The document discusses various topics related to fire insurance claims and coverage. It outlines the types of claims an insurance company expects, including those from fire, natural disasters, accidents, theft, and more. It also describes common areas of coverage in fire insurance policies like structures, personal property, loss of use. The document provides details on coverage exclusions, insurable interest, the duty of utmost good faith, underinsurance, and business interruption insurance.

1.  
SUSHIL VERMA
Indirect Tax Strategist

2. Insurance company expects claims from
 Fire, Lightning, Explosion, Riot & Strike and Malicious
Damage, Damage by Terrorist activities, Impact Damage.

3. Insurance company expects claims
from
 Storm, Tempest, Cyclone, Flood, Inundation Rockslide,
Landslide, Subsidence, Earthquake and Similar Natural
Hazards.

4. Insurance company expects claims from
Electrical/Mechanical Breakdown, Failure of Control Systems

5. Insurance company expects claims from
Human Error, Negligence, Lack of Skill, Faults in Erection and
Error in Handling

6. Insurance company expects claims from
 Burglary, Theft, Pilferage.

7. Insurance company expects claims from
Design Defect, Consequences of Faulty Material,
Workmanship other than faulty erection

8. Insurance company expects claims from
 Loss of revenue / Payment of Penalties - due to delay in
commissioning.

9. Insurance company expects claims from
 Accident / Sinking of Vessel, non Delivery, Shortage,
Damage during Transit, Loading, Unloading Or any other
accidental causes

10.  Fire mostly occurred in storage areas
 Fire mostly occurred in unattended areas or during
unattended periods
 Not much importance is paid to fire protection in storage
areas
 Inadequate training for fire emergencies
 No attempt to learn from past mistakes

11.  Generally, insurance policies are broken down into four
areas. One is the insuring agreement. The second are
the definitions. The third would be exclusions, and the
fourth would be conditions. Every fire policy – almost
every fire policy – has four areas of coverage.

12.  The first area would be the dwelling. The second area
would be other structures like a detached
garage, gazebo, guest house, etc. The third area is
personal property – the property that the insured would
have in the home when the fire took place. The fourth
would be what they call loss of use or additional living
expenses and that coverage helps to pay for the insured
to move out and live somewhere else for the period of
time it takes to repair the structure before they can move
back.

13.  However, fire insurance can be purchased as a specific
peril policy or the coverage increased by a specific
endorsement. It is important for the business owner to
understand what is not covered under a traditional broad
form policy and ways to increase coverage. It is
important to review what are appropriate considerations
when reducing premiums and what are not effective
ways to save premiums. Insure for the Proper Valuation

14.  Many small business owners find that if they insure for an
amount less than what the business is worth, premiums are
lower. This is true. However, insurers require as a condition of
the policy that the business is insured for a value equal to the
actual value of the business. If it is not, and a loss occurs, a
penalty is applied to the settlement amount. This penalty will
almost always exceed the value of any saved premium and
will come at a very bad time.
 •Always insure for 100% of the business value.
 •Have an independent evaluation of the business by an
independent appraiser each year and adjust coverage as
necessary.
 •Do not rely on property tax evaluations or guesses from your
insurance professional.

15.  Most policies cover a fire loss with actual cash value or
ACV instead of replacement cost. Actual cash value
pays the amount of the property less depreciation. This
can be devastating if your business relies upon high
value equipment that has a long useful life, but would be
prohibitively expensive to replace. As examples:
coolers, refrigerators, tow lifts, aircraft or anything that
would be prohibitively expensive to buy new.
Replacement coverage pays the amount to replace the
property lost at whatever the replacement cost is today.
Replacement coverage carries higher premiums and can
be purchased as a rider or endorsement. Consider the
following when considering ACV vs. replacement
coverage.

16. Other Points to Consider
• You will want to review your policy annually. Make sure accurate
addresses are reflected on the policy and all endorsements and
riders. Sometimes if you own many buildings a blanket fire policy
covering all of the structures can save significant premiums.
Finally, always have a fire plan in place and train your employees
appropriately. Insurers often provide discounts for active fire
prevention programs.

17.  Liability insurance insures against liability legally
imposed upon your business because of the negligence
of the business or its employees. Put another way, it
protects your business when the business is sued for
negligence.

18.  You will need to insure your employees against on-the-job injuries.
Every state is different. But, most states have put into place some
form of workers' compensation system. Workers' compensation is a
system where the employee is not allowed, by statute, to sue their
employer for on-the-job injuries; but, in return, the employer must
participate in a system that provides nearly automatic payment to
the employee in case of injury for medical bills and damages. There
are many options for workers' compensation coverage. Some states
allow an employer to opt-out of the system if the employer is self
insured, some run the system through private insurers while others
use state agencies.

