STANDARD FIRE POLICY

Submitted by – Vicky Kumar

Roll .No. 1574 (Sem.–IV), B.A. LL.B. (Hons.)
Submitted to :- Dr. Shivani Mohan

CHANAKYA NATIONAL LAW UNIVERSITY

PATNA

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Date of submission:- 12/04/2018

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 TABLE OF CONTENTS

1. Introduction …………………………...………………….………….. 05

2. Introduction to All India fire tariff………….………………..07

3. Fire and special peril policy…………………………….…….. 11

4. Fire hazards and fire prevention………………………………17

5. Claim legal aspects…………………………….……………………...19

6. Bibliography……………………………….………………….………. 23

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 ACKNOWLEDGEMENT

Writing a project is one of the most significant academic challenges, I have ever faced. Though this
project has been presented by me but there are many people who remained in veil, who gave their all
support and helped me to complete this project.

First of all I am very grateful to my subject teacher Dr. Shivani Mohan, without the kind support of
whom and help the completion of the project was a herculean task for me. He donated his valuable time
from his busy schedule to help me to complete this project and suggested me from where and how to
collect data.

I am very thankful to the librarian who provided me several books on this topic which proved beneficial
in completing this project.

I acknowledge my friends who gave their valuable and meticulous advice which was very useful and
could not be ignored in writing the project. I want to convey most sincere thanks to all my faculties for
helping me throughout the project.

Last but not the least, I am very much thankful to my parents and family, who always stand aside me and
helped me a lot in accessing resources & educational facilities.

I thank all of them !

Vicky Kumar

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 INTRODUCTION

A fire insurance is a contract under which the insurer in return for a consideration (premium) agrees
to indemnify the insured for the financial loss which the latter may suffer due to destruction of or
damage to property or goods, caused by fire, during a specified period. The contract specifies the
maximum amount, agreed to by the parties at the time of the contract, which the insured can claim in
case of loss. This amount is not, however , the measure of the loss. The loss can be ascertained only
after the fire has occurred. The insurer is liable to make good the actual amount of loss not exceeding
the maximum amount fixed under the policy.1 A fire insurance policy cannot be assigned without the
permission of the insurer because the insured must have insurable interest in the property at the time
of contract as well as at the time of loss. The insurable interest in goods may arise out on account of
(i)ownership,
(ii) possession, or (iii) contract.
A person with a limited interest in a property or goods may insure them to cover not only his own
interest but also the interest of others in them. Under fire insurance, the following persons have
insurable interest in the subject matter:-
 Owner
 Mortgagee
 Pawnee
 Pawn broker
 Official receiver or assignee in insolvency proceedings
 Warehouse keeper in the goods of customer
 A person in lawful possession e.g. common carrier, wharfing, commission agent.2
The term 'fire' is used in its popular and literal sense and means a fire which has 'broken bounds'.
'Fire' which is used for domestic or manufacturing purposes is not fire as long as it is confined within
usual limits. In the fire insurance policy, 'Fire' means the production of light and heat by combustion
or burning. Thus, fire, must result from actual ignition and the resulting loss must be proximately
caused by such ignition. The phrase 'loss or damage by fire' also includes the loss or damage caused
by efforts to extinguish fire.3

1
Balachandran, S., “Customer Driven Services Management”, Response books (A Division of Sage Publications), New
Delhi, 2001.
2
ibid
3
Mark S. Dorfman, “Introduction to Risk Management and Insurance”, Englewood Cliff, N.J., Prentice Hall, New Delhi,
2002.

4
The types of losses covered by fire insurance are:-
 Goods spoiled or property damaged by water used to extinguish the fire.
 Pulling down of adjacent premises by the fire brigade in order to prevent the
 progress of flame.
 Breakage of goods in the process of their removal from the building where fire is
 raging e.g. damage caused by throwing furniture out of window.
 Wages paid to persons employed for extinguishing fire.4
A claim for loss by fire must satisfy the following conditions:-
 The loss must be caused by actual fire or ignition and not just by high temperature.
 The proximate cause of loss should be fire.
 The loss or damage must relate to subject matter of policy.
 The ignition must be either of the goods or of the premises where goods are kept.
 The fire must be accidental, not intentional. If the fire is caused through a malicious or
deliberate act of the insured or his agents, the insurer will not be liable for the loss.5

4
Charles, P. Jones, “Investment Analysis and Management,” John Wiley and Sons (Asia) Pvt.Ltd., Singapore, 2002.
5
ibid

5
OBJECTIVES OF THE STUDY

In the project, the researcher aims

 To expound the concept of Standard fire policy

 To analyze the provisions of law on the subject of standard fire policy.

