Causation is a fundamental component of insurance law. Causation in insurance law is an area whererncourts continuously experience difficulties. Causation is a crucial issue in ascertaining whether certainrnloss or damage is caused by a risk covered by an insurance policy. As an important principle of insurancernlaw, the principle of causation is of great significance for determining whether an insurer should assumerninsurance liability. Many times, it is impossible to come to consensus on the liability or non-liability ofrnthe insurers and the insured; this is often the case where the causation of the peril is in issue. Insuredâ€™srndesire indemnity against the risk of certain types of losses; insurers issue policies which provide suchrnindemnity in the event of certain perils, often with other perils being specifically excluded. Any coveragernprovided by the policy is contingent upon there being a causal connection between the loss, and a coveredrnperil. In insurance law, it is recognized that loss or damage may be the product of multiple causes. Arnparticular action or state of affairs may be serially or sequentially give rise to other factors, which mayrnultimately produce a loss; also, independent factors , neither of which is sufficient in itself to cause a loss,rnmay do so when combined. Now, in insurance law, for the insurance company to be made liable first ofrnall the cause of loss should be looked upon.rnThe area of different insurances seems old but the concept of proximate cause in these areas, especiallyrnin Ethiopia, is a new and upcoming concept. In this research paper, critically examines causation underrnEthiopian insurance law and the application by Ethiopian courts with an emphasis on motor vehiclerninsurance to have a precise understanding about how Ethiopian courts treat causation. The most frequentrntype of issues which courts face when they deals with insurance cases is whether a risk cover by thernpolicy caused the loss, because before an insured can recover from his insurer for the loss he hasrnsustained, it is necessary to determine the cause of the loss.rnFinally, this research paper examines the impact of our legal system's lack of a rule of causation. Thernresearcher proposes a legislative action to be taken to bring forward a solution for settling causationrndisputes in insurance cases and lacunae of law.