19.  Business interruption insurance insures against loss or
damage to the cash flow and profit of a business caused
by the business being unable to operate because of
interruption. The easiest example is to think about a
critical piece of machinery being struck by lightning. The
repairs to the machine may be covered by other
coverage such as property or casualty insurance. But, if
you can not make widgets for three months, than there is
no replacement of that income without this coverage.

20.  To be competitive, most businesses need to offer their
workers health insurance. This insurance offers a health
coverage benefit to your employees (and you).

21.  Life and disability insurance protects the business
against the death or disability of key employees. For
example, one partner carries a life insurance policy
naming the partnership as a beneficiary. If that partner
dies, and the business has planned properly, the
proceeds of the policy can be used by the business to
buy out the share of the decedent's partnership interest
from the estate. The insured location can be
owned, leased or rented.

22.  A contract of Insurance comes into being when a person
seeking insurance protection enters into a contract with
the insurer to indemnify him against loss of property by
or incidental to fire and or lightening, explosion, etc. This
is primarily a contract and hence as is governed by the
general law of contract. However, it has certain special
features as insurance transactions, such as utmost
faith, insurable interest, indemnity, subrogation and
contribution, etc. these principles are common in all
insurance contracts and are governed by special
principles of law.

23.  Fire insurance is a contract whereby the person, seeking insurance
protection, enters into a contract with the insurer to indemnify him
against loss of property by or incidental to fire or lightning, explosion
etc. This policy is designed to insure one's property and other items
from loss occurring due to complete or partial damage by fire.
 In its strict sense, a fire insurance contract is one:
 1. Whose principle object is insurance against loss or damage
occasioned by fire.
 2. The extent of insurer's liability being limited by the sum assured and
not necessarily by the extent of loss or damage sustained by the
insured: and
 3. The insurer having no interest in the safety or destruction of the
insured property apart from the liability undertaken under the contract

24.  There is no statutory enactment governing fire
insurance, as in the case of marine insurance which is
regulated by the Indian Marine Insurance Act, 1963. the
Indian Insurance Act, 1938 mainly dealt with regulation
of insurance business as such and not with any general
or special principles of the law relating fire of other
insurance contracts. So also the General Insurance
Business (Nationalization) Act, 1872. in the absence of
any legislative enactment on the subject , the courts in
India have in dealing with the topic of fire insurance have
relied so far on judicial decisions of Courts and opinions
of English Jurists.

25.  A person who is so interested in a property as to have benefit
from its existence and prejudice by its destruction is said to
have insurable interest in that property. Such a person can
insure the property against fire.
 The interest in the property must exist both at the inception as
well as at the time of loss. If it does not exist at the
commencement of the contract it cannot be the subject-matter
of the insurance and if it does not exist at the time of the
loss, he suffers no loss and needs no indemnity. Thus, where
he sells the insured property and it is damaged by fire
thereafter, he suffers no loss.

26. Though the following are risks which seem to have covered
Fire Insurance Policy but are not totally covered under the
Policy. Some of contentious areas are as follows:

27. FIRE: 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. Further, burning of property insured by order of any
Public Authority is excluded from the scope of cover.
LIGHTNING : 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.
AIRCRAFT DAMAGE: The loss or damage to 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 traveling at supersonic speed is excluded
from the scope of the policy.

28. RIOTS, STRIKES, MALICIOUS AND TERRORISM DAMAGES: 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. Unlawful action would not be covered
under the policy.
STORM, CYCLONE, TYPHOON, TEMPEST, HURRICANE, TORNADO, 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
occurs when the water rises to an abnormal level. 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.

29. SUBSIDENCE AND LANDSLIDE INCULUDING ROCKSIDE: Destruction or damage caused by Subsidence
of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence
means sinking of land or building to a lower level, Landslide means sliding down of land usually on a
hill.
However, normal cracking, settlement or bedding down of new structures; settlement or movement
of made up ground; coastal or river erosion; defective design or workmanship or use of defective
materials; and demolition, construction, structural alterations or repair of any property or ground-
works or excavations, are not covered.
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 OPERATIONS: 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.

30. 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 excludes destruction or damage, caused by Forest Fire.

31.  RISKS NOT COVERED BY FIRE INSURANCE POLICY
 Claims not maintainable/ covered under this policy are as follows:
 o Theft during or after the occurrence of any insured risks
 o War or nuclear perils
 o Electrical breakdowns
 o Ordered burning by a public authority
 o Subterranean fire
 o Loss or damage to bullion, precious stones, curios (value more than
Rs.10000), plans, drawings, money, securities, cheque books, computer records except if
they are categorically included.
 o Loss or damage to property moved to a different location (except machinery and
equipment for cleaning, repairs or renovation for more than 60 days).

