating Peril:
The initiating peril is that peril that has initiated the loss. The case studied here is:
Queen had insured Paul Cox in Cox v. Queen Insurance Company of America. The contract for insurance was made against loss in the sea due to hail, windstorm or hurricane on the ship. However, the ship was not insured against tidal water or high water. The property of Cox at Fulton Beach in Texas was heavily damaged. The insured claimed that the loss to the ship was due to windstorm and hail. He claimed that the loss had resulted in heavy damage to the ship. However, the court claimed that there were many reasons that caused damage to the ship. The damage to the ship was not due to hailstorm only that had resulted in loss and damage to the ship. This was the declaration made by the court towards the property of Cox. The windstorm, the initiating peril, probably acted as the cause for the high water.
In this case, the loss to the ship was not due to a hailstorm. The ship was damaged as the mast and the spars of the ship. Only if the loss had occurred due to the heavy hailstorm and it had been torn or carried away due to the heavy hailstorm it would have resulted in initiating peril (Owen, 1853).
Another incident was seen through the Lydick v. Insurance Company of North America case where William and James Lydick were running a cattle feeding business. They were partners who had insured their cattle against windstorm. However, the cattle had strayed when there was a snowstorm. While straying, they had sustained a heavy injury while some of them had got lost. However, the court ruled that the cattle was injured as it had strayed away and not due to the snowstorm (Smith & Simpson, 2006).
Case Study II- Immediate Peril:
James, on a visit to the feedlot, found around 99 cattle dead in a pond, because the cattle had apparently drowned once they had moved to a pond that was covered in ice and had broken through the ice. At the time of discovery of the cattle, the wind was blowing at the rate of 30 miles per hour and it had gusts up to 40 to 50 miles per hour, just like it had blown the previous day. The cattle appeared to have begun its descent into the sheltered area that is around the pond covered in ice (Smith & Simpson, 2006).
The ice covered pond comes into existence because of the cold and the windstorm. The temperature in the sheltered area is around 15 to 20 degrees warmer. It was concluded by the court that the loss was not caused directly by the windstorm. Rather, the collapse of the ice covering the pond was the immediate cause. Because it was sheltered from the cold wind, the temperature surrounding the pond region, which was depressed. However, they also argued that the cold wind is ‘immediate cause’ that led to the cattle crossing the pond. The combination of the windstorm with the cold weather and the snowstorm all culminated and led to the loss of the life of the cattle.
If the masts and spars of any ship are damaged or if the sail is torn or has been carried away, unless the loss is directly traced to perils of the sea that were immediate and violent, these expenses need not be borne by the underwriter (Owen, 1853).
The term ‘immediate cause’ does not necessarily mean the fire should be nearest to the loss throughout the sequence of events, it will come within the term ‘fire’ even if it is not nearest to the sequence of loss and if other events merely contribute to it (Tyagi & Tyagi, 2007).
Case Study III- Intervening Cause:
A yatch was insured for its hull. The yatch owner, Ronald Goodman, in the Goodman v. Fireman’s Fund Insurance Co., had the hull insurance from the Fireman’s Fund. The hull was not insured against ice and freeze by the insurance. During the cold winter, when the yatch was laid up, there was a heavy snow (Smith & Simpson, 2006). The snow had frozen the cooling system and later the water drained into the hull and corrupted the cooling system and the yatch sank into the sea. The insured claimed that the yatch was insured and had sunk into the sea. However, the court ruled that the sea sank into the water due to the cooling system which had frozen and dropped cool water which had resulted towards its failure and sinking. The intervening cause which was loss due to the frozen was not insured against and Goodman could not get his claim (Hammond, 1840). Though there may be perils from the sea, unless the intervening cause is predominant it cannot be claimed against (Baughen, 2015).
The research undertaken is an argumentative essay that has studied the efficient proximate cause. This has been done through studying three types of cases. It has been argued that unless the cause for loss, such as
Loss of the ship in the case of Cox was not due to the initiating peril.
The death of the cattle was not due to the ice but due to the windstorm and James could not claim his insurance.
The loss of the and the hull was due to the freezing climate and was not the intervening peril.
Case studies help to learn more about the laws. The case studies undertaken in insurance under efficient proximate cause prove that unless the cause for the loss is due to the most proximate reason it will not be considered (Frangiamore, 2012). The specific ground of proof should be sufficient to claim damages and the proof should be clear and be due to the immediate, intervening or initiating peril (Soyer & Tettenborn, 2015) (Llewellyn, 2013). Through these arguments, these cases have been proved to show that the covered peril should be a part of the insurance. The argument made is that remote cause cannot be claimed by the insured. It is only the immediate, intervening or initiating cause that is relevant to the case that will be considered by the insurer.
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