TYPES OF FIRE POLICIES

The following are some of the more common types of fire policies:

1. Specific Policy : A specific policy is one where the insurer undertakes to make good the loss up to the amount specified in the policy, irrespective of the value of the property. For example, if a property worth Rs. 2,00,000 is insured for Rs. 1,00,000  but the actural loss is only Rs. 1,50,000 he can only recover the actual loss if it is equal to or less than the value of the policy, but if his loss is more than the sum insured, he can recover only the amoount of policy.
2. Valued Policy : A valued policy is usually taken where it is not easy to determine the value of the property. For example, works of art, pictures, sculptures etc., whose value cannot be determined easily. In the case of total loss in the valued policy the insurer undertakes to pay the value of the property as mentioned in the policy, or the declared value, irrespective of its actual or market value. Such policies are however, not very common in fire insurance.
3. Average Policy : A fire policy containing an average clause is called an Average Policy. Under this policy the insured is penalised for under-insurance of the property. In other words, the insured is considered to be a self insurer to the extent of under insurance. For Example : Where the property worth of Rs. 80,000 is insured for Rs. 60,000 and the loss caused by fire is Rs. 40,000 then the amount of claim to be paid by the insurer will be Rs. 30,000. It must be remembered that average clause applies only where there is under insurance and partial loss. If the loss is total, the insure amount will be paid. For instance, if in the above example, the entire property is lost, then the claim that will be admitted is Rs. 60,000.
4. Floating Policy : A floating policy covers loss on goods which are lying in different places. For example ,  a dealer may take out only one floating policy, instead of separate specific policies for all his goods, some of which may be in warehouse, others in railway stations, shop counters etc. This policy is useful when the insured is in a position to declare only the total value at risk and not separate values in separate risks.
5. Replacement Policy : Replacement policy is otherwise termed as Re-instatement policy. This policy is issued in respect of building, plant and machinery, furniture and fixtures and fittings etc. Under this policy the insurer undertakes to pay the cost of replacing the property instead of paying compensation to the insured for the property destroyed. In short, the damaged property is replaced by a new property.
6. Declaration Policy : Declaration Policy may be granted only in respect of stock of inventories (stock of raw material, stock of work in progress and stock of finished goods) of the insured. Generally levels of stock which are subject to frequent fluctuations in value or in volume, present a special problem for insurance. In such a case the businessman takes a policy for a maximum expected amount and the premium is paid. Every month the insured must declare in writing the stock covered under the policy to the insurance company. At the end the premium is adjusted accordingly.
7. Comprehensive Policy : This policy undertakes full protection not only against the risk of the fire but combining with the risk against burglary, riot, civil commotion, theft, damage for pest, lightning. The policy is also termed as all Insurance policy. Here the comprehensive does not mean that every type of risk is covered. Such policies are not common in our country.
8. Consequential Loss Policy : Under this policy the insurer agrees to indemnify the insured for the loss of profits which he suffers due to dislocation of his business as a result of fire. This type of policy is also called as "Loss of profit policy". Thus this policy covers :
1. loss of goods or property damaged
2. loss of net profits
3. outstanding expenses (interest on debenture, salaries rent on building etc.)
4. prepaid expenses etc.
9. Adjustable Policy : This policy is nothing but an ordinary policy on the stock of the businessman with liberty to the insured to vary at his option. The premium is adjustable pro-rata according to the variation of the stock. The adjustable policy is granted to remove the disadvantage of declaration on policy. This is issued for a definite term on the existing stock. The premium is calculated in the ordinary manner and is paid in full at the inception of the policy. Whenever, there is variation in the stock, the insured informs the insurer. As soon as the information of variation is received, the policy is suitably endorsed and the premium is adjusted on a pro-rata basis. The policy amount will, thus, be changeable from time to time.
   

FIRE POLICY

It is a document containing the written contract between the insurer and the insured setting forth the terms and conditions under which the insurance is issued, the particulars of the property insured, risks and hazards covered, the sum assured, the cost or the rate of premium and the period.

The risk on the fire policy commences from the moment of time the cover note or the deposit receipt, or the interim protection note is given and continues for the term covered by the contract of insurance. It is the practice to allow a certain number of days as days of grace within which a fire policy may be renewed after the expiration of the term. In such a case, if a fire should occur within this time the insured would be entitled to recover damages. The days of grace only apply when the insured has the intention to renew the policy, failing which, the policy expires on the day the period runs out. If however, it is expressly stipulated in the policy that unless the renewal premium is paid and the renewal risk is accepted the insurance would expire, the insured would not be able to recover in the case where a fire occurs after the expiration of the term and before the acceptance by the fire insurance company of a proposal for further insurance.

FUNDAMENTAL PRINCIPLES OF FIRE INSURANCE

The following are the fundamental principles essential for a valid contract of fire insurance.

