X FIRE INSURANC E

● Nature and scope of fire insurance

● Subject matter of fire insurance, Kinds of fire
insurance policies
● Fire perils
● Assignment of policies
● Doctrine of Re- instatement, Contribution,
Subrogation
● Settlement of Claims

A Fire Insurance Policy is a form of Property Insurance which provides reimbursement for
damage to the insured assets because of fire and allied perils. A Fire Insurance Policy also
known as Standard Fire & Special Perils Insurance Policy (SFSP Policy). A Fire Insurance Policy
pays for the cost to replace or repair the damaged assets. A Fire Insurance Policy is thus
essentially a form of Property Insurance which covers fire-related damage.
Fire Related Accidents have been all too common for Business Disasters. A small Short -
Circuit or an Explosion has destroyed huge Factories and Buildings. Fire Damage can result in
losses of Crores of Rupees. It can easily destroy years of savings and set your business back
by years.

● According to Section 2(6A) of The Insurance Act, 1938, "fire insurance business" refers to
the specific practice of creating contracts that provide insurance coverage against losses
caused directly by fire or by incidents typically covered under fire insurance policies.
● This definition excludes instances where fire insurance is provided incidentally as part of
another type of insurance business.
Now, it is essential to note that the term 'fire' in the fire insurance in India
must meet two specific conditions:
● There must be actual fire or ignition.
● The fire must be accidental.
For a property to be covered, it must be damaged or burned by fire. Damage caused solely
by heat or smoke, without ignition, does not fall under the definition of 'fire' for insurance
purposes. - Everett V/s
London Assurance. Co. 1895

Why is Fire Insurance Necessary, and for Whom?

What are the Perils covered under a Fire Insurance Policy?
● Fire
● Riots, Strikes and Malicious Damage
● Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and
Inundation
● Explosion /Implosion
● Lighting
● Impact Damage
● Subsidence, Landslides and Rockslides
● Bursting and/or Overflowing of Water Tanks, Apparatus and Pipes

Principle of Insurable Interest

Insurable Interest means that a person benefits from the continued presence of the asset or
is prejudiced by the loss of the subject-matter. Principle of Insurable Interest in a Fire
Insurance Policy means that the Insured can insure only those assets which he benefits from.
Insurable Interest must exist at the time of purchasing the fire insurance policy, during the
currency of the policy as well as at the time of loss.

Principle of Utmost Good Faith

Uberrimae Fidei or Principle of Utmost Good Faith is another important principle of Fire
Insurance and means that all parties to an Insurance Contract must make a complete
declaration of all facts that are material for accepting or declining the Fire Insurance
Proposal. The Insured has a duty to disclose all material facts and not conceal, misrepresent,
or withhold any material facts which might change the decision of the insurance company to
accept or reject the risk proposal.
Excellence and Service

Principle of Proximate Cause

Proximate Cause needs to be identified when 2 or more causes are responsible for the loss.
In that case, the Proximate Cause or the dominant factor which has caused the loss needs to
be determined. If the Proximate Cause falls within the perils named in a Fire Insurance
Policy, the claim is payable. If the Proximate Cause does not falls within the perils named in a
Fire Insurance Policy or falls within the exclusions in a Fire Insurance Policy, the claim is
repudiated.

Principle of Indemnity
The Principle of Indemnity in a Fire Insurance Policy aims to place the Insured in the same
financial position after the loss as the Insured was in before the occurrence of the loss. As
per the Principle of Indemnity, the Insured is not allowed to make a profit from his insurance
policy.

Principle of Subrogation
Principle of Subrogation allows the Insurance Company to recover losses from a negligent
third party after it has paid the losses to the Insured Party. The Principle of Subrogation
places the Insurance Company in place of the Insured, allowing the Insurance Company to
pursue all rights and remedies available to the Insured to recover his losses. Additionally, the
Insurance Company is allowed to recover losses only after payment of the claim to the
Insured, and any excess amount that the insurance company receives should be remitted
back to the Insured.
Add-On Covers..
● Damages due to Earthquake
● Damages due to Storm, Tempest, Flood, Inundation, Hurricane,
Cyclone, Typhoon and Tornado Damages due to Terrorism
● Removal Of Debris
● Architects and Surveyors Fees
● Spontaneous Combustion Cover
● Start-Up Expenses
● Omission to Insure Additions, Alterations or Extensions
● Escalation
● Forest Fire