HYPOTHESIS

For the project research, in the light of the achieving the objectives of standard fire policy one should
have knowledge and means to achieve this

RESEARCH METHODOLOGY

For the project research, the researcher has primarily relied upon the Doctrinal method of research.

A Doctrinal Research means a research that has been carried out on propositions by the way of
analyzing the existing provisions, and cases by applying the reasoning power. It includes
conventional methods of research like library based research, searching upon some texts (writings or
documents), secondary data, etc.

The quality of doctrinal research depends upon the source materials on which the researcher depends
for his study.

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 Introduction to All India Fire Tariff

This Tariff applies to ―Erection All Risks/ Storage Cum Erection Insurance, Rating of Risks with
Sum Insured up to Rs. 100 cores. (Risks with Sum Insured above Rs. 100 crores and up to Rs. 1500
cores shall be rated by Insurers as per guidelines issued vide Circular 2001/7 dated 1st January, 2001,
Rules for Fire Protection -
I) Minimum Compulsory Requirements applicable to all risks irrespective of Sum Insured -
i) One portable fire extinguisher of Soda Acid or Water type for every 300 sq. m of
storage/erection site area or small bore hose reels as per Relevant Section of Fire
Protection Manual of TAC shall be provided. The location of fire extinguishers shall be
conspicuously marked by clearly visible signs. Checking and maintenances at regular
intervals shall be recorded.
ii) Trained fire fighting squad shall be maintained for the site.
iii) Watch and Ward facility shall be provided round the clock at the site/premises.
iv) One fire engine of 400 GPM x 100 PSI shall always be stationed at site.
Note - Not applicable to policy with Sum Insured up to Rs. 50 crores
v) Materials and equipments stored in buildings (sheds) or in open area shall be divided into sub-
units with the value, which shall not exceed 10% of the sum insured or Rs. 50 Crores whichever is
less. Wherever value of single equipment stored exceeds this limit, its value shall be taken as the
limit. The sub-units in open area shall be separated from each other by a distance of at least 15 m. In
case of storage buildings, firewalls of 9" thickness carried up to roof shall be erected without any
wall openings between the subunits.6
vi) Packing materials, scaffolding etc. combustible materials and liquids and explosive substances
should be stored at a 30 M safe distance from other buildings, plants and stores.
vii) Utmost attention should be paid to good housekeeping such as - Orderly storage; Periodic
removal of combustible packing material, either by burning on site at a safe distance of 100 M or
removal from the site; Clean-up of site at least once a week;
viii) Open flame work (welding, cutting etc.) requires utmost caution. All combustible materials
lying around must be removed or covered.7
ix) Grass and/or any other vegetation in and around the site are regularly removed.

6
Patil Kallinath, S., “Life Insurance Corporation of India, Its Products and their Performance Evaluation: A Special
Reference to Gulbarga District”, Ph.D. Thesis submitted to the Department of Commerce, Gulbarga University,
Gulbarga, 2002
7
Shriram Mulgund, “From Single to Sophisticated – Risk based Solvency Margins for the Indian Life Insurance Industry”,
IRDA Journal, December, 2002, pp.23-25.

7
x) "No smoking" rules must be enforced in areas exposed to fire (stores etc.) and in the vicinity of
hazardous operations.
xi) Living quarters should be well separated (100 M away) from construction site.
xii) In addition to above, the following fire prevention measures are recommended:
a) The site is secured by properly constructed fence.
b) Temporary buildings (offices, rest rooms, material stores etc.) be made of non - combustible
materials.
Classification of Risk
Risk may be defined as: The possibility of events, or combinations of events, occurring which have
an adverse impact on the economic value of an enterprise as well as the uncertainty over the outcome
of past events. It follows that any risk classification system should start by considering what the
―economic value‖ of an enterprise is. The Working Party considered the following definition of
economic value:
• Embedded Value comprising: Shareholder net assets (assets less liabilities) plus Value In-Force
(VIF) – the value of existing business relating to future income less costs, including the cost of
capital (covering both regulatory and other capital requirements as well as economic capital) and the
impact of taxes.
• Plus Goodwill relating to (a) the value of future new business, plus (b) future initiatives
to:
• Drive down costs,
• improve persistency and
• improve the risk: reward profile plus/minus various other frictional and structural items
such as Agency Costs.8
Risk classification refers to the use of observable characteristics such as gender, race, behavior, or
the outcome of genetic tests to price or structure insurance policies. Risk classification helps insurers
classify selected risks when underwriting. It allows them to group individual risks with similar
expected medical costs, compute the corresponding insurance premiums, and reduce adverse
selection (and potential moral hazard). Only risk characteristics correlated with expected claim costs
are useful for underwriting. Information on individual risk is seldom used to determine individual
participation in employer‐ or government‐sponsored plans, but is often observed in voluntary plans
and in long‐term insurance markets, where it serves to define accessibility, classify policyholders in

8
Ramesh Lal Dhanda, “Divisional Performance Evaluaiton of LIC Business in North Zone”, Ph.D. Thesis submitted to the
Department of Commerce, Guru Jambheshwar University, Hissar, 2002.

