Harsha has got its garment manufacturing factory against fire.Her factory got fire and some of his employees took advantage of this situation and stole stck of garments .Harsha made a claim of damages caused by fire including loss due to garments being stolen.The insurance company agreed to pay damages caused by fire only.Which principal is followed by insurance company explain?

Question

Answer

Principle of Proximate Cause

The insurance company's decision to only pay for damages caused by the fire is based on the principle of proximate cause. This principle is a fundamental concept in insurance that determines whether an insurance policy covers a loss or not. It helps to establish a direct link between the cause of the loss and the resulting damage.

Explanation of the Principle

1. Cause and Effect: The principle of proximate cause states that an insurance policy covers losses that are caused by a covered peril. In this case, the fire is the covered peril, and the damages caused by the fire are covered by the insurance policy.

2. Unforeseen and Unintended: The principle also takes into account the fact that insurance is meant to cover unforeseen and unintended events. The fire in Harsha's factory was an unexpected event, and the insurance policy was designed to protect against such incidents.

3. Intervening Events: However, the principle of proximate cause also considers any intervening events that occur after the initial cause. In this case, the theft of the garments by the employees was an intervening event that occurred after the fire.

4. Direct Link: The principle of proximate cause looks for a direct link between the cause of the loss and the resulting damage. While the fire directly caused the damage to the factory and the garments, the theft of the garments was not a direct result of the fire.

5. Separate Cause: The theft of the garments can be considered a separate cause of loss, not directly linked to the fire. Therefore, the insurance company is not obligated to cover the loss of the stolen garments under the policy.

Conclusion

In conclusion, the insurance company's decision to only pay for damages caused by the fire and not cover the loss due to the stolen garments is based on the principle of proximate cause. This principle ensures that insurance policies cover losses that are directly caused by covered perils and excludes losses that are not directly linked to the initial cause. The theft of the garments by the employees was deemed a separate cause of loss and not directly related to the fire, hence the insurance company's decision.

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