Fire insurance everything you wanted to know 17012017

Fire Insurance
Everything you wanted to know !!!!
Lajpat Ray
Chandnani

What is Insurance?
It is a method of sharing Financial Losses of a
‘few’ from a common fund formed out of
contribution of ‘many’ who are equally exposed
to the same loss. It is a system of spreading the
losses of an Individual over a Group of
Individuals.

“A contract of Fire Insurance, is one under which
the company agrees to indemnify the insured, in
consideration of payment of the premium , in the
event of property insured under the policy being
lost or damaged by Fire or other perils
enumerated there under, to the extent of the
value thereof at the time of destruction or to the
extent of the time of destruction or to the extent
of damage in any case not exceeding the sum
insured”.
Definition of Fire Insurance :

Insurance Act defines Fire Insurance as the
business of effecting contracts of insurance
against loss by or incidental to Fire or other
occurrences customarily included among
the risks insured against in Fire insurance
policy.
Definition of Fire Insurance :

Fire and its Meaning under Fire Insurance :
Fire may be defined as a chemical reaction which is
accompanied by the emission of heat, light & smoke and a
combination of these is called a flame. There is said to be a
Fire within the meaning of Fire insurance when:
1.There is actual ignition.
2.The Fire is purely accidental or fortuitous in origin so far
as the insured is concerned.
3.The Fire has burnt/ damaged the property of the insured.


To start a Fire, there are three essential
factors:
A. There must be a flammable gas &
vapor.
B. There must be oxygen present.
C. There must be source of heat e.g.
flame or a spark.

Where the above conditions are fulfilled, there is a damage by Fire
whether by Fire itself or by heat or by smoke generated by it is
covered under Fire policy. However following damages are also
considered to be covered under the policy:
i.Smoke damage caused by Fire.
ii.Water damage in extinguishing Fire.
iii.Property demolished by Fire brigade to prevent Fire from
spreading.
iv.Damage done by Fireman in executing their duties.
v.Losses incurred by insured in attempting to check the progress of
Fire or to save property.
vi.Damage to property during removal from a burning building.
vii.Damage due to falling of walls as a result of Fire.

The term ‘Fire’ means accidental ignition or
burning. Mere scorching is not a loss by Fire
e.g. cloth being damaged by a hot iron, since
there is no ignition. The Fire may, however be
accidental or fortuitous in origin as far as the
insured is concerned. So long as the insured is
not a party to the occurrence of Fire, the loss
brought about by the Fire will be deemed to be
loss within the term of ‘Fire’.

Physical Hazard :
One of the most common source of Fire is electricity. Every year,
hundreds of Fire are caused by electricity or the misuse of
electricity or lack of understanding.
However there are other causes of Fire losses. E.g. welding,
dropped cigarettes, sparks from grinding, overheating, carelessness
etc.
The risk of a Fire starting is known as inception risk e.g. due to
ignition, sparks from machinery, overheating of machinery,
welding, volatile vapors from spray painting.
The risk of Fire developing & spreading is known as propagation of
risk e.g. paint, oil, combustibles part of structure which will burn.
Causes of Fire

OCCUPATIONAL HAZARD:
Inception hazard: The risk arises from an occupation, how a building is occupied
and the processes and hazard associated with such occupation. The nature of work
carried out included hazards such as :
Application of heat including drying
Heating appliances used
Use of non-flame proof electric in areas where flammable vapors are present.
Use of power machinery e.g., drills, lathers, compressors powered by electricity.
Gas, diesel etc.
Smoking
Grinding

The materials employed would include

Any combustible material present e.g. wood, plastic, paper, cloth.
Pressure of flammable liquids or gases.

Causes of Fire

Propagation hazard:

This type of hazard arising from the occupation of premises involves
an assessment of the quantity and nature of combustible material
exposed to loss, the purpose for which the building is to be used
and the materials it contains.

Light hazard Occupancies include: Hospitals, Hotels, Libraries,
Museum, Offices, School, College etc.