8
homogenous risk classes, and set the premiums of each risk class.From this, we arrive at the
following high level risk categories:9
• Market Risk – the risk that as a result of market movements, a firm may be exposed to fluctuations
in the value of its assets, the amount of its liabilities, or the income from its assets;
• Credit Risk – the risk of loss a firm is exposed to if a counterparty fails to perform its contractual
obligations (including failure to perform them in a timely manner) including losses from downgrades
and other adverse changes to the likelihood of counterparty failure;
• Insurance and Demographic Risk – the risk of adverse variation in life and general insurer and
pension fund claim experience as well as more general exposure to adverse persistency and other
demographic experience, and including adverse changes to assumptions as to future experience;
• Operational Risk – the risk of loss, resulting from inadequate or failed internal processes, people
and systems, or from external events.
Liquidity Risk
The high level categories cover threats to the quantum of embedded value i.e. threats to the amount
of realistic assets in excess of realistic liabilities. However, solvency is based not just on the amount
of assets relative to liabilities but also to how liquid these are. If assets are not sufficiently liquid,
they may have to be sold at a discount to market value to meet liabilities as they fall due and/or a
firm may have to borrow to cover the shortfall in liquid funds, giving rise to interest costs. In
extremis, a firm may find itself unable to meet liabilities as they fall due. There is thus the need to
consider the liquidity as well as the amount of assets relative to liabilities and thus we need to add a
high level category for Liquidity Risk which is defined as: The risk that a firm, although solvent,
either does not have available sufficient financial resources to enable it to meet its obligations as they
fall due, or can secure such resources only at excessive cost.
Risk to Goodwill – Strategy Risk
The categories considered so far relate to existing assets and liabilities and the embedded value
arising from these, but a large component of a firm‘s economic value relates to goodwill in respect of
future new business and initiatives to extract greater value from the existing book of business.
Thus a separate Strategy Risk category has been added to cover threats to the realization of the
goodwill of a firm in relation to future new business as well as future projects/initiatives to:
• reduce costs,
• improve persistency and
• optimize risk profile.

9
Ajay Mahal, “Assessing Private Health Insurance in India – Potential Impacts and Regulatory Issues”, Economic and
Political Weekly, February 9, 2002, pp. 559-569

9
This will cover
• Risks leading to actual strategic outcomes differing adversely to expectations;
• Risks which may inhibit strategy and strategic choices; and
• The risk that the strategy chosen is sub-optimal.
The risk that strategy is sub-optimal includes Agency Risk where the interests of management are
not aligned with the owners of a firm. Inter alia, Strategy Risks include threats which may
compromise the value of the firm‘s brand and its ability to leverage this to write profitable new
business.10

Aggregation and Diversification Risk

It is important in considering risk to look not just at the individual components but how they come
together as a whole. Risks may be super-additive, with the combined impact greater than the sum of
the individual parts. More often than not, risks are sub-additive with risks unlikely to crystallize to
the same extent simultaneously. Firms allow for this diversification benefit in assessing capital
requirements, but there is a risk that the combined impact may be greater than expected i.e. that the
diversification benefit is less than expected. Thus the common risk classification system has a final,
over-arching high-level category for Aggregation and Diversification Risk which is defined as: The
risk that the aggregate of risks across individual categories is greater than the sum of the individual
parts and/or that anticipated diversification benefits are not fully realized. Note that aggregation and
diversification is also considered as a sub-set of each highlevel category e.g. Market Risk will
include an Aggregation and Diversification Risk category to address the combined impact of
individual market risks such as equities and property. However this high-level category will consider
impact across the other highlevel categories e.g. between Market and Operational Risks.

10
Rejda, G.E., “Insurance and Risk Management”, Pearson Education Inc., Delhi, 2002.

10
 Fire & Special Peril Policy

The basic principles of insurance under common law 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 limit of sum insured suffered by the Insured as a result of damage or
destruction of the insured property by fire or other specified perils during a stated period.

