What determines which losses are covered by an insurance policy?

The correct answer is based on the principle of proximate cause, which is fundamental in determining coverage under an insurance policy. Proximate cause refers to the primary event or action that leads to a loss, establishing the link between the cause and the resulting loss. In the context of an insurance claim, if a covered peril directly results in a loss, then that loss is typically considered covered by the policy.

When evaluating claims, insurance adjusters often look to see if the loss can be traced back to a covered event. For example, if a fire (a covered peril) causes damage to a home, the proximate cause is the fire itself, which justifies the claim for damage.

Other options such as direct loss, indirect loss, and occurrence play roles in the insurance process but do not specifically determine coverage in the same way proximate cause does. Direct loss pertains to tangible damages that can be directly measured, while indirect loss refers to secondary losses that result from the direct loss. Occurrence, on the other hand, relates to events that trigger a policy's coverage, but it does not clarify the cause-and-effect relationship as effectively as proximate cause does within the context of coverage determination. Thus, proximate cause is the essential concept that ultimately