Fire Insurance contract may be defined as an agreement between the insurers and the insured whereby the insurers having received premium, undertake to make good the financial loss, (subject to the sum insured) suffered by the insured as a result of damage or destruction of the insured property by fire or other special perils, during the policy contract period as specified in the insurance policy.

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Basic Principles Of Fire Insurance

  • UTMOST GOOD FAITH:- The insured has the duty to disclose all material facts, which have a bearing on the insurance. A breach of the duty may render the contract void or voidable depending upon the nature of the breach.
  • INSURABLE INTEREST:-The requirement of insurable interests gives legal validity to insurance contracts and distinguishes them from mere wagers.In fire insurance insurable interest should exist at the time of taking the policy, continue throughout its currency and should exist at the time of a loss.
  •  SUBROGATION:-This principle is corollary of the principle of indemnity, if the loss suffered by the insured is recoverable from third parties who are responsible for the loss, the insureds rights of recovery are transferred or subrogated to the insurers when they indemnify the loss.
  • CONTRIBUTION:-It is also a corollary of the principle of indemnity, provides that if the same property is insured under more than one policy, the insured cannot recover more than the loss suffered an can only recover a rate-able proportion of the loss under each policy.

Principle Of Indemnity

It is a contract of indemnity that is, their object is to place the insured, as far as possible, in the same financial position after a loss as that object was immediately before the loss.
The indemnity is subject to the sum insured and other terms of the policy. The sum insured can be fixed on reinstatement or market value or agreed value. Lets understand these terms
  • MARKET VALUE:-  The term market value or actual cash value, for insurance purposes, the present cost of construction of similar building, after deducting from the cost, depreciation based on age, usage, maintenance etc.
  • BOOK VALUE:-  It is the value of the property as indicated in the insured’s books of is arrived at by applying deprecation on the original cost of the property.
  • REINSTATEMENT VALUE:-  It is a value at which the damaged property can be reinstated or replaced by new property of the same kind ,without deducting depreciation. 
  • AGREED VALUE:-   it is dependent on the type of property and the intention of parties,this method is resorted to in the case of obsolete machinery or heritage building where depreciation is not a material factor and availability of similar type of property is not possible.

Standard Fire And Special Perils insurance Policy

under Standard Fire And Special Perils Policies the following properties will be covered     
2.Plinth and Foundation 
3.Furniture, Fixtures and Fittings
4.Electrical Fixtures and Fittings 
5.Plant and Machinery 
6.Stocks (Raw, In Process and Finished) 
7.Other contents 

Coverage For Fire

The term “FIRE” for insurance purpose, means actual ignition or burning ,under accidental or fortuitous circumstances, so far as the insured is concerned.
The following losses are also covered:-
  • Damage immediately followed by the fire caused by
Falling walls. 
  • Damaged caused by fire brigade persons to minimize losses 
  • Damage caused by water.
  • Damage caused by blowing up the property to prevent spreading of fire.

Coverage For Lightning

  • The occurrence of a natural electrical discharge of very short duration and high voltage between a cloud and the ground or within a cloud, accompanied by a bright flash and typically also thunder.
  •  All damages caused by lightning ,whether fire results or not, are covered.

Coverage For Explosion/ Implosion

EXPLOSION:- “is a sudden violent burst with a loud sound” will be covered under this policy
IMPLOSION:-”means bursting inward or collapse due to external pressure” will be covered under this policy
Excluding loss, or damage due to: 
  • To boilers (other than domestic boilers), economizers or other vessels, machinery or apparatus( in which steam is generated) or their contents resulting from their own explosion/implosion, 
  • Caused by centrifugal forces

Coverage For Air Craft Damage

Destruction or damage caused by aircraft, other aerial or space devices like balloons, rockets and artificial satellites and articles dropped there from ,excluding that caused by pressure waves.

Coverage For Strike, Riot, Malicious Damage

  • Riot: A violent disturbance of the peace by a crowd.
  • Strike: Hit forcibly and deliberately with one's hand or a weapon or other implement.
  • Malicious Damage: Is an act that intentionally or deliberately causes damage to personal, private or commercial property. Examples of malicious damage include vandalism and graffiti.
  • Any damages arising from the above perils will be covered.

Coverage For Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation

  • Storm: A violent disturbance of the atmosphere with strong winds and usually rain, thunder, lightning, or snow.
  • Cyclone: A system of winds rotating inwards to an area of low barometric pressure, with an anticlockwise (northern hemisphere) or clockwise (southern hemisphere) circulation; a depression.
  • Typhoon: A tropical storm in the region of the Indian or western Pacific oceans.
  • Tempest: A violent windy storm.
  • Hurricane: A storm with a violent wind, in particular a tropical cyclone in the Caribbean.
  • Tornado: A mobile, destructive vortex of violently rotating winds having the appearance of a funnel-shaped cloud and advancing beneath a large storm system.
  • Flood: An overflow of a large amount of water beyond its normal limits, especially over what is normally dry land.
  • Inundation: to flood; cover or overspread with water; deluge.
  • Loss, destruction or damage directly caused by STFI is covered as per their as their popularly accepted meaning excluding those resulting from earthquake, Volcanic eruption or other convulsions of nature. (Wherever earthquake cover is given as an “add on cover” will be covered, where as the words“ excluding those resulting from earthquake ” shall not be covered).

Coverage For Subsidence And Landslide Including Rockslide

Loss, destruction or damage directly caused by Subsidence of part of the site on which the property stands or Land slide/ Rock slide excluding:
  • The normal cracking, settlement or bedding down of new structures
  • The settlement or movement of made up ground
  • Coastal or river erosion 
  • Defective design or workmanship or use of defective materials 
  • Demolition, construction, structural alterations or repair of any property or ground works or excavations will not be covered under this policy.

Add on covers

  • Terrorism: any loss or damages arising as an result of any terrorism activity will be covered if the insured chooses for the add on cover.
  • Earthquake: any damages arising out of earth quake,  will be covered if the insured chooses for the add on cover.

General Exclusions

  • It is important to note the type of consequential losses which are not covered under the policy
  • Under- insurance against property  damage under fire policies
  • The difference between value of stock at the time of the fire and value at the time of subsequent replacement 
  • Depreciation of undamaged stock after a fire accident.
  • Cost of preparation of fire and consequential loss claims.
  • Third party damage.
  • Failure to recover book debts owing to destruction of records. 
  • Loss of goodwill due to any peril.
  • Fines and penalties payable due to delayed fulfillment or cancellation of sale/ service contract
  • Loss of market due to any perils.