1/H - Cause and Loss

Question 1

Proximate Cause

Answer 1

When there is an unbroken chain of events between an occurrence and a loss, then that occurrence is the proximate cause of the loss.

Question 2

Occurrence

Answer 2

An event, incident, or condition that causes damage

Question 3

Occurrence as Proximate Cause

Answer 3

The original occurrence:

• Causes damage that then leads to more damage
• Is the proximate cause of all resulting losses

Question 4

Covered Damages

Answer 4

Proximate cause can determine which losses are covered by an insurance policy.

Damages are covered if:

• Caused by a covered peril
• The proximate cause was a covered peril

Question 5

Direct Loss

Answer 5

Physical harm to tangible property

Example-

• Structural damage to house
• Kitchen walls and cabinets burned by fire
• Flooring damaged by water used to put out fire

Question 6

Indirect Loss

Answer 6

Indirect Loss
An economic loss that results from a direct loss

Direct vs. Indirect Loss:

• Direct loss: physical damage
• Indirect loss: added expenses or lost income because of physical damage

Example -

• Renting a hotel room until home is repaired
• Lost rental income if damages cause a tenant to move out

Question 7

Direct Loss vs. Indirect Loss

Answer 7

A fire destroys a bakery’s fleet of delivery trucks:

• Physical destruction of the trucks is a direct loss
• Cost of renting new trucks in order to keep business going is an indirect loss