32.  Only those who have insurable interest in a property can take fire insurance thereon. The following are
among the class of persons who have been held to possess insurable interest in, property and can insure
such property:
 1. Owners of property, whether sole, or joint owner, or partner in the firm owning the property. It is not
necessary that they should possession also. Thus a lesser and a lessee can both insure it jointly or
severely.
 2. The vender and purchaser have both rights to insure. The vendor's interest continues until the
conveyance is completed and even thereafter, if he has an unpaid vendor's lien over it.
 3. The mortgagor and mortgagee have both distinct interests in the mortgaged property and can
insure, per Lord Esher M.R."The mortgagee does not claim his interest through the mortgagor , but by
virtue of the mortgage which has given him an interest distinct from that of the mortgagor"

33.  4. Trustees are legal owners and beneficiaries
the beneficial owners of trust property and each
can insure it.
 5. Bailees such as carriers, pawnbrokers or
warehouse men are responsible for there safety
of the property entrusted to them and so can
insure it.

34.  Your business may be underinsured if it cannot replace critical facilities and
equipment at the depreciated value.
 Electronics such as computers frequently decline in real replacement cost
such that actual cash value may be a better option.
 Property valuations are frequent causes of conflict between insurers and
insured. You can avoid valuation problems by carrying replacement
coverage.
 Certain Property Needs Separate Coverage
 Cash, valuable papers, certain types of inventory, some
electronics, jewelry, and other items will require separate coverage or will be
excluded from coverage. These are generally items that are impossible for
the insurer to confirm and are prone to fraud.

35.  Fire insurance does not cover "downtime" for your
business nor does it cover temporary relocation. Your
business needs business interruption insurance to insure
against the loss of revenue accompanying a fire and any
potential relocation costs. Business interruption is a
separate policy and should be considered if your
business will be destroyed by being closed.

36.  One who has no insurable interest in a property cannot insure it. For example:
 1. An unsecured creditor cannot insure his debtor's property, because his right is
only against the debtor personally. He can, however, insure the debtor's life.
 A shareholder in a company cannot insure the property of the company as he
has no insurable interest in any asset of the company even if he is the sole
shareholder. As was the case of Macaura v. Northen Assurance Co.[4] Macaura.
Because neither as a simple creditor nor as a shareholder had he any insurable
interest in it.

37.  As all contracts of insurance are contracts of utmost good faith, the
proposer for fire insurance is also under a positive duty to make a full
disclosure of all material facts and not to make any misrepresentations or
misdescreptions thereof during the negotiations for obtaining the policy. This
duty of utmost good faith applies equally to the insurer and the insured.
There must be complete good faith on the part of the assured. This duty to
observe utmost good faith is ensured b requiring the proposer to declare
that the statements in the proposal form are true, that they shall be the
basis of the contract and that any incorrect or false statement therein shall
avoid the policy. The insurer can then rely on them to assess the risk and to
fix appropriate premium and accept the risk or decline it.

38.  Where more perils than one act simultaneously or successively, it will be
difficult to assess the relative effect of each peril or pick out one of these as
the actual cause of the loss. In such cases, the doctrine of proximate cause
helps to determine the actual cause of the loss.
 Proximate cause was defined in Pawsey v. Scottish Union and National Ins.
Co.as "the active, effective cause that sets in motion a train of events which
brings about a result without the intervention of any force started and
working actively from a new and independent source." It is dominant and
effective cause even though it is not the nearest in time. It is therefore
necessary when a loss occurs to investigate and ascertain what is the
proximate cause of the loss in order to determine whether the insurer is
liable for the loss.

39.  A fire policy covers risks where damage is caused by
way of fire. The fire may be caused by lightening, by
explosion or implosion. It may be result of riot, strike or
on account of any, malicious act. However these factors
must ultimately lead to a fire and the fire must be the
proximate cause of damage. Therefore, a loss caused by
theft of property by militants would not be covered by the
fire policy. The view that the loss was covered under the
malicious act clause and therefore the insurer was liable
to meet the claim is untenable, because unless and until
fire is the proximate cause of damage, no claim under a
fire policy would be maintainable.[

40.  Selection of the Insurance Company:
 There are many companies that offer fire insurance against unforeseen events. The
individual or the company must take care in the selection of an insurance company. The
judgment should rest on factors like goodwill, and long term standing in the market. The
insurance companies can either be approached directly or through agents, some of them
who are appointed by the company itself.
 2. Submission of the Proposal Form:
 The individual or the business owner must submit a completed prescribed proposal form
with the necessary details to the insurance company for proper consideration and
subsequent approval. The information in the Proposal Form should be given in good faith
and must be accompanied by documents that verify the actual worth of the property or
goods that are to be insured. Most of the companies have their own personalized Proposal
Forms wherein the exact information has to be provided.