High hazard Category Included: Air craft hangers, Fire work
manufactures, foam plastic, rubber manufacturer, wood, wool
manufacturer etc.
Causes of Fire

Location and Exposure Hazard:

Location of building play an important role. Whether
building is located in large cities, town, areas of old &
closely sited building or often several stores in height,
amount of internal timber work, floors, stairs and roof
numbers. A Fire commencing in one such building can
readily spread to an adjoining building either because of
radiated heat or because there are unprotected opposing
windows or because the upsurge of heat of because there
are unprotected opposing windows or because the upsurge
of heat from the burning building can carry with it sparks
and flaming debris which may be deposited on an adjoining
roof.
Causes of Fire

Size of Building:

Larger building will always present greater
hazard because once Fire initiated will be
facilitated by the quantity of goods building
contains. Single storied building is less
hazardous than multistoried building.

Causes of Fire

Moral Hazard :
Moral hazard is an intangible aspect and as such it can not be quantified. The
insured who deliberately sets Fire to his premises perhaps in times of bad
trade, in order to reap the benefits of his insurance or he may act in collusion
with another to stage a theft of his own property with a similar aim.
A poor moral hazard is also shown by the insured who having a legitimate
claim proves uncooperative and avaricious in negotiation of claim settlement.
Some people make claims which even if justified may be grossly exaggerated.
They believe that whatever sum is claimed will for some reason be reduced by
insurer and there is therefore tendency to submit demands in excess of true
losses. While this is perhaps merely a fact of human nature it is certainly a
form of moral hazard. Insured should act as uninsured taking some
precaution for safety of his property as he would, if the policy did not exist.
Moral hazard can be considered under following headings:
 Housekeeping including waste disposal
 Management including labour relations, smoking discipline
 And network
Causes of Fire

Any person / firm / organisation / institution who may suffer financial loss in
the event of operation of insurable perils may insure such property under
the Fire policy. They may be broadly categorised as under :
1. Owners of Building and contents such as house hold articles,
furniture etc.
2. Shop Keepers.
3. Educational/ Research Institutions.
4. Hotels, Boarding and Lodgings, Hospitals, Clinics or such service
providers.
5. Industrial and Manufacturing Firms.
6. Godown Keepers.
7. Bailees, Lessor, Lessee, Banks, Financial Institutions, Mortgagors,
Mortgagees.
8. Traders in stocks.
9. Trustees, Charitable Institutions.
10. Transporters and C & F Agents.
Who can take the policy?

Important Definitions
POLICY: The promise to provide financial
compensation for any specified loss is made out
in a document called the policy.
COVER NOTE: A Provisional unstamped
document valid for a short period and used until a
policy is issued.

SUM INSURED: It is the amount for which the insurance is taken
and the insurer’s maximum liability is limited to this amount. The
block-wise sum insured should be declared in respect of the following
1. Building
2. Machinery and accessories
3. Stock and Stock in Process
4. Furniture and other contents
PROPOSAL FORM: A person who wishes to
Insure fills out particulars of his property and
his requirement of Insurance on a proposal
form.
IMPORTANT DEFINITIONS

Fire nsurance
IT IS PERMISSIBLE TO ISSUE ONLY
ONE POLICY WHICH IS CALLED
‘STANDARD Fire AND SPECIAL
PERILS POLICY’

All moveable/ immoveable properties of the proposer on land
(excluding those in transit) broadly categorised as follows :
1.Building (including plinth and foundations, if required):
1.Whether completed or in course of construction
(excluding the value of land).
2.Interiors, Partitions and Electricals.
2.Plant & Machinery, Equipment & Accessories
(including foundations, if required)
1.Bought Second hand.
2.Bought New
3.Obsolete Machinery
Fire INSURANCE
Scope : Properties that are covered

