What term defines an event that leads to direct physical loss under an insurance policy?

The term that defines an event leading to direct physical loss under an insurance policy is proximate cause. This term refers to the primary cause that sets into motion a chain of events resulting in damage or loss. In an insurance context, for a claim to be valid, the proximate cause must be an event that is closely connected to the resulting damage, establishing a clear link between the event and the loss.

Understanding proximate cause is essential because it determines the liability of the insurer in covering the loss. It ensures that only losses which are a direct result of identified risks covered in the policy are eligible for compensation. Therefore, establishing the proximate cause in an insurance claim is critical in the evaluation of claims and the determination of coverage based on the policy's terms.