Fire Insurance

Agenda
What is fire insurance? Meaning of fire & loss/damage by fire Characteristics of a Fire Insurance contract Perils covered & not covered by fire insurance Types of fire insurance policies Case studies

What is Fire Insurance?

Fire insurance is a contract to indemnify the insured for destruction of or damage to property or goods, caused by fire, during a specified period

The insurer is liable to make good the actual amount of loss not exceeding
the maximum amount fixed under the policy The document containing the terms and conditions of the contract is known as Fire Insurance Policy A fire policy contains the
name of the parties, description of the insured property, the sum for which the property is insured, amount of premium payable and the period insured against.

Meaning of fire & loss/damage by fire

Fire, in this context, means that
There must be actual fire or ignition It must be accidental or fortuitous in origin

Meaning of fire & loss/damage by fire

There must be actual fire or ignition
The loss must be caused by actual fire or ignition and not just by high temperature There should be rapid combustion that produces ignition and may result in flames Heating not accompanied by ignition is not fire
Eg1: Sugar spoilt by excessive heat due to closing of a ventilator in the godown Eg2: Contraction of timber due to heat of the sun

While putting out a fire, goods spoilt by fire etc.. are covered under a fire policy Ignition is, therefore, the acid test of fire & as such, there can be no claim without flame

Meaning of fire & loss/damage by fire

The actual fire (ignition) must be accidental or fortuitous in origin
Unless the fire owes its origin to an accident, it is not a fire within the meaning & intention of the policy
Eg: Fire lit for the purpose of cooking is not an accidental fire; but, if the fire accidentally goes out of control, it will come under the definition of fire

Standard Fire & Special Perils policy

The perils specified in the policy can be grouped as: Fire Perils
Fire Explosion / implosion Aircraft damage Lightning. Storm, cyclone, tempest, hurricane, tornado & flood Subsidence & landslide including rock slide

Social Perils
Riot, strike, malicious damage Terrorism (the optional cover)

Other perils
Impact damage Bursting or overflowing of water tanks & pipes Leakage from Automatic Sprinkler installation Missile testing operation Bush fire

Fire Perils
Fire - actual ignition by accident means, and does not include the following:
Property undergoing drying / heating process
Eg: During baking of biscuits, if due to excessive heat, the biscuits get burnt, it is an excluded loss

Fermentation, natural heating or spontaneous combustion of the property.

Eg. In chemical industry, mixing chemicals may result in exothermic reactions thus generating huge quantities of heat Exploding of a bomb due to an inherent defect in it

Burning by order of public authority

Explosion / Implosion
Explosion due to domestic boilers is covered, but explosion due to industrial boilers are covered under Boiler Pressure plant Machinery

Fire Perils
Aircraft Damage
Destruction/damage caused by aircraft, other aerial or space devices & articles dropped therefrom are covered Shattering of wall due to pressure waves is not covered.

Lightning, Storm, Cyclone, Tempest, Hurricane, Tornado & Flood

Losses due to earthquake not covered

Subsidence & landslide including rock slide

Subsidence Sinking of land or building to a lower level Landslide/Rockslide Sliding down of land usually on a hill

Social Perils
Riot, strike, malicious damage
Direct visible physical loss, destruction or damage by external violent means caused to the property excluding those caused by:
Total or partial cessation of work or retarding/interruption/ cessation of any process/operations Permanent or temporary dispossession resulting from confiscation, commandeering, requisition or destruction by order of the Government or any lawfully constituted authority Permanent or temporary dispossession of any building or plant or unit or machinery resulting from the unlawful occupation by any person of such building or plant or unit or machinery or prevention of access to the same Burglary, housebreaking, theft, larceny

Other Perils
Impact damage
Damage due to collision with third party. Impact damage from insureds own vehicle or vehicle of his employees while acting in the course of their employment is not covered

Bursting or overflowing of water tanks & pipes

Loss by water due to bursting or accidental overflowing of water tanks & pipes

Leakage from Automatic Sprinkler installation

Inadvertent leakage from sprinklers other than defects and repairs are covered

Missile testing operation

Any damage due to wrong firing of missiles is covered

Bush fire
Damage caused by burning of bush & jungles. Does not cover forest fire

General Exclusions
5% of each claim resulting from operation of lightning /storm/ tempest/ flood/ inundation/ subsidence & landslide covered under the policy Loss, destruction or damage caused by
war & kindred perils nuclear peril pollution or contamination

Loss, destruction or damage to unset precious stones or works of art, manuscripts, drawings stamps, coins or paper money and the like for an amount exceeding Rs 10000/ Loss or damage to the stocks in cold storage caused by change in temperature