HISTORY OF FIRE INSURANCE

● The development of fire Insurance can be traced back to 1601 A.D. when the Poor Relief
Act was passed in England. Vide this act, letters called “briefs” were read from the church
asking for collections from the public to help those who suffered losses from fire.
● There was a great fire in London–a historical disaster– in which within span of three days
from 2nd to 5th Sept.’1666, 80% of the city was destroyed which sowed the seeds of fire
Insurance.
● First, only buildings were insured and the first fire office was established by a builder
Nicholas Barbon in 1680. In 1708, Charles Povey founded the Traders Exchange for insuring
movable goods, merchandise and stocks against loss or damage and this was the first to
insure both the building and its contents

FEATURES OF FIRE INSURANCE

● Offer & Acceptance : It is a prerequisite to any contract. Similarly, the property will be
insured under fire insurance policy after the offer is accepted by the insurance company.
Example: A proposal submitted to the insurance company along with premium on 1/1/2011
but the insurance company accepted the proposal on 15/1/2011. The risk is covered from
15/1/2011 and any loss prior to this date will not be covered under fire insurance.
● Payment of Premium: An owner must ensure that the premium is paid well in advance so
that the risk can be covered. If the payment is made through cheque and it is dishonored
then the coverage of risk will not exist
● Deliberate Act: If a property is damaged or loss occurs due to fire because of deliberate
act of the owner, then that damage or loss will not be covered under the policy
● Claims: To get the compensation under fire insurance the owner must inform the
insurance company immediately so that the insurance company can take necessary steps to
determine the loss.

The following items are included in fire insurance

● Buildings
● Electrical installation in buildings
● Contents of buildings such as machinery, plant and equipments,
accessories, etc.
● Goods (raw materials, in–process, semi–finished, finished,
● packing materials, etc.) in factories, godowns etc..
● Goods in the open
● Furniture, fixture and fittings
● Pipelines (including contents) located inside or outside the compound,
etc
 PHYSICAL MORAL
HAZARDS IN FIRE INSURANCE

Physical Hazards
Physical hazards are concerned with material features or arises from the subject matter of
fire insurance can be building, shops, factory, go downs or any houses or any materials etc.
Every one of these can be insured. From the proposal form itself, physical hazards can be
estimated. For this purpose, the following aspects of the subject matter are to be
considered.
1- Construction of building: knowledge about the structure of the building is to be estimated
first. The materials used for construction of walls of the building its terrace, floors, doors etc.
are to be considered for this purpose. In addition to this the age of the building / house, its
height, number of floors in the building quality and use of woods in the building, etc. are
also to be verified. From each of these factors, the physical hazards can be estimated.

2. Use of the building or premises: The fire insurance hazards also influence the building or
its premises for what purposes the building is used. The building or its premises can be used
for housing, shop, godown, office, hotel, school, hospital etc. The nature of materials kept in
the building or the purpose for which the building is used, may increase or decrease the
chances of fire insurance hazards. For example, the building or premises which are used for
keeping explosive items, or inflammable materials, etc. increase the hazards.
3. Location of the building or premises: The location of the building or the premises
influences the occurrence of fire insurance hazards. The use of the house may not increase
the hazards, but the location of the building can increases the chance of fire hazards. For
example, explosives shop near to a cloth shop. There is very rare chance of fire from the
cloth shop. but its nearness to an explosive shop increases the chances of fire.

4. Electrification: The method of electrification or its nature can increase or decrease the fire
insurance hazards.
5. Interior Decoration: At the present time of modern style of living, interior, decoration of
the house/ building is a usual matter. The interior decoration is done with the materials like
wood, cloth, paper, and paper board, synthetic insulating materials etc. All these materials
increase the chances or fire hazards.

