A real‑world look at property insurance, proximate cause, and why similar losses can be treated very differently.

In the world of business insurance, clients are often surprised to learn that two losses which feel very similar can have very different claim outcomes. One common example involves spoiled food stock following a fire, especially for cafés, restaurants, and F&B operators.

“Fire is an insured peril,” clients often say.
“So if my food is damaged because of a fire, surely my property insurance should pay?”

The answer, as is often the case in commercial insurance, is: it depends on how the loss actually happened.

Let’s walk through a real‑life claim scenario to explain why.

The claim scenario

A café operating from a commercial building experienced food spoilage when a fire broke out elsewhere in the building over the weekend:

  • The fire did not occur in the café itself
  • Building management cut electrical power to the entire building as a safety measure
  • Refrigerators stopped running
  • Food stored inside spoiled before staff returned
  • The refrigerators themselves were not damaged

The client understandably asked, “This was caused by a fire. Why isn’t the policy paying?”

To answer that, we need to understand a key concept in property insurance: proximate cause.

What is “proximate cause” in property insurance?

In insurance, claims are not decided simply by tracing losses back to an insured peril. Instead, insurers look at the proximate cause — meaning:

What was the dominant, effective cause that directly resulted in the loss, without
being interrupted by a new or independent cause?

This principle is fundamental across property insurance, commercial insurance, and business insurance policies worldwide.

Fire as a peril vs fire as a background event

Fire is, of course, an insured peril under most property policies.

If a fire:

  • burns stock,
  • contaminates it through smoke,
  • damages it with heat, or
  • ruins it through firefighting water,

Then the damage is considered direct fire damage, and the policy would usually respond. But in the café’s case, something different happened.

Why was the claim not treated as fire damage?

Although a fire occurred in the building, the food was not damaged by the fire itself. Instead, the chain of events was:

Fire elsewhere → precautionary power shutdown by building management → refrigeration stopped → food spoiled

From an insurance perspective, the immediate cause of the loss was not fire, but loss of temperature control due to a power interruption.

That distinction matters.

Why is temperature variation often excluded in “All Risks” property insurance?

Many business owners assume that an “All Risks” policy covers anything that goes wrong. In reality, All Risks does not mean “all losses”.

All Risks property insurance covers all fortuitous, accidental causes of physical damage unless specifically excluded.

Temperature variation is commonly excluded because:

  • It is a predictable operating risk,
  • it frequently arises from power issues, maintenance issues, or human error,
  • and it is part of normal business risk, not an external accident.

Food spoiling when refrigeration stops is scientifically inevitable, not fortuitous. Insurance is designed to cover sudden, accidental events — not routine operational vulnerabilities.

Why does spoilage cover exists, and how does it actually work?

Most commercial insurance policies recognise that spoiled stock can create serious financial losses. That’s why they often include a Deterioration of Stock extension.

However, this cover is intentionally narrow. It typically applies only when spoilage is caused by:

  • sudden breakdown of refrigeration machinery,
  • internal control or thermostat failure,
  • refrigerant leakage or escape.
  • failure of public electricity supply, subject to conditions.

Importantly, many insurer wordings today explicitly include failure of public electricity supply (e.g. outages from SP Power) as an insured cause under this extension, in addition to refrigeration breakdown. So, in many policies, food spoilage due to a public power outage can be covered, even if the refrigerator itself is not damaged.

In the café’s case, the deterioration extension was not triggered because:

  • The refrigerator worked perfectly once power returned.
  • The power was not lost due to a failure of the public electricity network itself, but was deliberately shut off by the building management as a safety response to a fire elsewhere.

But what if the fire had happened inside the café?

This is where things get interesting.

If a fire had occurred within the insured premises, and:

  • power was cut as part of the fire safety response.
  • refrigeration stopped as a direct consequence of that fire, and
  • food spoiled as a result,

Then there is a strong argument that fire would be the proximate cause of the loss.

In that situation:

  • temperature variation is no longer an independent risk,
  • it becomes the mechanism by which fire causes damage, and
  • Insurers may treat the spoilage as fire‑related damage under property insurance, instead of under the Deterioration of Stock extension.

So two scenarios that look similar on the surface can lead to very different claim outcomes — purely based on where the fire occurred and whether there was an intervening cause.

The key takeaway for business owners

This case highlights a crucial lesson about business insurance:

Insurance responds to how the property is damaged, not just what started the story.

A fire somewhere in the building does not automatically mean every resulting loss is a fire claim. Insurers draw a clear line between:

  • direct physical damage caused by insured perils, and
  • consequential or operational losses that fall outside standard cover.

How can businesses reduce this risk?

For F&B operators and cold‑storage‑dependent businesses, it’s worth considering:

  • temperature or power‑loss alarm systems,
  • clear emergency response plans,
  • reviewing spoilage sub‑limits at renewal,
  • or discussing whether additional utility‑related covers are available.

Understanding how your commercial insurance works before a claim happens can
prevent unpleasant surprises later.

Final thought

Claims disputes often arise not because insurers deny that a loss occurred, but because insurance is about defined risks, not general hardship. The better clients understand this distinction, the smoother the claims journey tends to be.

If you’re unsure how your property insurance would respond in a similar scenario, it’s always worth reviewing the wording or asking the question before the next incident happens.