Proximate cause refers to the first event, or first peril, in a series of events that cause damage in an insurance claim. The proximate cause itself may not do any direct damage. The insurance policy may cover the proximate cause, but not the event that actually causes the damage, so the policy holder will not be reimbursed for his claim.
Insurance companies place a maximum on the amount of coverage for a single event. For example, a driver may purchase an auto insurance policy that pays a maximum of $1,000,000 per accident. When an auto accident involves multiple casualties because the driver crashed into several cars, the court may consider these casualties to be part of the same event because the accident had one proximate cause.
Because the insurance may not cover the actual cause of the accident, a policy buyer should make sure that the event that causes the damage is covered. If a farmer purchases a property damage policy that covers wind and hail, and a storm disables the power supply for the farm's ventilation system and the farmer's pigs suffocate, the insurance company only has to reimburse the damage to the power supply, not the loss of the pigs, according to Iowa State University.
According to Iowa State University, in a non-insurance lawsuit, the court considers the proximate cause to be the reason for the loss. For example, if a trespasser opens a gate on another person's property, and a stray dog walks through the open gate and kills the property owner's dog, the trespasser is responsible for the dog's death, even though the trespasser did not kill the dog himself.
A contributing factor occurs before other events, but it does not cause the other events. State law may allow an insurance policy to exclude coverage of an accident that occurs because the policy holder is drunk or on illegal drugs. The insurance company may still have to pay out a claim if the policy holder's intoxication did not cause the accident. For example, the insurance company can refuse to pay out a claim because the policy holder was driving his car under the influence, but a pedestrian who is hit by a car while she is walking down the sidewalk is still covered even if she was drunk at the time of the accident, according to George Washington University.