Fire Insurance: Info Guide

Fire Insurance

Brief info about Fire Insurance

In this module, we will explain various insurance policies related to non-life /general insurance. Non-life /general insurance means the insurance of various tangible or non-tangible assets other than human life. 

Even loss of human life or damage to the human body due to accidents are covered by general Insurance. Thus, human life relates to life insurance and the belongings i.e. properties of human beings fall under this category. Though there are various general insurance policies we will discuss only the following important policies:

What is the meaning of Fire Insurance? The term fire in fire insurance is interpreted in the literal and popular sense. There is fire when something burns. In other words, fire means visible flames or actual ignition. Simmering/smouldering is not considered fire in Fire Insurance. Fire produces heat and light but either of them alone is not fire. Lightning is not a fire but if it ignites something, the damage may be due to fire. Under section 2(6A) Insurance Act 1938, the fire insurance business is defined as follows: “Fire insurance business means the business of effecting, otherwise than independently to some other class of business, contracts of insurance against loss by or incidental to fire or another occurrence customarily included among the risks insured against in fire insurance policies”. 

Example: The following are the items which can be burnt/ damaged through fire: 

• Buildings 
• Electrical installation in buildings 
• Contents of buildings such as machinery, plant and equipment, 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. The owner of abovementioned properties can insure against fire damage through fire insurance policy which provides.

FEATURES OF FIRE INSURANCE: 

(Dear learner, most of the features to be discussed in the following paragraphs of Fire Insurance you must have studied under Principles of General Insurance in another module)

 

1) 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.

 

2) 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. It is as per section 64VB of Insurance Act 1938. (Details under insurance legislation Module).

 

3) Contract of Indemnity: Fire insurance is a contract of indemnity and the insurance company is liable only to the extent of actual loss suffered. If there is no loss, there is no liability even if there is fire. Example: If the property is insured for Rs 20 lakhs under fire insurance and it is damaged by fire to the extent of Rs. 10 lakhs, then the insurance company will not pay more than Rs. 10 lakhs.

 

4) Utmost Good Faith: The property owner must disclose all the relevant information to the insurance company while insuring their property. The fire policy shall be voidable in the event of misrepresentation, misdescription or non-disclosure of any material information. Example: The use of building must be disclosed i.e whether the building is used for residential use or manufacturing use, as in both the cases the premium rate will vary.

 

5) Insurable Interest: The fire insurance will be valid only if the person who is ensuring the property is the owner or having an insurable interest in that property. Such interest must exist at the time when loss occurs. It is well known that insurable interest exists not only with the ownership but also as a tenant or bailee or financier.

 

Banks can also have the insurable interest. Example: Mr A is the owner of the building. He ensured that building and later on sold the building to Mr B and the fire took place in the building. Mr B will not get the compensation from the insurance company because he has not taken the insurance policy being an owner of the property. After selling to Mr B, Mr A has no insurable interest in the property.

6) Contribution: If a person insured his property with two insurance companies, then in case of fire loss both the insurance companies will pay the loss to the owner proportionately. Example: A property worth Rs. 50 lakhs was insured with two Insurance companies A and B. In case of loss, both insurance companies will contribute equally.

 

7) Period of fire Insurance: The period of insurance is to be defined in the policy. Generally, the period of fire insurance will not exceed by one year. The period can be less than one year but not more than one year except for the residential houses which can be insured for the period exceeding one year also. 

8) Deliberate Act: If a property is damaged or loss occurs due to fire because of the deliberate act of the owner, then that damage or loss will not be covered under the policy. 9) 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.

Source of the article: pdf