41.  3. Survey of the Property/ Consideration:
 Once the duly filled Proposal Form is submitted to the insurance company, it
makes an "on the spot" survey of the property or the goods that are the subject
matter of the insurance. This is usually done by the investigators, or the
surveyors, who are appointed by the company and they need to report back to
them after a thorough research and survey. This is imperative to assess the risk
involved and calculate the rate of premium.
 4. Acceptance of the Proposal:
 Once the detailed and comprehensive report is submitted to the insurance
company by the surveyors and related officers, the former makes a thorough
perusal of the Proposal Form and the report. If the company is satisfied that
their is no lacuna or foul play or fraud involved, it formally "accepts" the Proposal
Form and directs the insured to pay the first premium to the company. It is to be
noted that the insurance policy commences after the payment and the
acceptance of the premium by the insured and the company, respectively. The
Insurance Company issues a Cover Note after the acceptance of the first
premium.

42.  On receipt of the notice of loss, the insurer requires the insured to furnish
details pertaining to the loss in a claim from relating to the following
information-
 1. Circumstances and cause of the fire;
2. Occupancy and situation of the premises in which the fire occurred;
 3. Insured's interest in the insured property; that is capacity in which the
insured claims and whether any others are interested in the property;
 4. Other insurances on the property;
 5. Value of each item of the property at the time of loss together with proofs
thereof , and value of the salvage ,if any; and
 6. Amount claimed

43.  Furnishing such information relating to the claim is also a
condition precedent to the liability of the insurer. The
above information will enable the insurer to verify
whether-
 (1) The policy is in force;
 (2) The peril causing the loss is an insured peril;

44.  (3) The property damaged or lost is the insured property.
 Rules for calculation of value of property
 The value of the insured property is-
 1) Its value at the time of loss, and
 2) At the place of loss, and
 3) Its real or intrinsic value without any regard for its sentimental vale. Loss of prospective profit or other
consequential loss is not to be taken into account.

45.  On the outbreak of a fire the insured is under an implied duty to
observe good faith towards the insurers and the in pursuance of it
the insured must do his best to avert or minimize the loss. For this
purpose he must (1) take all reasonable measures to put out the fire
or prevent its spread, and (2) assist the fire brigade and others in
their attempts to do so at any rate not come in their way.
 With this object the insured property may be removed to a place of
safety. Any loss or damage the insured property may sustain in the
course of attempts to combat the fire or during its removal to a place
of safety etc., will be deemed to be loss proximately caused by the
fire.
 If the insured fails in his duty willfully and thereby increases the
burden of the insurer, the insured will be deprived of his right to
revive any indemnity under the policy.[

46.  (A) Implied Rights
 Corresponding to the insured's duties the insurers have rights by the law, in view of the
liability they have undertaken to indemnify the insured. Thus the insurers have a right to-
 o Take reasonable measures to extinguish the fire and to minimize the loss to property, and
 o For that purpose, to enter upon and take possession of the property.
 The insurers will be liable to make good all the damage the property may sustain during the
steps taken to put out the fire and as long as it in their possession, because all that is
considered the natural and direct consequence of the fire; it has therefore been held in the
case of Ahmedbhoy Habibhoy v. Bombay Fire Marine Ins. Co [8] that the extent of the
damage flowing from the insured peril must be assessed when the insurer gives back and
not as at the time when the peril ceased.

47.  (B) Loss caused by steps taken to avert the risk
 Damage sustained due to action taken to avoid an insured risk was not a consequence of
that risk and was not recoverable unless the insured risk had begun to operate. In the case
of Liverpool and London and Globe Insurance Co. Ltd v. Canadian General Electric Co.
Ltd., [9] the Canadian Supreme Court held that "the loss was caused by the fire fighters'
mistaken belief that their action was necessary to avert an explosion , and the loss was not
recoverable under the insurance policy, which covered only damage caused by fire
explosion., and the loss was not recoverable under the insurance policy, which covered
only damage caused by fire or explosion."
 (C) Express rights
 - in order to protect their rights well insurers have prescribed for better rights expressly in
this condition according to which on the happening of any destruction or damage the
insurer and every person authorized by the insurer may enter, take or keep possession of
the building or premises where the damage has happened or require it to be delivered to
them and deal with it for all reasonable purposes like examining, arranging, removing or
sell or dispose off the same for the account of whom it may concern.