The fire insurance is also subject to certain special principles evolved under common law.
Whether stated in the policy or not, the common law principles automatically apply to
fire insurance contracts. These are all called as implied condition. These relate to
1. Utmost good faith
2. Insurable Interest
3. Subject matter of insurance
4. Indemnity11
Utmost good faith
In ordinary commercial contracts the parties to the contract are required to observe only good faith
i.e. There should not be any fraudulent. However, in insurance contracts the legal doctrine of utmost
good faith applies. It means it is the duty of the insured to disclose all material facts bearing on the
insurance. The insurers rely entirely on information given by the proposer. The insurer can avoid the
contract if they provide that certain material information has not been given or has been incorrectly
given by the insured.
Insurable Interest
Insurable Interest, in simple terms, means the legal right of insure. To constitute insurable interest,
three essentials are required
1. There must be a physical object, capable of being destroyed or damaged by fire or other insured
perils.
2. This physical object must be the subject matter of insurance.
3. The insured must have some relationship to such object recognized by law, so that he
stands to benefit by its safety or be prejudiced by its destruction or damage.
Existence of the subject matter

11
Appa Rao, Machiraju, “Marketology”, IRDA Journal, July, 2003, p.20.

11
The subject matter of insurance must exist when the contract is affected and must be described
adequately to ensure that it can be identified in the event of loss. The insured can only recover up to
the extent of insurable interest, irrespective of sum for which he has insured.
Indemnity
The principle of indemnity, which arises under common law, ensures that the insured does not
recover more than actual loss suffered by him. The indemnity is subject to the terms and conditions
of the policy depreciation, salvage, underinsurance and policy excess. Elaborate risks covered under
Standard Fire and Special Perils Policy with provision of deductible excess. Which are the perils
covered under the standard Fire and Special Perils Policy?
The following perils are covered under standard fire and special perils policy
1. Fire
2. Lightning
3. Explosion / Implosion
4. Aircraft damage
5. Riot, Strike, Malicious damage
6. Storm, Tempest, Flood, Inundation, Hurricane, Cyclone, Typhoon and Tornado.
7. Impact by any Rail/ Road vehicle or animal
8. Subsidence / Landslide including rockslide.
9. Bursting and / or overflowing of water tanks, apparatus.
10. Missile Testing Operation.
11. Leakage form Automatic Sprinkler Installation
12. Bush Fire
Deductibles12
1. The first 5% of each and every claim subject to minimum of Rs. 10,000 /- in respect of each and
every loss arising out of Act of God perils such as lightning, STFI and Subsidence and Landslide
including Rockslide covered under the policy.
2. The first 10,000/- for each and every loss arising out of other perils. There are three types of
special policies available under the fire department for covering the stocks in the insured‘s premises.
1. Floater Policy
2. Declaration Policy
3. Floater Declaration Policy

12
Rajan, R.V., “Covering the Countryside – Opportunities and Issues in Rural Insurance”, IRDA Journal, September,
2003, pp.4-5.

12
Need for Floater Policy
These policies are issued where stocks are shuttered between different locations so that it is not
possible for the insured to specify the value of the stocks at each location. A floater policy can thus
be issued covering stocks in more than one location under one mount by charging 10 % extra
premium over and above the highest rate applicable to any one risk.

Floater Policy
In order to take care of stocks at various locations, the Floater Policies are issued with the
following conditions.
1. Single sum insured for all the stocks in more than one location.
2. Stocks kept in specified location only can be covered.
3. The rate shall be the highest rate applicable to insured's stocks at any location with a loading of 10
%.
4. In case Stocks in a process block are covered under the Floater Policy and the rate for the process
block is higher than the storage rate, the process rate plus 10% loading shall apply.
5. Presence of ―Kutcha" construction may be ignored.
6. If stocks situated within go downs / process blocks in the same compound are covered under
floater policy, no floater extra is chargeable.

Need for Declaration Policy

A Declaration policy is best suited for a client whose stocks are subject to frequent fluctuation during
the currency of the insurance. In case the insured avail an ordinary stock policy for a particular
amount and there is an increase in stock value during the policy period, the policy will not provide
the complete coverage. The condition of average will apply to the extent of increase in stock value.
Usually any increase or decrease in the value of stocks has to be intimated to the insurance company
so that stocks are adequately insured at all times. However, this is not only cumbersome procedure
for the insured but for the insurer as well, as endorsements would have to be passed and additional
premium charged or refunded as the case may be. To overcome this problem in cases where there is
a frequent fluctuation in the value of stocks, a declaration may be issued.