1. A contract of indemnity : Its object is to place insured as far as possible in the same financial position after a loss as that occupied immediately before the loss. The insured can recover only the amount of actual loss subject to the sum assured.
2. Insurable Interest : In fire insurance the insurable interest must exist at the time of effecting the insurance as well as at the time of the loss. The interest, however, may be legal or equitable or may arise under a contract of purchase or sale. The following have been held to have insurable interest in the subject matter :
1. Owner
2. Mortgagee
3. Trustee
4. Executor
5. Warehouseman
6. Common
7. Bailee
8. Pledgee
9. Person in lawful possession
10. Finder
11. Insurer
12. Commission Agent where the agency is couppled with interest and 
13. Tenants who are liable to pay rent after a fire.It should however, be noted that persons can insure only to the extent of such limited interest.
3. Contract of Good Faith : The contract of fire insurance is a contract of Uberrimae fidei i.e., a contract based upon absolute good faith, and therefore, the insured must make full and detailed disclosure of all material facts likely to affect the judgement of fire officials in determining the rates of premium or deciding whether the proposal should be accepted. The description of the property, when asked for, should be correctly give, and all information that may be required as to the class of goods and articles that are kept on the premises or in the surrounding neighbourhood, should be accurately supplied.
4. Loss Through Fire : Loss resulting from fire of some other cause which is the proximate cause is the risk covered under a fire insurance contract. But where the fire is caused by the insured himself or with his connivance or by the operation of a peril specifically excluded under the policy like earthquake, the loss will not be covered.
5. A Contract from Year to Year : A fire insurance policy is usually for one year only and can be renewed after that.
6. Principles of Subrogation and Contribution : Subrogation is a doctrine applicable to both fire and marine insurance by which the insurer or underwriter, becomes entitled to on his paying compensation to the insure, to claim the advantage of every right of the insured against third parties who may be proved to be responsible for that loss, owning to such third parties negligence, default etc.

Where the subject matter has been insured with more than one insurer, each insurer has to meet the loss only rateably. If he has paid more than his share of loss, he is entitled to recover the excess paid from his co insurers. Thus, the principle of contribution applies in the case of fire insurance.

SUBJECT MATTER OF FIRE INSURANCE

Subject matter of fire insurance may be of any kind of movable and immovable property having pecuniary value. The property intended to be insured must be properly described. As per fire insurance, it is governed by Tariff, the following are the examples of insurable property such as :

1. Building
2. Electrical installation in buildings
3. Contents of buildings such as machinery, plant and equipments, accessories etc.
4. Good (raw materials, work in progress, semi finished goods, finished goods, packaging materials) in factories and godowns.
5. Good in open
6. Contents in dwellings, shops, hotels, etc.
7. Furniture, fixture and Fittings 
8. Pipelines (including contents) located inside or outside the compound etc.

FIRE INSURANCE

A contract of fire insurance is a contract by which the insurer undertakes, for a consideration in the form of a payment of money either in lump sum or installments, to indemnify the insured against the consequences of a fire, or the loss or injury as arising therefrom during an agreed period and up to a certain amount. The contract is to be found embodied in a document known as the "policy of the fire insurance " and usually for a period of one year and renewed each year.

A few notable definitions are reproduced below :

1. " A contract whereby the insurer in consideration of the premium paid undertakes to compensate the insured for any loss that may result due to occurrence of fire ".
2. " Fire Insurance is a contract of indemnity against loss or damage to property arising from fire during  an agreed period of time. Here the insurer undertakes to indemnify the insured against financial loss caused directly as a result of fire".
3. " A contract of fire insurance is a contract by which the insurer undertakes, for a money consideration, to indemnify the insured against the consequences of a fire during an agreed period up to the amount stated in the policy".

Fire : The term "fire" is a contract of fire insurance is used in its popular and literal sense. It means the production of light and heat by combustion. Combustion occurs only at the actual ignition point. Hence, there is no fire without ignition. Loss or damage which occurs as a result of putting out the fire would also be covered by the fire risks. Fire policies are not covered through fire caused by earth qu akes, riots, civil commotion, foreign enemy, rebellion etc.

Example: A, B, and C are three continuous houses insured against fire. An earthquake caused A to fall and as a consequence fire broke out and spread to B where an explosion occured whereby C was wrecked.

In the insurer liable for the loss caused to C ?

Answer : Fire risks don not cover loss caused only by explosion. However, where explosion actually causes ignition which spread into fire, the loss would be taken as a loss by fire. A simple fire insurance, policy covers loss by explosion incidental to fire unless specifically excluded.

In the instant case, the insurer will be liable for the loss caused to house C if (i) the explosion was caused by fire and (ii) the insurer has not excluded his liability for explosion by a special clause in the fire policy.