3. Stocks:
1. Raw Material
2. Finished Goods
3. In process
4. In trade belonging to Wholesaler, Manufacturer and Retailer.
4. Other Contents such as
1. Furniture, Fixtures and Fittings
2. Cables, Piping
3. Spares, Tools and Stores
4. Household goods etc.
5. Specific Items such as bullion, unset precious stones, curios, work of
arts, manuscripts, plans, drawings, securities, obligations or documents,
stamps, coins or paper money, cheques, books of accounts, computer
system records, explosives.
Fire INSURANCE
Scope : Properties that are covered

Nature of Fire Insurance Contract :
It is an agreement between Insurer and Insured.
The Insurer having received premium undertakes to make good
the loss suffered by the Insured.
The loss is made good subject to –
 The loss resulting from Insured risk/peril.
 The property damaged is covered under the policy.
 And the loss happened during the policy period. The Fire
insurance contracts are governed by the general law of
contract as embodied in the Indian Contract Act 1872.

Nature of Fire Insurance Contract :
Fire Insurance contracts must have the following
essential ingredients.
 Offer and acceptance.
 Consideration.
 Agreement between the parties
 Legal competence of the parties &
 Legality of the contract.

Fundamental Principles :
Fire Insurance Contracts are also governed by Fundamental Principles evolved under
Common Law.
Fundamental Principles : Insurable Interest-
 Legal right to Insure arising out of a pecuniary relationship between Insured and the
subject matter of Insurance-Absolute Legal Ownership.
 Moveable and immoveable property that can be insured.
 Should be the subject matter of insurance.
 Proposer should have legally recognized relationship, so that the loss of insured peril
causes pecuniary loss.
 Legal and absolute Owners
 Agents
 Administrators, Executors and Trustees
 Mortgagees.
 Lessee
 Insurer
Insurable interest should be there at the time of the Insurance and should continue throughout the period of
insurance and at the time of loss it should be established.

Fundamental Principles : Duty of Disclosure : Utmost
Good Faith
In accordance with principle of utmost good faith the
Proposer / Insured must disclose to the Insurer all material
facts in regard to the proposed insurance and the insurer
should disclose everything related to the terms, conditions,
exclusions and rates for entering into the Contract.
Material Fact : All important, essential and relevant
information.

Fundamental Principles : Duty of Disclosure : Facts which need not
be disclosed :
Basically the duty of utmost good faith exists to prevent the parties being drawn into a
contract in ignorance of detrimental information. Accordingly the following facts need not
be revealed, even if they are material :
a)Facts which improve the risk e.g., Fire Extinguisher, Sprinkler etc.
a)Facts which the insurer may e presumed to know e.g., existence of a state of War.
c)Matters of Law.
d)Facts capable of discovery by the insurer from information supplied in the Proposal Form.
e)Facts which the Insurers representative fails to notice during Risk inspection

The effect of the Breach of Utmost Good Faith :
The contract becomes void from inception : In case of
misrepresentation with an intention to defraud.
To consider the contract void : Insurer may not pay the claim if it is
discovered at the time of the claim that the breach is deliberate of
material to the risk.
To impose penalty : If breach is innocent but material to the fact.
iv) To waive the breach : If breach is innocent and immaterial to
the risk.

Fundamental Principles : Indemnity –
To place the Insured, as far as possible, in the same
financial position after a loss as be was before the loss.
Indemnification is subject to
- Sum Insured
- Depreciation
- Average condition
- Salvage.

In Fire Insurance Indemnity is by
Reimbursement / Cash Payment
Repair
Replacement
Reinstatement
In respect of loss of property due to Fire the measure of
indemnity is determined by its value on the date of loss
and at the place of loss.

Indemnity is the reason why Insurance is different
from wagering/
It helps fixing the Sum Insured.
It helps decide the amount to be paid for a loss.
It prevent an insured from making a profit from his
loss.
It ensures that the insured gets his actual loss and
not the assumed loss.

