Risk, causa proxima and loss minimisation

1. Risk: meaning and scope

Risk is the possibility of loss from an uncertain future event. In insurance the word is used in three senses: the event insured against (fire, death), the subject matter exposed to it (the house, the life), and the chance or probability of loss, which the insurer prices into the premium. The contract defines the risk by the perils covered, the exclusions, the period and the place.

A risk is insurable when:

• the loss is accidental or fortuitous from the insured’s point of view, not deliberately caused by him (s.55(2)(a) of the Marine Insurance Act excludes loss attributable to the wilful misconduct of the assured);
• the loss is measurable in money, or, for life, a sum can be agreed;
• there are many similar exposures, so that the law of large numbers lets the insurer predict the loss and fix a premium;
• the loss is not certain; ordinary wear and tear, inherent vice and depreciation are excluded (s.55(2)(c));
• the object is lawful and the insured has an insurable interest.

Pure risks (only loss or no loss, such as fire) are insurable. Speculative risks (chance of gain or loss, such as a business venture or a bet) generally are not. Catastrophic risks such as war and nuclear risk are usually excluded or covered only by special arrangement.

The risk commences when the contract says, but section 64VB of the Insurance Act provides that no insurer may assume a risk unless the premium has been received in advance or guaranteed as prescribed. It ends on expiry, on cancellation, or, in marine insurance, on breach of warranty, deviation or change of voyage (Unit V).

2. Causa proxima: the rule

The maxim is causa proxima non remota spectatur: the immediate, not the remote, cause is to be looked at. Section 55(1) of the Marine Insurance Act, 1963 says that, unless the policy otherwise provides, the insurer is liable for any loss proximately caused by a peril insured against, and is not liable for any loss which is not proximately caused by a peril insured against. The same rule is applied to fire, motor, health and other general policies.

The classic definition is from Pawsey & Co. v. Scottish Union and National Insurance Co. (1907, Privy Council): proximate cause means “the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”

The leading case is Leyland Shipping Co. v. Norwich Union Fire Insurance Society (1918, House of Lords). A ship insured against perils of the sea, but not against war risks, was torpedoed during the First World War. She was towed into Le Havre harbour, where she might have been saved, but the port authorities ordered her to an outer berth, where she grounded with each tide and eventually broke up. The owners claimed that the sinking was due to the sea. The House of Lords held that the torpedo was the proximate cause: it remained the dominant and effective cause throughout, and the sea only completed what the torpedo had begun. The loss fell within the war exclusion. Lord Shaw said the cause to be looked at is the one that is proximate in efficiency, not in time.

3. Applying the rule

• Single cause. Easy: insured peril, insurer liable; excluded or uninsured peril, not liable.
• Unbroken chain. Where an insured peril starts a chain that leads naturally to the loss, the insurer pays even if the last link is not itself an insured peril. Goods damaged by water used to put out a fire are covered under a fire policy, because the fire is the proximate cause. Theft of goods during the confusion of a fire is treated the same way unless excluded.
• Broken chain. If a new and independent cause intervenes, that new cause becomes the proximate cause and liability depends on whether it is insured.
• Concurrent causes, one insured and one simply not mentioned. The insurer is liable.
• Concurrent causes, one insured and one expressly excluded. The exclusion prevails and the insurer is not liable, because it has said in terms that it does not cover loss from that cause.

Negligence of the insured or his servants does not break the chain: a fire caused by carelessness is still a fire, and s.55(2)(a) expressly keeps the insurer liable for loss proximately caused by an insured peril even though the loss would not have happened but for the misconduct or negligence of the master or crew. Wilful misconduct of the insured himself is different and excludes liability.

In life insurance proximate cause has little role, because the policy pays on death from any cause except those expressly excluded (such as suicide within the exclusion period). It matters in accident benefit riders, where the death must be caused by accident and not by disease.

4. Loss minimisation

The insured must behave, when a loss is threatened or has happened, as a prudent person would if he were uninsured. He must take reasonable steps to prevent the loss from spreading and to save what can be saved. Section 78(4) of the Marine Insurance Act states the duty: it is the duty of the assured and his agents in all cases to take such measures as may be reasonable for the purpose of averting or minimising a loss.

• Examples. Calling the fire brigade and removing undamaged stock; taking a damaged vehicle to a garage rather than leaving it on the road; protecting goods from weather after a stranding; seeking prompt medical treatment.
• Expenses. Reasonable costs incurred in minimising the loss are recoverable. In marine insurance the suing and labouring clause allows recovery of such expenses in addition to the loss (s.78(1)), though not for averting a loss not covered by the policy (s.78(3)).
• Consequence of breach. The insured cannot recover the part of the loss that reasonable steps would have prevented. The insurer may also set up breach of a policy condition requiring the insured to take such steps.
• Notice. Prompt notice of loss is part of the same duty, because it lets the insurer act. The Supreme Court has, however, refused to let insurers reject genuine claims merely because notice was late where the delay caused no prejudice: in Gurshinder Singh v. Shriram General Insurance Co. Ltd., 2020 INSC 84, (2020) 11 SCC 612, a three-judge Bench held that where the theft of a vehicle was reported to the police promptly, a delay in informing the insurer was not by itself a ground to repudiate.

5. Problem

A warehouse insured against fire, but with an exclusion for loss caused by riot, is set on fire by a rioting mob. The fire spreads to the insured goods. Is the insurer liable?

Issue. Whether the proximate cause is the fire (insured) or the riot (excluded).

Law. The insurer is liable only for loss proximately caused by an insured peril (s.55(1) principle). The proximate cause is the dominant and effective cause (Leyland Shipping). Where an insured and an excluded cause combine, the exclusion prevails.

Application. The fire did the physical damage, but the fire was itself started by the riot, without any new and independent cause between them. The riot is the dominant cause and the fire its direct consequence, just as in Leyland Shipping the sea completed the torpedo’s work. The policy expressly excludes riot.

Conclusion. The insurer is not liable under this policy. Had the policy been silent on riot, the fire would have been the insured peril and the claim would succeed. (Standard Indian fire policies in fact include riot, strike and malicious damage as an insured peril, so on the standard wording the claim would be paid.)

How this is examined

“Explain the principle of causa proxima” was a short note in January 2026 and June 2025; “Principle of Loss Minimisation” in January 2026; “the risk in life insurance” in February 2025. For a 6-mark note on causa proxima, give the maxim, s.55(1), Pawsey, Leyland Shipping and the concurrent-cause rules. Problems on fire and marine claims (the sugar and furnace problem, the captured ship) also turn on proximate cause and are worked in the Unit IV and Unit V notes.