Moral Hazards
Moral hazards are the outcome of nature, behaviour and attitude of people. Carelessness,
dishonesty, negligence, insanity, lock of proper education, social and economic structure of
the society etc. are the causes of moral hazards. The various causes of moral hazards are –
1. Dishonesty: With evil intention, the insured property sets on fire. This is done to claim
higher amount for less costing property. In many occasions such people make efforts in
charging claim for higher amount.
2. Negligence: In many occasions, due to negligence of the insured or his employees; the fire
takes place in the building or the goods. By hiding the truth, the claim is received from the
insurer.
3- Un-cordial Industrial Relations: In many occasions, due to un-cordial relations between
the employer and employees, the insured property is set on fire. The insured then claims the
loss from the insurer.
4. Damage Reputation: Sometimes the insured keeps mean mentality towards the insurer,
and in order to exploit the reputation of the insurer claims are made for such losses also
5- Non- taste for reducing risks: It is the duty of the insured to take necessary steps to
reduce the effects of fire, when a fire is broken in the premises/ building. But many insured's
never take any suitable step to reduce the risk.

● According to Section 2(6A) of The Insurance Act, 1938, "fire insurance business" refers to
the specific practice of creating contracts that provide insurance coverage against losses
caused directly by fire or by incidents typically covered under fire insurance policies.
● Heating unaccompanied by ignition is not fire. “Loss or damage” occasioned by fire means
loss or damage either by ignition of the articles consumed or by damage either by ignition of
the articles caused or by ignition of that part of the premises, where the article is.
In the following cases, the loss by fire is not considered
● Loss of goods by excessive heat due to the closure of doors and ventilations.
● The damage of goods due to heavy humidity
● Change in state of products due to environmental factors.
● Evaporation of items by chemical reactions or heat.
● Damage of articles due to heavy temperature
● Damage by explosives provided the explosion causes no actual
ignition
● Damage from lightning provided it does not cause actual ignition.
● Loss or damage by earth quake, riot, military power or civil
commotion.
● Damage to articles as a result of smoke without flame.
● The loss or damage caused by electricity.

The losses by the following instances or losses subsidiary to fire are as follows:
● Damage which occurs as a result or smoke or of putting out the fire would be covered by
the fire risks
● Any loss resulting from apparently necessary and bona fide efforts to put out a fire,
whether it be by spoiling goods by water or throwing articles of furniture out of window, are
covered by the fire risks
● Even by damages to a neighboring house by explosion done for the purpose of arresting
fire, would be covered by the fire risks.
● Every loss directly or if not directly at least consequently resulting from the fire is within
the policy (In Stanley V/s Western Ins. Co., 1968)
● Loss of theft during a fire is covered as a fire risk
● Loss by fire caused by the insured’s negligence may be covered by
the policy (IN Harris V/s Poland, 1941).

Procedure of Effecting Fire Insurance

● Selecting the Insurer

● Filling of proposal form
● Inspection of the property
● Payment of premium
● Issue of Cover note/ Policy document in lieu of
acceptance of the proposal
● Settling of Claim

Selection of insurer
● The selection of the insurance company is the first step. The insured is required to select a
suitable company for this purpose amongst a large number of companies engaged in this
business.
● The proposer can select any of these companies according to his convenience, rationality,
goodwill of the company, its financial soundness, premium rates, policies and services
provided etc
● Magma HDI Fire Insurance
● National Insurance Fire Insurance
● Oriental Fire Insurance
● SBI General Fire Insurance

Fire insurance premiums - what factors influence these costs?

● Property Value: Higher-value properties require higher premiums.
● Location: Properties in high-risk areas have higher premiums.
● Construction Materials: Fire-resistant materials can lower
premiums.
● Covered Perils: Comprehensive coverage increases premiums.
● Fire Prevention Measures: Safety features like alarms and sprinklers
reduce premiums.
● Usage of Property: Industrial and commercial properties generally
have higher premiums.

