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.