How to select the sum insured?
 Sum Insured of a property should represent the Market
Value.
 Where more than one building (and contents) are insured
under a single policy, block wise values shall be furnished
in respect of Building, Plant & Machinery, Stocks and
other contents.
 In case the value of a property increases due to factors
like increase in prime cost, Exchange rate etc. during the
currency of the policy, the corresponding sum insured
may be increased on payment of proportionate premium.
 Similarly, any reduction in sum insured during currency
may be effected for which refund of premium will be
allowed on short period basis.

Property Base of Insurance Sum Insured
1. Building
(a) Completed Depreciated Value Basis Estimated cost of Reinstatement
(material + Labour) of a similar
property as on the date of proposal
with suitable escalation for the
policy period less depreciation for
age.
Reinstatement Value Basis Same as above but without
depreciation. In other words, the
policy will pay, in the event of loss/
damage, without any deduction for
depreciation.
(b) In course of
Construction
Reinstatement Value Basis Estimated Total completed value
(Material + Labour)

2. Plant & Machinery
(a) Bought II hand Market Value Estimated landed cost of replacement of a similar machine of the
same kind and capacity as on the date of proposal with suitable
escalation over the policy period less depreciation for age and
usage for number of years from the date of manufacturing (and
not from the year in which it was bought)
(b) Bought New Market Value Estimated landed cost of replacement of a similar machine of the
same kind and capacity as on the date of proposal with suitable
escalation for the policy period less depreciation for age and
usage.
RIV Basis Estimated landed cost of a similar machine of the same kind and
capacity as on the date of proposal with suitable escalation for
the policy period.
P.S. Generally, the landed cost of an imported or indigenous machinery will include its prime cost, Customs
Duty/Excise Duty , CV Duty, , loading and unloading charges, freight, insurance, incidental expenses and
cost of erection at site.
(c) Obsolete M/c. Agreed Value Value has to be ascertained by an expert valuer. The value so
ascertained will be the agreed value between insurer and
proposer and loss/ damage will be assessed on this basis.

3. Stocks
(a) Raw Material Market Value Landed cost at the time of proposal with suitable increase
for inflation, if any.
(b) Finished Goods Market Value Landed cost of Raw materials at the time of proposal plus
direct and indirect charges incurred for processing with
suitable increase for inflation, if any.
(c) Stock in process Market Value Landed cost of Raw materials at the time of proposal plus
direct and indirect charges incurred upto the stage of
processing with suitable increase for inflation, if any.
P.S. : Landed cost means prime cost plus all duties plus freight, insurance and incidental charges.

(d) Stock-in-trade
Manufacturer Market Value Cost of Raw materials plus manufacturing costs
(direct and indirect charges) as on the date of
proposal with suitable increase for inflation, if
necessary.
Wholesaler Market Value Landed cost at which the goods can be purchased
from Manufacturer as on the date of proposal with
suitable increase for inflation, if necessary.
Retailer Market Value Landed cost at which the goods can be purchased
from Wholesaler as on the date of proposal with
suitable increase for inflation, if necessary.

4. Furniture, Fixture & Fittings
Market Value Estimated cost of replacement of property of the
same kind as on the date of proposal with suitable
escalation for the policy period less depreciation
for usage.
RIV Basis Estimated cost of Reinstatement) of a similar
property as on the date of proposal with suitable
escalation over the policy period.
5. Items to be covered specifically on declaration
Agreed Value Basis Value as certified by an expert
valuer.

Understanding Fire Insurance Policy :
Standard Fire and Special Perils policy : It consist of 5 parts-
 The Recital Clause – introduces the parties
 The Operation Clause – defines liability of the Insurer
under the contract.
 The Attestation Clause – provides for signature of the
Insurer.
 The Conditions – govern and regulates the cover granted.
 The Schedule- Give individual details of the contract.

Fire Rating Guidelines usually encompasses the following:-

 General rules & regulations
 Wordings for policy, add on covers, standard clauses &
standard proposal form
 Ratings for different types of risks like-
 Dwellings, offices, Hotels, Shops etc.
 Industrial/Manufacturing risk, utilities etc.

