FIRE INSURANCE WHAT IS FIRE INSURANCE? 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. • A fire insurance policy typically has four different coverage areas. The dwelling portion refers directly to the home itself. The coverage for the dwelling should always be enough to adequately replace the home. Rebuilding expenses are often determined based on the actual square footage of the home in question. The portion referring to other structures includes the coverage of garages or sheds that are not part of the dwelling itself and are considered a separate area. Personal property is considered a separate coverage area as well and includes the contents within the home that are not part of the dwelling itself, for example furniture, electronics, computer equipment, clothing and jewelry. Personal property items of considerable value should be specifically listed as part of the fire insurance policy, items that are not explicitly valued tend to be compensated with a “standard” amount. • The fourth coverage area relates to additional expenses that exceed the insured’s usual cost of living as a result of the fire damage.
This can refer to the expenditures of temporary housing among other things, all incurred when forced to live away from your residence during the process of rebuilding or repairing. These expenses need to be documented in order to receive reimbursement later. Usually there is a limit set for additional expenses claimed. WHAT ARE THE MAIN TYPES OF FIRE INSURANCE POLICIES? o Specific Policy: The insurer is liable to pay a set amount lesser than the property’s real value. In this policy, the property’s actual value is not considered to determine the indemnity.
The average clause, which requires the insured to bear the loss to some extent, does not play a role in this policy. In case the insurer inserts the clause, the policy will be known as an average policy. o Comprehensive policy: This all-in-one policy indemnifies for loss arising out of fire, burglary, theft and third party risks. The policyholder may also get paid for the loss of profits incurred due to fire till the time the business remains shut. o Valued policy: This policy is a departure from the standard contract of indemnity. The amount of indemnity is fixed and the actual loss is not taken into consideration. Floating policy: This policy is subject to the ‘average clause’. The extent of coverage expands to different properties belonging to the policyholder under the same contract and one premium. o Replacement or Re-instatement policy: This policy is subject to the re-instatement clause, which requires the insurance company to pay for replacing the damaged property. So, instead of giving out cash, the insurer can re-instate the property as an alternative option. WHAT RISKS ARE COVERED IN FIRE INSURANCE? The Insurance Policy broadly covers losses due to: Fire, lightning, explosion and implosion
Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e. g. , paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Lightning may result in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy.
Explosion is defined as a sudden, violent burst with a loud report. An explosion is caused inside a vessel when the pressure within the vessel exceeds the atmospheric pressure acting externally on its surface. Implosion means bursting inward or collapse. This takes place when the external pressure exceeds the internal pressure. This policy, however, does not cover destruction or damage caused to the boilers (other than domestic boilers). Aircraft damage The loss or damage to the property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered.
However, destruction or damage resulting from pressure waves caused by aircraft travelling at supersonic speed is excluded from the scope of the policy. Riot, strike, malicious damage and terrorism The act of any person taking part along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc. ) is construed to be a riot, strike or a terrorist activity. Storm, tempest, flood and inundation Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all various types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall.
Flood or inundation should not only be understood in the common sense of the terms, i. e. , flood in river or lakes, but also accumulation of water due to choked drains would be deemed to be flood. Impact damage Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the course of their employment. Subsidence and Landslide including Rockslide:
Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide are covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land usually on a hill. Bursting and/or overflowing of water tanks, apparatus and pipes Loss or damage to property by water or otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered. Missile testing Destruction or damage due to impact or otherwise from trajectory/ projectiles in connection with missile testing operations by the Insured or anyone else, is covered.
Leakage from automatic sprinkler installations Damage caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured’s premises is covered. However, such destruction or damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered. Bush fire This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by fire, but excluding destruction or damage caused by Forest Fire.
WHAT RISKS ARE NOT COVERED IN FIRE INSURANCE? The following losses are not covered by fire insurance: o Loss due to fire caused by earthquake, invasion or act of foreign enemy, hostilities or war, military rising or rebellion or insurrection. o Loss caused by subterranean (underground) fire. o Loss caused by burning of property by order of any public authority. o Loss by theft during or after the occurrence of fire. o 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. However, most insurance companies also provide add-ons or extensions to their policies like, o Earthquake (Fire and Shock only) o Spoilage or Material Damage Cover o Leakage and Contamination cover These additional covers are available by payment of additional premium. TERMS & CONDITIONS: 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: o Ownership o Possession o Contract The term fire is used in its 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. The phrase ‘loss or damage by fire’ also includes the loss or damage caused by efforts to extinguish fire. The conditions for claim for loss under fire are: • 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. DETAILS OF A FIRE INSURANCE POLICY: Sum Insured Property can be insured on depreciated cost (market value) or replacement cost basis. But, in order to get full protection, insurance on reinstatement (replacement) basis is recommended.