General Exclusions
Loss, destruction or damage to any electrical/ electronic appliances, fixture or fitting caused due to over-running / excessive pressure/self-heating or leakage of electricity Expenses incurred on Architects, Surveyors & Consulting Engineers fees and Debris removal following a loss, destruction or damage to insured property in excess of 3% & 1% of the claim amount respectively

Types of fire insurance policies

Valued policy

Floating policy
Replacement or Re-instatement policy Consequential loss policy or Loss of profit policy Blanket policy

Types of fire insurance policies

Valued policy
Is a departure from the contract of indemnity In the event of loss, insured can recover a fixed amount agreed to at the time the policy is taken ,irrespective of the actual amount of loss It may be issued only on artistic work, antiques & similar rare articles whose value cannot be determined easily

Floating policy
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 Average rate of premium is fixed

Types of fire insurance policies

Replacement or Re-instatement policy
In the event of destruction by fire, the property/plant is replaced by similar type of property/plant In the event of damage, repair of the damaged property/plant is done Generally granted on building, machinery, furniture, fixture and fittings only

Consequential loss policy or Loss of profit policy

A policy that covers loss of profits due to temporary stoppage / suspension of business post the outbreak of fire Also covers standing charges such as salaries and other necessary expenses incurred in minimising the loss. Eg: employing extra person to rewrite the records, hiring a temporary accommodation etc..

Blanket policy
Covers all the fixed and current assets of an enterprise located at different places, by one insurance

Claim Procedure
Insured to give a written notice of loss with in 15 days from the date of loss to the insurer

Insured to produce a proof that loss by fire has occurred e.g: certificate from fire brigade authority
Insured to fill the prescribed form given by the insurer along with required documents & attestations Insurers assessing staff will inspect the loss & give their estimate of loss

On the basis of the claim form and the inspection report, the insurer then settles the claim

Case Study 1

Facts of the case:

Policy term: 1.4.85 1.4.86 No claim liable SA: Rs 25,00,000 /Nature of goods insured Dairy products Insured: M/s. Anjana Food Products Insurer: National Insurance Co. Ltd Insured has a godown at Borivali(E), Nehru Nagar On May 17th 1985, due to load shedding in Nehru Nagar, there was no electricity for the entire day. Since there was no provision of generator, the AC in the godown did not work as a result of which, 1500 cartons of curd got destroyed due to excessive heat Insured communicated to the insurer that he has suffered a damage worth Rs 5,25,000

What is your decision as an insurer?

Case Study 2
Yes

Facts of the case:

Mrs. Sanjana had taken a fire policy from ICICI Lombard for Rs10,00,000 AS she had undertaken renovation of the house, she removed all her gold jewellery from her cupboard, kept it in a stainless steel box with a lid on it in her kitchen shelf Later, having forgotten this, she accidentally kept the vessel on fire and the jewellery was damaged

Is the insurer liable?

Case Study 3
Yes

Facts of the case:

Mr. Nitin Sharma had a shop near Sahakar Cinema Theatre at Chembur Due to a sudden outbreak of fire in May08, the entire theatre suffered heavy damage. It took 6 hours for the fire engine to bring the fire under control Since Nitins shop was very close to the cinema hall, the walls of his ship fell due to the impact of the fire, even though they were not touched by the flames

Is the insurer liable?

Case Study 4
Yes

Facts of the case:

A insured his house against fire While smoking a cigarette, A fell asleep & dropped the burning cigarette on the floor due to which the entire house caught fire A escaped unhurt

Can the insured claim the loss?

Case Study 5
Yes

Facts of the case:

While trying to mitigate the loss by fire, an insured threw his furniture from the window down outside The furniture was broken

Can he recover the loss?

Case Study 6
Yes

Facts of the case:

Dhanush owns a terrace flat at Napeansea Road Last year, due to heavy lightning, the walls of his house suffered cracks

Can he recover the loss?

Case Study 7
No

Facts of the case:

Mr. Prakash deals in the business of export & import of dry fruits While transporting goods from his warehouse to the market in Hyderabad, the truck collided with a TATA Sumo belonging to one of his employees, as a result of which, the goods got severely damaged

Is the insurer liable?

Case Study 8
Yes

Facts of the case:

Mrs. Singh had taken a fire policy from TATA AIG For her sons marriage, she had taken permission from her society to construct a pandal near the gate of the building for preparing snacks & sweets for the occasion. Since the function was in the evening, food preparations began from the morning itself. At around 11 am, a jet flight carrying relief material to the flood affected areas in Gujarat, flew past Mrs. Singhs building Accidentally, 2 cartons of fruits fell on the pandal which directly landed on a pan of hot oil. Since there was a cylinder right next to the hot oil, the entire pandal caught fire

Can the insured recover the loss?