Declaration Policies
1. To take care of frequent fluctuations in stocks/stock values, Declaration Policies are issued.
2. The minimum sum insured shall be Rs 1 crore in one or more locations and the sum insured
should not be less than Rs. 25 lakhs in at least one of these locations.
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3. It is necessary that the declared values should approximate to this figure at sometime during the
policy year
4. Monthly declarations based on
a) The average of the values at risk on each day of the month or
b) The highest value at risk during the month shall be submitted by the insured latest by the last day
of the succeeding month.
5. If declarations are not received within the specified period, the full sum insured under the policy
shall be deemed to have been declared.
6. Reduction in sum insured shall not be allowed under any circumstances.
7. Refund of premium on adjustment based on the declarations/ cancellations shall not exceed 50%
of the total premium.
8. The basis of value for declaration shall be the Market Value anterior to the loss.
9. It is not permissible to issue declaration policy in respect of
i. Insurance required for a short period.
ii. Stocks undergoing process.
iii. Stocks at Railway sidings
10. If after occurrence of any loss it is found that the amount of last declaration previous to the loss is
less than the amount that ought to have been declared, then the amount which would have been
recoverable by the insured shall be reduced in such proportion as the amount of said last declaration
bears to the amount that ought to have been declared.

Floater Declaration Policies

Floater Declaration policies can be issued subject to a minimum sum insured of Rs 2 crores and
compliance with the Rules for Floater and Declaration Policies respectively except that the minimum
retention shall be 80% of the annual premium. Briefly explain the provisions of fire tariff regarding
rating of silent risks
1. Factories where no manufacturing / storage activities are carried out continuously for
30 days or more are eligible to be rated under silent risks.13
2. Retention of the premium shall be based on the appropriate storage rate or silent risk
rate of Re.0.80%o whichever is higher.
3. The silent rates are not applicable if a risk goes silent following a loss under the policy.
4. Risks becoming silent shall not be entitled to any discounts.

13
ibid

14
Add-on Covers
The insurer can issue the standard fire policy with added benefits at the option of the policyholders
by charging additional premium. These added benefits are as follows:
1. Architects, Surveyors and Consulting engineer‘s fees (in excess of 3% claim amount)
2. Debris removal ( in excess of 1% of claim amount)
3. Deterioration of stocks in cold storage due to power failure
4. Forest fire
5. Spontaneous combustion
6. Earthquake as per minimum rates and excess applicable as specified in the tariff.
7. Omission to insure additions, alterations or extensions.
On the basis of judicial decisions, the following losses are also covered by fire insurance.
(a) Goods spoiled or property damaged by water used to extinguish the fire.
(b) Pulling down of adjacent buildings by the fire brigade in order to prevent the spread
of fire.
(d) Wages paid to persons employed for extinguishing fire.14
Properties that are covered:
All moveable/ immoveable properties of the proposer on land (excluding those in transit)
broadly categorized as follows:
1. Building (including plinth and foundations, if required):
Whether completed or in course of construction (excluding the value of land). Interiors, Partitions
and Electricals.
2. Plant & Machinery, Equipments & Accessories (including foundations, if
required)
Bought Second hand.,Bought New, Obsolete Machinery
3. Stocks:
Raw Material
Finished Goods
In process
In trade belonging to Wholesaler, Manufacturer and Retailer.
4. Other Contents such as
Furniture, Fixtures and Fittings

14
Rajan, R.V., “Covering the Countryside – Opportunities and Issues in Rural Insurance”, IRDA Journal, September,
2003, pp.4-5.

15
Cables, Piping‘s
Spares, Tools and Stores
Household goods etc.
Exclusions: property, Causes and Perils
There are the three types of insurance coverage. Replacement cost coverage pays the cost of
replacing your property regardless of depreciation or appreciation. Premiums for this type of
coverage are based on replacement cost values, and not based on actual cash value. Actual cash value
coverage provides for replacement cost minus depreciation. Extended replacement cost will pay over
the coverage limit if the costs for construction have increased. This generally will not exceed 25% of
the limit. When you obtain an insurance policy, the coverage limit established is the maximum
amount the insurance company will pay out in case of loss of property. This amount will need to
fluctuate if homes in your neighborhood are rising; the amount needs to be in step with the actual
value of your home. In case of a fire, household content replacement is tabulated as a percentage of
the value of the home. In case of high-value items, the insurance company may ask to specifically
cover these items separate from the other household contents. One last coverage option is to have
alternative living arrangements included in a policy. If a fire leaves your home uninhabitable, the
policy can help pay for a hotel or other living arrangements.15