Filling of Proposal Form

Description of the property. This would include:
● Construction of external walls and roof, number of storeys.
● Occupation of each portion of the building.
● Presence of hazardous goods.
● Process of manufacture.
● The sums proposed for insurance.
● The period of insurance.
● History of previous losses.
● Insurance history - whether previously other insurers had declined the
risk, etc

Inspection of the property

● In case of property of any business organization, whether manufacturing or other type of
organization, a risk inspection report is submitted by the insurer’s engineers. The engineers
submit in their report the nature of risk involved in the factory/ manufacturing unit
Excellence and Service
 Payment of Premium
● Based on the proposal form and the inspection report of the engineers, the insurance
company will submit the premium rates to the property owner and if these rates are
acceptable to him then he should pay the amount to the insurance company. It is also a legal
requirement under section 64VB of Insurance Act 1938 that the premium is paid in advance
in full to the insurance company

Issue of Cover note/ Policy document

● On receipt of a completed proposal form and / or inspection report, the cover note is
issued, pending preparation of the policy document. The cover note is an unstamped
document issued to provide evidence of cover till the time the policy is issued. The cover
note provides insurance against specified perils on the usual terms and conditions of the
company’s policy
● The printed policy form provides for a schedule in which the individual details of the
contract are typed. The items are similar to those in the Cover Note but with more detailed
information. After issuing the policy document, it is likely that there may be some changes in
the nature of property or sum insured may increase or decrease. In this case, these changes
can be incorporated by way of endorsements which are issued to record changes such as
alteration in risk, increase or decrease of sum insured, etc

THE FIRE INSURANCE DOES NOT COVER THE FOLLOWING RISKS KNOWN AS GENERAL
insured property by nuclear peril.
● Loss, destruction or damage caused to the insured property by
pollution or contamination.
● Loss, destruction or damage to any electrical and / or electronic
machine, apparatus, fixture or fitting arising from or occasioned by over-running, excessive
pressure, short circuiting, arcing, self-heating or leakage of electricity, from whatever cause
(lightning included)
● Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or
damage of any kind or disruption whatsoever

EXCLUSIONS
● Loss, destruction or damage caused by war, and kindred perils.
● Loss, destruction or damage directly or indirectly caused to the

Costs incurred in Preparing a Claim for damages due to Fire Damage to stock in cold storage
due to change in temperature. Unoccupied premise after Loss for 12 months. Theft
after/during fire

Claim to be made known within the period of 12 months from the happening of the loss or
damage - NATIONAL INSURANCE CO. LTD. Vs: SUJIR GANESH NAYAK & CO. & ANR:
21/03/1997

PROCEDURE TO SETTLE THE FIRE INSURANCE CLAIM

● If there are any damage or loss arising due to fire then the policy holder should
immediately inform the insurance company in writing and with estimated amount of loss
● Survey Report: If the amount of loss is small (i.e. up to Rs. 20,000/-), the insurance
company may depute an officer to survey the loss and decide on the settlement of the loss
on the basis of the claim form and the officer’s report. However, in large losses, it is
mandated to appoint a licensed surveyor to assess and settle the loss.
● A surveyor is an insurance intermediary who is licensed by IRDAI to investigate, manage,
and quantify losses. They are responsible for assessing the damage to property

The survey report would generally deal with the following matters:
● Cause of loss.
● Extent of loss.
● Details and value of salvage, and how it has been disposed of or
proposed to be disposed of.
● Details of expenses (e.g. fire brigade expenses).
● Compliance with policy conditions and warranties.
● Details of other insurance policies on the same property, and the
apportionment of the loss and expenses among co-insurers

Claim form
The policy holder will submit the claim form with the following information :
● Name and address of the Insured.
● Date of loss, time and place from where the fire started.
● Cause of fire.
● Details of the property damaged such as description, etc.
● Value at the time of fire, value of salvage and the amount of loss.
● Details of other policies on the same property giving the name of the insurer, policy
number and sum insured.
● Fire Brigade report details.
● F.I.R. at the nearest police station regarding third party liability, if any.

Burden of proof
● It is the responsibility and duty of the insured to show that loss was caused by fire. This
makes out a prima facie case on his part.
● The insurer may then show in defense that the fire was caused by the insured himself or
that it was due to his connivance.
In Slattery v. Mance ( 1962)
" The Point which I have to decide depends on whether the principles enunciated in the
cases to which I have referred put the onus on the plaintiff, where the claim under the policy
is for 'loss by fire', to exclude a fire caused by his own act, The risk of fire insured against is
quite obviously not confined to an accidental fire. If the ship had been set alight by some
mischievous person without the plaintiff's connivance, there could be no doubt that the
plaintiff would be instilled to recover. Of course the plaintiff cannot recover if he was the
person who fired the ship Or was a party to the ship being fire.

