In the case where a shop's stock was water damaged after extinguishing a fire, why was the claim paid despite water damage not being covered?

The claim was paid because the proximate cause of the damage was an insured peril. In insurance terminology, the principle of proximate cause is fundamental in determining whether a claim is valid. If a loss arises from multiple causes, the proximate cause is the primary event that set everything else in motion.

In this scenario, the fire was the initial insured peril that led to the water damage when it was extinguished. Although water damage itself may not be covered under the terms of the policy, the fire event created a situation that subsequently resulted in the water damage. This relationship between the fire and the resulting damage is crucial because it means the original insured peril (the fire) led to the loss experienced, justifying the payment of the claim.

This reasoning shows that even though water damage might be excluded from coverage in other circumstances, the fact that it was a consequence of an insured peril (the fire) allows the insurer to honor the claim under the terms of the policy. The other options either incorrectly describe the nature of the events or misinterpret the coverage terms, as they do not acknowledge the significance of the proximate cause being an insured peril.