Premium Premium rate depends on construction of building and occupancy. Discount/ loading in premiums are given based on past claims experience for risks exceeding Rs. 50 crores sum insured at any location Significant Exclusions The Insurance Policy does not cover the first Rs. 10, 000 (or as applicable) of each and every claim. Losses arising out of war and allied perils, theft, willful act or gross negligence, loss of earnings, loss to bullion, documents, currency etc. for an amount exceeding Rs. 10,000, unless expressly stated.
Excess 5 % of every claim resulting from Lightning, Storm, Tempest, Flood and Inundation, Subsidence and Landslide Main Extension o Earthquake (Fire & Shock) o Spontaneous Combustion o Deterioration of stocks in cold storage o Impact Damage due to own vehicles o Omission to insure additions o Architect, Surveyors & Consulting engineer’s fees in excess of 3 % of claim amount o Debris removal in excess of 1 % of claim amount. HOW IS A FIRE INSURANCE CLAIM SETTLED? Fire Insurance is governed by All India Fire Tariff effective from 31. . 2001 issued by Tariff Advisory Committee, a Statutory Body. It is a commercial policy covering building, offices, machinery, contents and personal belongings of the office. It mitigates the risk of loss of customers arising from fire breakout. The insured should take all possible steps to minimize the loss. When insurance companies pay losses on claims it is either based on actual cash value or replacement value. Actual cash value commonly refers to the fair market value of the home at the time the loss or damage is incurred.
Replacement value means the insured would be compensated for the entire cost or replacing, repairing, or rebuilding the home. Actual cash value can be considerably less than the replacement value and is usually less preferable. Calculation of Fire Insurance Amount/Premium: The market value of the property is considered while insuring the sum. The amount of premium depends on a number of factors and individual policies of different insurers. Fire Insurance Claim Procedure: ? The documents required for Fire Insurance Claim are: o True copy of the policy. o Report of fire brigade. Claim Form o Photographs o Past claims experience ? Individuals/corporates must inform insurer as early as possible, in no case later than 24 hours. ? Provide relevant information to the surveyor/claim representative appointed by the insurer. ? The surveyor then analyzes the extent/value of loss or damage. ? The claim process takes anywhere between one to three weeks. CONSEQUENTIAL LOSS (FIRE) INSURANCE POLICY/ LOSS OF PROFIT POLICY: Fire and Special Perils Policy compensates only for Material Damage to the insured property. It specifically excludes any consequential loss.
In case of a major loss caused by Fire, there could be an interruption in business operation leading to reduction in turnover finally resulting in possible loss of profits. However, standing or fixed charges continue to accrue regardless of whether there is any production or not. Such loss cannot be covered under Fire policy. Consequential Loss Policy compensates for the Revenue loss suffered by the enterprise. Hence, for complete protection to the business enterprise and its profitability Consequential Loss Policy is very essential in addition to Fire Insurance Policy.
Scope of cover The Policy broadly covers loss of Net Profit on account of interruption of business, consequent upon Material Damage to property due to fire. It also covers standing charges which continue to be incurred during the period of interruption and the increase in cost of working necessarily and reasonably incurred to maintain the business as far as possible at its normal level, so that loss under net profit and standing charges is avoided or at least minimized. Sum Insured Sum to be insured under this policy is the estimated Gross Profit for the Indemnity Period selected.
Indemnity Period is the maximum period beginning with the occurrence of the damage, for which cover of Loss of Gross Profit is required and should reflect the maximum period anticipated for reinstatement of the damaged property. The maximum indemnity period permissible under the policy is 3 years. Premium Basis rate depends on Fire Insurance premium rate. Final rate is influenced by Indemnity Period chosen. Significant Exclusions The Insurance Policy does not cover Loss of gross profits, which is not consequent upon property damage due to an insured peril.
Loss due to material damage to property, difference between value of stock at the time of fire and the value at the time of subsequent replacement, deterioration of undamaged stock after fire. Main Extension Policy can be extended to suppliers’ and customers’ premises or public utilities, on which the business is dependent and cost of Auditors fees, required submitting claim on Insurer. COMPANIES PROVIDING FIRE INSURANCE POLICIES: ? United India Insurance Company Ltd. ? New India Assurance Company Ltd. ? ICICI Lombard ? Oriental Insurance Company Limited