Burden on insurer to prove fire was intentional

● Once the insured had shown that the loss was caused by fire, he had made out a prima
facie case and the onus shifts on the insurer to show on a balance of probability that the fire
was connived by the assured, it is decided in the case Murari Woolen Mills Ltd. v. United
India Insurance Co. Ltd. (2005) 3 CPJ 118 National Commission

● Always it is essential in a fire policy that fire must be the proximate cause of the loss. A
shop was insured against loss from any cause whatsoever except fire. A fire broke out on the
adjoining premises and spread to the rear of the plaintiff's shop but no further. While the
plaintiff was shifting his stock to safety, a mob attracted by the fire, tore down the shop
shutters and broke the windows for the purpose of plunder. It was held that the proximate
cause of the damage was not fire, but the lawless act of the mob so that the claim was
rejected only on that ground. (Marsden v. City and County Assurance, 1865).
● Insured Value
● Actual Value
● Market value
● Reinstatement value
● Agreed value
● Depreciated value

"reasonable care"
● Provisions as to the duty of the insured to take reasonable care of the thing insured
came into policies because no underwriter wished that his policy should become a license
for laxity. The questions arose as to what meaning is to be given to the words "reasonable
care". If they are taken to mean simple negligence, the very purpose of taking out an
insurance policy would be defeated.
● R.Birds - explained "Benevolent judicial construction avoided that consequence, by
reading the provisions not to deny liability where the insured has been only ordinarily
negligent, but only if there has been proven disregard of ordinary standards, a measure of
recklessness"

● Fraser v. B.N. Furman (Productions) Ltd. (1967) - failure to take precautions was done
recklessly
● "Reasonable' does not mean reasonable as between the employer and the employee. It
means reasonable as between the insured and the insurer having regard to the commercial
purpose of the contract, which is inter alias to indemnify the insured against liability for his
(the insured's) personal negligence. It is not enough that the policyholder’s
omission ....Should be negligent; it must be at least reckless

SIGNIFICANCE OF FIRE INSURANCE

● As a source for minimizing losses: Fire can destroy property in goods and fixed assets of
crores of rupees or can create damages to the business property. Fire Insurance indemnifies
losses or damages due to fire and resources the mental worries of businessmen.
● Decreases in probabilities of fire losses: The increasing uses of energy like petrol,
electricity, gas and other such items have increased the probability of losses or damages to
goods and property. In order to minimize this calamity, various type of fire extinguishing
devices has been discovered throughout the world. Moreover, the fire insurance is another
device to indemnity the losses thus removes mental worries by extending financial support.
Fire brigades are set up by the government and local bodies in every city and town to
extinguish fire to prevent loss of property.
● Decrease in social loss of fire: Social awareness has been created in the country to put out
fire and to reduce the effect of fire. The social organizations provide training to the people in
the use of the fire extinguishing devices and caution them in the use of such items which
causes or produces fire
● Asset valuation: Assets are valued for obtaining a fire insurance policy. It requires the
insured to be more cautious in protecting his property or goods.
● Helpful in business progress: Due to the facilities provide by the fire insurance companies,
the business enterprises undertake large scale production and invests in business and
marketing activities without any botheration. This leads to continuous progress in industrial
and commercial activities, lead to economic growth.
● Beneficial for new industries: The new industrial units usually face complex problems of
production, finance, competition and sales etc. In such a situation, they cannot afford the
losses/damages due to fire. The fire insurance relieves such entrepreneurs from worries by
indemnifying the loss/damages, if any, from the occurrence fire
● Credit facility: Where the assets are secured by fire insurance, it becomes easier for such
enterprises to get credit from banks and other financial institutions. This will increase the
credit worthiness of the enterpris
● Distribution of risks: Fire insurance is an effective device to distribute the risks in a group,
enabling the individual or the institution to maintain its efficiency