Fire Insurance: Meaning, Coverage, Types

Fire Insurance

Meaning:

·         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 loss can be ascertained only after the fire has occurred.

·         Property is well defined in fire insurance that is a thing or things belonging to someone; possessions collectively.

·         Fire insurance normally provides coverage for one year. It may renewable later on.

     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.

 

      The types of losses not covered by a fire insurance policy are:-

§   loss due to fire caused by earthquake, invasion, act of foreign enemy, hostilities or war, civil strife, riots, mutiny, martial law, military rising or rebellion or insurrection.

§   loss caused by subterranean (underground) fire.

§   loss caused by burning of property by order of any public authority.

§   loss by theft during or after the occurrence of fire.

§   loss or damage to property caused by its own fermentation or spontaneous combustion e.g. exploding of a bomb due to an inherent defect in it.

§   loss or damage by lightening or explosion is not covered unless these cause actual ignition which spread into fire.

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 amalicious or deliberate act of the insured or his agents, the insurer will not be liable for the loss.

              Properties that are covered:

All moveable/ immoveable properties of the proposer on land (excluding those in transit) broadly categorized as follows:

i. Building (including plinth and foundations, if required):

•                     Whether completed or in course of construction (excluding the value of land). Interiors, Partitions and Electricals.

•  Plant & Machinery, Equipments & Accessories (including foundations, if required)

•  Bought Second hand.

•  Bought New

•  Obsolete Machinery

                        Stocks:

•  Raw Material

•  Finished Goods

•  In process

•  In trade belonging to Wholesaler, Manufacturer and Retailer.

Other Contents such as

•  Furniture, Fixtures and Fittings

•  Cables, Piping‘s

•  Spares, Tools and Stores

•  Household goods etc.

Types of Fire Insurance Policies:-

 

§   Specific policy:- is a policy which covers the loss up to a specific amount which is less than the real value of the property. The actual value of the property is not taken into consideration while determining the amount of indemnity. Such a policy is not subject to 'average clause'. 'Average clause' is a clause by which the insured is called upon to bear a portion of the loss himself. The main object of the clause is to check under-insurance, to encourage full insurance and to impress upon the property owners to get their property accurately valued before insurance. If the insurer has inserted an average clause, the policy is known as "Average Policy".

§   Comprehensive policy:- is also known as 'all in one' policy and covers risks like fire, theft, burglary, third party risks, etc. It may also cover loss of profits during the period the business remains closed due to fire.

§   Valued policy: - is a departure from the contract of indemnity. Under it the insured can recover a fixed amount agreed to at the time the policy is taken. In the event of loss, only the fixed amount is payable, irrespective of the actual amount of loss.

§   Floating policy:- is a policy which covers loss by fire caused to property belonging to the same person but located at different places under a single sum and for one premium. Such a policy might cover goods lying in two warehouses at two different locations. This policy is always subject to 'average clause'.

§   Replacement or Re-instatement policy:- is a policy in which the insurer inserts a re-instatement clause, whereby he undertakes to pay the cost of replacement of the property damaged or destroyed by fire. Thus, he may re-instate or replace the property instead of paying cash. In such a policy, the insurer has to select one of the two alternatives, i.e. either to pay cash or to replace the property, and afterwards he cannot change to the other option.