Scope of Cover of Standard Fire and Special Perils Policy
I. Fire
Excluding destruction or damage caused to the property
insured by
 its own fermentation, natural heating or spontaneous
combustion
 its undergoing any heating or drying process
 burning of property insured by order of any Public
Authority
II. Lightning

III. Explosion/Implosion
Excluding destruction or damage caused to the boilers
(other than domestic boilers), economizers or other vessels
in which steam is generated, machinery or apparatus
subject to centrifugal force by its own explosion/implosion
IV. Aircraft Damage
Destruction or damage caused by Aircraft, other aerial or
space devices and articles dropped there from excluding
those caused by pressure waves

V. Riot, Strike and Malicious Damage
Loss of or visible physical damage or Destruction by external violent means
directly caused to the property insured but excluding those caused by:
a) Total or partial cessation of work or the retarding or interruption or cessation of
any process or operations or omissions of any kind
b) Permanent or temporary dispossession resulting from confiscation, commandeering
requisition or destruction by order of the Govt. or any lawfully constituted
authority
a) 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
b) Burglary, housebreaking, theft, larceny or any such attempt or any omission of any
kind of any person (whether or not such act is committed in the course of a

VI. Impact Damage
Impact by any Rail/Road vehicle or animal by
direct contact not belonging to or owned by
a. the insured or any occupier of the premises or
b. their employees while acting in the course of their
employment

VII. Subsidence and Landslide including Rock Slide:
Destruction or damage caused by Subsidence of part of the site
on which the property stands or Land slide/ Rock slide
excluding
a. The normal cracking, settlement or bedding down of new structures
b. Coastal or river erosion
c. Defective design or workmanship or use of defective materials

VIII.Bursting and/or overflowing of Water Tanks,
Apparatus and Pipes
VIII. Missile Testing operations
VIII. Leakage from Automatic Sprinkler Installations
                Excluding destruction or damage caused by
a.      repair or alterations to the buildings or  Premises
b.   repair, removal or extension of the Sprinkler Installation
c. defects in construction known to the insured

XI. Bush Fire
Excluding destruction or damage caused
by Forest Fire

Exclusions Applicable:
Losses/ Expenses not covered:
Applicable Deductibles as per policy
Expenses incurred on Architects, Surveyors' Consultant Engineers fees
and Debris Removal in excess of 3% and 1% of claim amount
respectively.
Loss of earnings, loss by delay, loss of market or other consequential or
indirect loss or damage of any kind.
Perils not covered:
War and allied perils
Ionising radiations and contamination by radioactivity
Pollution or Contamination

Properties not covered:
• Items like manuscripts etc. unless specifically declared.
• Cold storage stocks due to change of temperature.
• Loss / damage/ destruction of any electrical and/or electronic machine,
apparatus, fixture or fitting arising from over running, excessive
pressure, short circuiting, arcing, self heating or leakage of electricity,
from whatever cause including lightning.
• Loss / damage / destruction of Boilers, Economisers or other Vessels in
which steam is generated machinery or apparatus subject to Centrifugal
force, by its own explosion/ implosion.

Location of Risk:
1. The proposer shall describe all locations where the properties
are built or installed or stored or kept at the inception
2. Any change of location of risk shall be covered on intimation of
such change.
3. Change of ownership in the insured property shall be intimated
so that the new owner may be covered be means of suitable
endorsement.
4. Any material change in the location of risk, trade or
manufacturing activities shall be intimated to the insurer so that
the changes are endorsed to offer continuous cover.


Add on Covers : Perils : Loss/ damage/ destruction of the
property caused by
Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation
Deterioration of Stocks in Cold Storage premises due to power failure following
damage due to an insured peril
Forest Fire
Impact Damage due to Insured's own Vehicles, Fork lifts and the like and
articles dropped therefrom
Spontaneous Combustion
Omission to insure additions, alterations or extensions
Earthquake (Fire and Shock).
Spoilage material damage cover.
Leakage and contamination cover.
Temporary removal of stocks.
Terrorism.