Main exclusions of the Standard Fire Product

The general exclusions are broadly classified as: Fire due to own fermentation, natural heating or
spontaneous combustion of stocks Burning by order of any public authority Explosion of boilers or
steam generating vessels and machinery subject to centrifugal force by its own explosion or
implosion Pressure waves generated by aircraft Total or partial cessation of
work/retarding/interruption of any process or operations arising out of riot, strike, malicious damage
Burglary, housebreaking, theft, larceny in any malicious act Impact damage by rail/road vehicle or
animal belonging to the insured or employee or any occupier of the premises Normal cracking,
settlement, bedding down, upheaval of land/structures, coastal or river erosion, defective design,
workmanship or use of defective materials Destruction or damage caused by forest fire Excess
amount mentioned in the schedule/policy i.e. the minimum amount of claim to be borne by the client
Loss or damage caused by war or warlike situations Loss or damage by pollution or contamination
except due to insured peril Loss or damage to electrical machine/apparatus which is the source of fire

15
ibid

16
Architects', surveyors' and consulting engineers' fees exceeding 3% and debris removal expenses
exceeding 1% of claim amount Any consequential losses

Fire Hazards and Fire Prevention

Fire safety refers to precautions that are taken to prevent or reduce the likelihood of a fire that may
result in death, injury, or property damage, alert those in a structure to the presence of an
uncontrolled fire in the event one occurs, better enable those threatened by a fire to survive in and
evacuate from affected areas, or to reduce the damage caused by a fire. Fire safety measures include
those that are planned during the construction of a building or implemented in structures that are
already standing, and those that are taught to occupants of the building. Threats to fire safety are
referred to as fire hazards. A fire hazard may include a situation that increases the likelihood a fire
may start or may impede escape in the event a fire occurs. Fire safety is often a component of
building safety. Those who inspect buildings for violations of the Fire Code and go into schools to
educate children on Fire Safety topics are fire department members known as fire prevention
officers. The Chief Fire Prevention Officer or Chief of Fire Prevention will normally train
newcomers to the Fire Prevention Division and may also conduct inspections or make
presentations.16
Key Element of a Fire safety Policy
o Building a facility in accordance with the version of the local building code
o Maintaining a facility and conducting yourself in accordance with the provisions of the fire code.
This is based on the occupants and operators of the building being aware of the applicable
regulations and advice.
Examples of these include:
o Not exceeding the maximum occupancy within any part of the building.
o Maintaining proper fire exits and proper exit signage (e.g., exit signs pointing to them that can
function in a power failure)
o Compliance with electrical codes to prevent overheating and ignition from electrical faults or
problems such as poor wire insulation or overloading wiring, conductors, or other fixtures with more
electric current than they are rated for.

16
The Bureau, “Deloitte Advices to Dovetail Growth Plans”, The Hindu Business Line, December 1, 2003.

17
o Placing and maintaining the correct type of fire extinguishers in easily accessible places.
o Properly storing and using, hazardous materials that may be needed inside the building for storage
or operational requirements (such as solvents in spray booths).
o Prohibiting flammable materials in certain areas of the facility.
o Periodically inspecting buildings for violations, issuing Orders To Comply and, potentially,
prosecuting or closing buildings that are not in compliance, until the deficiencies are corrected or
condemning it in extreme cases.
o Maintaining fire alarm systems for detection and warning of fire.
o Obtaining and maintaining a complete inventory of fires tops.
o Ensuring that spray fireproofing remains undamaged.
o Maintaining a high level of training and awareness of occupants and users of the
building to avoid obvious mistakes, such as the propping open of fire doors.
o Conduct fire drills at regular intervals throughout the year.17
Common Fire Hazards
Some common fire hazards are:
o Kitchen fires from unattended cooking, such as frying, broiling, and simmering
o Electrical systems that are overloaded, resulting in hot wiring or connections, or
failed components
o Combustible storage areas with insufficient protection
o Combustibles near equipment that generates heat, flame, or sparks
o Candles and other open flames
o Smoking (Cigarettes, cigars, pipes, lighters, etc.)
o Equipment that generates heat and utilizes combustible materials
o Flammable liquids and aerosols
o Flammable solvents (and rags soaked with solvent) placed in enclosed trash cans
o Fireplace chimneys not properly or regularly cleaned
o Cooking appliances - stoves, ovens
o Heating appliances - fireplaces, wood burning stoves, furnaces, boilers, portable heaters
o Household appliances - clothes dryers, curling irons, hair dryers, refrigerators, freezers
o Chimneys that concentrate creosote
o Electrical wiring in poor condition
o Batteries

17
ibid

18
o Personal ignition sources - matches, lighters
o Electronic and electrical equipment
o Exterior cooking equipment – barbecue

