Under common law, whether the policy provides coverage depends on which peril is chosen as the proximate cause. Which term describes this principle?

• A. Direct Loss
• B. Indirect Loss
• C. Proximate Cause
• D. Hazard

Answer: (C)

Proximate cause is the principle used to decide coverage by identifying the primary cause that starts the chain of events leading to the loss. In common law, insurers look at the efficient proximate cause—the dominant peril that sets the sequence in motion. If that initiating peril is one the policy covers, the loss is covered, even if other factors contribute; if the initiating peril is not covered, the loss is excluded even though other causes occurred. This helps explain why the surrounding circumstances matter more than every contributing detail.

To keep the concepts clear, direct loss is the immediate physical damage from the peril, while indirect loss refers to the financial consequences that flow from that damage. A hazard is a condition that increases the risk of loss, not the cause of the loss by itself. The term that describes this coverage-determining principle is proximate cause.