Add on Covers : Expenses:
•Architects , Surveyors and Consulting Engineer's Fees (in excess
of 3% claim amount)
•Debris Removal (in excess of 1% of claim amount)
•Loss of rent.
•Insurance of additional expenses of rent for alternative
accommodation.
•Start up Expenses.

Important Provisions :
Period of Coverage and Payment of Premium :
Fire Policy is an annual policy, generally, renewable each year.
Long Term policy (for a minimum period of three years) can be considered for
covering "dwellings" only with suitable discounts in premium.
Cover for RSMD perils can be considered during currency (where they are
deleted at inception by choice) in special circumstances.
Policy can be cancelled at any time during the currency with suitable refund of
premium for the unexpired period.
RSMD perils can be deleted at the inception of the policy for which suitable
reduction in package premium rate is allowed.
MINIMUM PREMIUM:- Minimum premium shall be Rs. 100/- per policy
100% premium shall be paid in full at the inception of policy and no installment
facility is available.

Important Provisions :
RULES FOR CANCELLATION:
(a) At the option of the Insured: Retention of premium shall
be at Pro-rata + 15% for the period the policy has been in
force or Short Period Scale as prescribed by respective
Insurer.
(b) At the option of the Insurer: Refund of premium shall be
on Pro-rata basis for the unexpired term.

The rates of premium under Fire Insurance are
expressed in Per Mille (%0) i.e. per thousand.
There are 5 Sections pertaining to rating:
Section-III – Residential buildings, Hotels, Shops, Offices etc.
Section-IV – Industrial /Manufacturing Risks
Section-V – Utilities located outside the Industrial/Mfg. Risks
Section VI -- Storage risks outside the Industrial /Mfg. Risks
Section –VII –Tank farms/ Gas holders etc.
Important Provisions :Rating

(Section-III)
The buildings and contents of risk rateable under this
section shall be rated ‘Per Se’.
Example: A multistoried building may have
residences on one floor, offices on another floor and
shops on some other floor. Each occupancy will
attract its own rate specified in the tariff.

Rates provided in this section are for the entire
insured property in the same industrial compound
i.e. all process areas, storage areas, offices, utilities,
misc. blocks, pipelines, roads etc.
However dwelling houses located inside the factory
compound may be rated ‘Per Se’.
(Section-IV)

LONG TERM POLICY FOR
DWELLINGS
a. Minimum Period 3 years
b. Mid-term inclusion of Perils not allowed
c. Premium for entire period collected in advance
Method A
Premium shall be charged full without any discount. However sum insured
shall be increased by 10 % of original sum insured at the end of every 12
months period.
OR
Method B
Discount will be allowed on Gross Premium as per table given in the
tariff.
No discount will be allowed on Earthquake Premium.

Fire Insurance Claims
How to claim?
1. If a misfortune befalls,
2. Intimate such loss / damage immediately so that a Competent Surveyor may be
deputed to minimise the loss.
3. Give an account of all properties damaged or destroyed with estimated amounts
having regard to their values as on the date and place of loss.
4. Cooperate with surveyors by providing all the necessary documents for assessment of
loss and establishing liability.
5. Cooperate with the insurer in all their activities of entering the premises, taking
possession of properties, their examining, sorting, removing or selling to your account,
without prejudice.
6. Inform particulars of all other insurances existing on the property at the time of loss.

1. Common Documents for all claims under a Standard Fire and Special Perils
Policy:
2. Certified True copy of the policy along with schedule and Endorsements/clauses.
3. Claim Form.
4. Newspaper reports on the incident, if any.
5. Photographs.
6. Past claims experience.
Documents required by insurer for processing the claim

1. Report of the Internal Committee constituted for the purpose of
investigating the cause of Fire.
2. Fire Brigade Report.
3. First Information Report / Letter of intimation to the Police Station duly
endorsed / Police Panchnama.
4. Forensic Laboratory Report on samples collected at affected site.
5. Drug Inspector's Report on destruction of Drugs/ Pharmaceutical items
(for claim on pharma products only).
6. Final Investigation Report.
7. Action taken on the suggestion of TAC/ LPA on loss minimisation of
prevention.
Additional Documents required by insurer for processing the claim