Claims Legal Aspects18

It's hard to believe, but the last thing you might expect to happen is an insurance company denying
your death benefits under a life insurance policy. Believe it or not, but this happens all the time and
insurance companies, under certain situations, can and will deny a death benefit claim. In this article,
we briefly explore the issues involved when an insurance company fails to make payment of
proceeds of a claim. If you are a beneficiary under a policy, here are some things you should be
aware of:
Contestability: The insurer has the right to deny payment under a claim during the "contestable"
period. Stated simply, if the insured (the person who bought the policy) dies within less than 2 years
after the policy was issued, the company can investigate the insured's responses on the application
for insurance. Typically, the company will request to review the medical records of the insured. If
the insurer discovers that the applicant misrepresented his or her medical condition, or omitted
pertinent information, it can deny payment. The law allows insurance companies to take such action.
Even if the denial occurs, however, it doesn't mean that the beneficiary doesn't have recourse.
Certain arguments may be available to the beneficiary to counter the denial of the claim.

Materiality: In general, for a company to deny payment under a policy, the misrepresented or
omitted fact must be material in nature. A particular fact is "material" if, had it been fully and
correctly disclosed on the application, the insurer would have either denied coverage or provided
coverage to the insured under different terms. Unfortunately for the beneficiary, it is not difficult to
prove that the fact at issue was material.

Knowledge and Belief: To assess whether the applicant made a material omission or
misrepresentation on the application, the lawyer for the beneficiary must examine the application
itself. Many applications contain language which requires the insured to attest to his or her
"knowledge and/or belief" that the information provided is accurate. Such language is critical

18
Harrington and Niehans, “Risk Management and Insurance”, Tata McGraw Hill Publishing House Limited, New Delhi,
2004.

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because it may impose a tougher burden on the company to prove that a misrepresentation was made.
For example, if the insured stated he did not see a doctor in the last 5 years, even though his medical
records indicated otherwise, and his statement was made honestly and not with an intention to
deceive, arguably there is no misrepresentation.

Disclosure of Information to the Agent: In some situations, the insured might have disclosed
information about his medical condition to the agent, and the agent failed to transmit that information
on the application. In such case, the company may be legally charged with having knowledge of such
information. For this reason, it is important to go over the application process carefully with your
attorney. If your claim for life insurance proceeds has been denied; you may take the following steps
to pursue your rights:
1) Contact an attorney who is familiar with insurance law.
2) ask the attorney if he charges on an hourly basis or contingency fee. If he or she
charges hourly, find out the hourly rate.
3) Ask the attorney to provide you with a copy of the fee agreement.
4) ask the attorney whether your claim is viable and, if so, what arguments and defenses
might be raised.
5) ask the attorney if he or she will try to settle your claim before litigation or if he or she
will sue immediately.

Legal Aspects of Insurance Contracts19

Contract of indemnity:-Indemnity means that the insured person is placed, financially, in the same
position, as he was before the loss. The exceptions to the rule are found in Personal Accident
Policies, Agreed Value policies in Marine Insurance and valuables and reinstatement policies like in
Engineering policies. These are also contracts of indemnity but by a special application of the
principle, the measure of indemnity is decided at the time of entering into the contract itself.

Good faith & Utmost good faith:- Both the parties to a contract are expected to observe good faith.
However, the good faith assumes utmost importance when Material Facts are concerned and
therefore utmost good faith should be observed on matters relating to Material facts. (A material fact
is the information, which acts as a criterion for acceptance of insurance contract and the price at

19
ibid

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which to do so. The insurers, who issue the contract document, have the same duty to observe good
faith while issuing the policy and should ensure that there is no ambiguity in the contract wording).

Insurable Interest:- Insurance contracts without insurable interests have no sanction of the law as
they amount to speculation. The owner of a property has absolute insurance interest. When a person
insures a property, what is insured therein, is his interest in that property. By this principle, insurance
interest exists to other parties like lessor, lessee, financiers, etc., but their interest is limited to the
extent of their financial commitment only. The insurable interest must exist both at the time of the
proposal and at the time of claims. However, in the case of marine insurance contracts which are
assignable without the consent of the insurers, insurable interest must exist at the time of loss only
(Marine insurance contracts are governed by marine Insurance Act of 1963).

Existence of subject matter

Existence of subject matter of insurance is necessary.

Legality of parties to contract

At law, a minor cannot enter into a legal contract. However, so long as the contract is for the benefit
of the minor himself, such contract is valid. Contracts entered with person of unsound mind or with a
person from alien Country, are illegal.

Proximate cause
A loss could be due to a cause of causes. In the chain reaction, it is the dominant cause, which would
be the proximate cause to be considered for the purpose of a claim. It is always the duty of the
insured to prove that the loss arose out of the insured peril, which is proximate.

Consensus Ad Idem (of the same mind)

In Insurance contracts only one party - the proposer knows the details of the risk. He has a duty to
disclose particularly, material facts and the same should be understood by the other party to the
contract - the insurers. In other words, each party should understand what is proposed for insurance
and the same should be covered by the insurance contract. As the insurers issue the contract
document, any ambiguity in the contract wording will be read against the insurers as they have
drafted the contract. These conditions are mainly framed to achieve the principle of indemnity and to
ensure that the insured does not make any profit out of the loss.The express conditions include

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Contribution
Contribution condition is a corollary to the Principle of indemnity. If an insured obtains more than
one policy covering the same risk, he cannot recover the same loss from more than one source so that
he is not benefited by more than Indemnity‘. Contribution condition checks that each policy pays
only a ratable portion under each separate policy.
Subrogation
Subrogation condition is another corollary to the principle of Indemnity. A loss may occur
accidentally or by the action or negligence of third party (not workmen). The property owners have a
right to proceed against the offending third party to recover the loss/damage and also under their
insurance policy but not under both. If the insured opts to recover the loss under the insurance policy,
which is faster and does not involve litigation, he will surrender his rights against the third parties in
favor of the Insurers signing a ‗Letter of subrogation‘ on an appropriate stamp paper.An exception to
this is life insurance policies wherein insured/ beneficiaries can claim under an insurance policy and
also precede against the offending third party. Subrogation is the legal right of one person, having
indemnified the other in a contractual obligation to do so, to stand in the place of another and avail of
all the rights and remedies of the another, whether enforced or not.

Arbitration
When liability under the policy is admitted but the quantum is disputed, the insured cannot rush to a
Court of law without first referring the dispute to Arbitration as per ‗Indian Arbitration and
reconciliation Act -1996'. In keeping with the provisions of the Act, the insured may appoint an
arbitrator to be followed by appointment of another arbitrator by the insurers. They can also appoint
a single arbitrator, to represent both of them. If the two separate arbitrators cannot reach an
agreement, both the arbitrators can appoint a third arbitrator called umpire. The award of the
Arbitrators is binding on both the parties to the dispute and cannot be challenged unless a point of
law is involved. The jurisdiction of Arbitration proceedings is within Indian territory. However,
when foreign funding is involved, the financiers who are also joined in the policy as co-insured, may
insist upon conducting the Arbitration proceedings in their own country. In such a case, the insurers
may agree to modify the arbitration condition suitably.

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BIBLIOGRAPHY
1. https://www.irda.gov.in/ADMINCMS/cms/Uploadedfiles/54.SFSP%20-
%20Policy%20Wording.pdf
2. http://shodhganga.inflibnet.ac.in/bitstream/10603/11065/6/06_chapter1.pdf
3. http://newindia.co.in/Content.aspx?pageid=32
4. https://orientalinsurance.org.in/standard-fire-special-perils-policy
5. Young India, 26 June 1924 quoted in Village Swaraj Navjeevan Publishing House,
Ahmedabad, 1962.
6. Mid Term appraisal of the 11th Five Year Plan
7. Buckley, Robert, Alain Bertaud, and V. K. Phatak. 2005. “Property Rights and Interlocking
Policy Constraints on Urban Land Markets: Reforming Mumbai’s Real Estate Raj.” Paper
presented at the Land Policies and Administration for Accelerated Growth and Poverty
Reduction, New Delhi.
8. Land in Metropolitan Development: Some Policy Issues presented by L M Menezes at
Seminar on Land Development, April 17 & 18, 1982, Times Research Foundation, Calcutta.
9. Bill for amending Land Acquisition Act 2007 and Resettlement and Rehabilitation Policy
and Bill 2007.
10. Henry George, Progress and Poverty (1879) edited and abridged for modern readers by Bob
Drake, the Robert Schalkenbach Foundation, 2006
11. John Gummer (2004) ‘The moral argument against a development levy’ in Peter Bill (ed)
Building Sustainable Communities: capturing land development value for the public realm,
Smith Institute.
12. Vidyadhar K. Phatak, Is it Money Space Index finally? Hindustan Times, Mumbai Edition,
30th March 2008.
13. Eleventh Five Year Plan 2007-12 Inclusive Growth Planning Commission Government of
India, Oxford University Press New Delhi 2008
14. World Development Report 2009, Reshaping Economic Geography, The World Bank, 2009,
Washington DC

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