In addition to the documents specified above, in
respect of Acts of God Clause, other documents like
newspaper cuttings, photographs and meteorological
reports are helpful in substantiating such losses. Where
the incident is localized, not reported in the media or
not recorded by any Meteorological Department, the
surveyor should enquire about the incident from local
government/statutory authorities and support the
description of the occurrence and the loss by taking
photographs of the damage.
Fire Insurance Claims : Acts of God Perils
Additional Documents required by Insurer for processing the claim

In case of isolated losses under the above
endorsement, copy of the First Information
Report lodged with police and their Final
Investigation Report should be furnished.
Fire Insurance Claims : RSMTD PERILS

Factory Inspector's Report or Report of
Director of Industrial Safety and Welfare.
Fire Insurance Claims : Explosion Claims

Case Study
A transporter’s godown was insured for FFF
and contents under the standard Fire Insurance
policy. It was doing a roaring business and its
godown was packed to capacity.
A riot broke out in the vicinity of the godown
and the rioters torched the godown along with
the other buildings. The Fire brigade could not
reach the godown on time due to the riots. By the
time it reached the entire godown was reduced
to ashes.

Hundreds of consigners and consignees lost
their goods stored in the transporters godown
stored for transportation. Most of them
obtained the damage certificate from the
transporter and did not press for any claim on
them. However a few of them lodged their
claim on the transporter, who in turn claimed
on the insurance company.
Keeping in mind the aspect of insurable
interest, how will you deal with the claim.

Case Study
M/s Santa Singh and Banta Singh Pvt. Ltd. was a joint
proprietorship firm. It was a reputed firm running a
shop in the same name, selling costly electrical items,
appliances, gadgets, durables etc. The shop was insured
under separate Fire and Burglary Policies.
There was a big Fire in the shop and a huge quantity of
goods worth Rs. 5 lacs was lost. The sum insured was
adequate to cover the loss.

While scrutinizing the claim it was found that the name of
the insured has changed to M/s Sardar Santa and Sardar
Banta Pvt. Ltd. before the date of the loss. The change in
the name was reported to their Banker’s but the insurance
company was not informed. When asked they explained
that this was due to an oversight.
On further enquiry it was learnt that to save tax liabilities
the name of the firm was changed. The proprietors
remained the same and the nature of the business also
remained the same.
How will you deal with this claim? Should the insurance
company pay the claim?

CASE STUDY
A STEEL FACTORY PRODUCED QUALITY STEEL WHICH HAD
TO UNDERGO THE PROCESS OF TEMPERING TO ARRIVE AT
THE RIGHT TENSILE STRENGTH REQUIRED FOR THE
PURPOSE OF MAKING PRECISION INSTRUMENTS.
ON THE FATEFUL DAY THERE WAS A BIG Fire AND THE
FACTORY WAS BADLY DAMAGED. THE STEEL UNDER
PROCESS RECEIVED EXCESSIVE HEAT AND AS A RESULT
THE FINISHED PRODUCT WAS FOUND UNSUITABLE FOR USE.
THE STEEL IN PROCESS GOT ADDITIONAL HEAT DUE TO
THE ACCIDENTAL Fire. WHAT IS THE PROXIMATE CAUSE OF
LOSS FOR THE DAMAGE TO THE STEEL IN PROCESS.

IN THE PREVIOUS CASE STUDY -
IS THE LOSS OR DAMAGE DUE TO
ACCIDENTAL Fire
THE ACTUAL EFFICIENT CAUSE OF LOSS
THE MOST DOMINANT CAUSE GIVING RISE
TO A CHAIN OF EVENTS RESULTING IN THE
LOSS
WILL THE LOSS BE TERMED AS AN
ACCIDENTAL LOSS.

Fire insurance everything you wanted to know 17012017

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