FIRE INSURANCE

ORIGIN
Authorities trace the origin of fire insurance since 16th century. According to them it started in
Germany where the fire victims were indemnified against a small amount of premium. From
there it spread in other countries. It is said that this type of insurance gathered momentum after
the Great Fire of London in which within span of three days from 2nd to 5th Sept., 1666, 80% of
the city was destroyed.

First, only buildings were insured and the first fire office was established by a builder Nicholas
Barbon in 1680. In 1708, Charles Povey founded the Traders Exchange for insuring movable
goods, merchandise and stocks against loss or damage and this was the first to insure both the
building and its contents.

MEANING AND DEFINITION

The word “fire” has not been defined in the Insurance Act. The definitions of fire insurance
business is given under Insurance Act, 1938:
Fire Insurance is defined as “the business of effecting, otherwise than independently to some
other class of business, contracts of insurance against loss by or incidental to fire or other
occurrence customarily included among the risks insured against in fire insurance policies.”

Fire insurance is an agreement whereby one party (the insurer), in return, for a consideration
undertakes to the indemnify the other party (the insured) against financial loss which he may
sustain by reason of certain defined subject matter being damaged by the or destroyed by fire or
other defined perils upto an agreed amount.

In simple words, we can say that Fire insurance is a contract of insurance against the
loss/damage by accidental fire or other occurrences customarily included under a fire policy

Fire means visible flames or actual ignition. The word fire here does not mean the fire used for
domestic and household activities. It refers to fire which is not caused intentionally and has no
bound, and it is production of ignition, light and smoke by combustion.

The term ‘fire’ must satisfy two conditions:

(a) There must be actual fire or ignition;
(b) The fire should be accidental.
The property must be damaged or burnt by fire. If the property is damaged by heat or smoke
without ignition it will not be covered under the word ‘fire’.

Simmering/ smoldering is not considered fire in Fire Insurance.

Fire produces heat and light but either of them alone is not fire. Lightening is not a fire but if it
ignites something, the damage may be due to fire.
SCOPE OF FIRE INSURANCE
According of section 2 of the insurance act 1938, the scope of fire insurance includes.,
(a). Fire insurance business is different from other insurance business operation and covers the
risks caused by fire:
(b) In addition to the risk cause by the fire, it also includes other reasons and occurrences,.
which can be customarily be included among risk insured under fire insurance contracts,

Thus the scope of fire insurance can be studied from two angles viz…

1. Ordinary scope of fire insurance and

2. Secondary scope of fire insurance

ORDINARY SCOPE OF FIRE INSURANCE

It includes only those risks which define the narrower scope of fire insurance viz., the losses
caused by fire only. Some losses caused by the fire and are included in the insurance against fire
and some losses are left out.

RISKS COVERED UNDER FIRE INSURANCE:

The risk causing losses have to be stated in the fire policy and only these risks are indemnify are
by the insurance company, in case of the loss. The following risks caused by the fire are
generally included in the fire insurance:-

 Fire: The policy's core coverage revolves around protecting you from the devastating
impact of fires, whether they arise from accidental sparks or unforeseen sources. It
excludes loss, destruction and damage caused to the property by its own spontaneous
fermentation of halting, any heating or drying process. Also it excludes burning of
property insured by order of any Public Authority.

 Lightening: There may be occurrences where lightening leads to fire or other damages to
the Insured property. For example cracks in an office due to lightening will be covered
under the fire policy.

 Explosion/Implosion: It refers to sudden burst caused due to difference between the

internal temperature of the building and the external atmospheric temperature. This does
not cover the domestic boilers and economizers.

 Aircraft damage: It covers any loss caused by the aerial devices; aircraft and articles
dropped by them and don't cover those covered by pressure waves.

 Riot, Strike and malicious damage: It covers the physical damage to the property caused
due to strikes by workers, riots by public or intentional destruction caused by a person.
  Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation: Any
damages caused to the insured property due to these natural occurrences are also included
in fire Insurance policy.

 Impact Damage: It refers to the damage to the insured property due to its contact with
rail, vehicles or any animal. But such vehicles and animals should not be owned by the
insured or residence of the property.

 Subsidence and land slide including rock slide: can also lead to damage or destruction of
the insured's property. In such cases, the insured can file for claim under Fire Insurance
Policy.

 Bursting and/or overflowing of water tanks, apparatus and pipes: These perils are also
covered under Fire Insurance Policy

 Missile testing operations: can lead to damage to property and are also covered under Fire
Insurance policy.

 Leakage from automatic sprinkler installations: It covers destruction of property due to

faulty working of sprinklers but excludes damage which is caused while repairing and
removal of sprinklers or renovation in the buildings.

 Bush Fire: It refers to fire spread from bushes but doesn't cover forest fire.

SECONDARY SCOPE
There are many special risks which an insured can get it covered under the Fire Insurance Policy
by paying extra premium to the Insurance Company. These are as follows:

 If fees paid to the architect, surveyor or consultant engineer exceed more than 3 percent
of the claim money.

 The expenses incurred in connection with the removal of wastages from the construction
site, if that amount exceeds more than 1 per cent of the claim money.

 Loss to the goods kept in the cold storage due to fluctuations in electricity/ power but
within the causes stated in the policy.

 Loss arising out of earth-quake, fire or combustion

 Forest fire.

RISKS NOT COVERED BY FIRE INSURANCE

There are certain risks for the which insurer do not indemnify the insured in case of loss They are
as following:
  Loss, durations, damage to precious stones and metal artistic goods and article, maps,
stamps, cheques, account, books achieves and rate documents etc.

 Loss, destruction or damage caused by riot., civil disturbances, revolutions, war,

aggression, internal emergencies, storms, cyclones., etc.,

 Spontaneous fire in jungle or bushes

 Spontaneous combustion caused by the chemicals

 Theft during fire or after break out the of fire

 Compulsory burning of goods or properties by the orders of Government or court's

decision

NATURE OF FIRE INSURANCE

 It is a contract of indemnity and indemnity only and the insured is not entitled to
recover more than such amount as will indemnify him against the actual loss or damage
sustained according to the real quantity and value of the goods at the time of the fire.
The consequences of the doctrine of indemnity are as below:
o The insured may claim only the amount of the loss sustained.
o In the case of partial damage, the insured may claim compensation only for the
amount of damage done.
o The insured must transfer to the insurer any rights which he may possess against
a third party in respect of the loss.
o If the insured have affected more than one policy, he is precluded from obtaining
more than one complete indemnity.
 Generally the period of fire insurance policy is twelve months (365 days). The period
can be less than one year but not more than one year. The only exception being the
residential houses which can be insured for the period exceeding one year also.
 The fire insurance contract, being a typical insurance contract, is a contract of
uberrimae fide i.e. there must be utmost good faith between the insurer and the insured.
The fire policy shall be voidable in the event of misrepresentation, mis-description or
non-disclosure of any material information. Example: The use of building must be
disclosed i.e whether the building is used for residential use or manufacturing use, as in
both the cases the premium rate will vary.
 Fire insurance will be valid only if the person who is insuring the property is owner or
having insurable interest in that property. Such interest must exist at the time when loss
occurs and the following conditions must be fulfilled to constitute an insurable interest.
o There should be a physical object capable of being damaged or destroyed by fire.
o The object must be the subject matter of insurance.
 o The insured must stand in such a relationship as recognized by law where the
insured is benefited by the safety of the subject-matter or be prejudiced by its loss.
 If a property is damaged or loss occurs due to fire because of deliberate act of the owner,
then that damage or loss will not be covered under the policy.
 The cause of fire is generally immaterial (the only exception is wilful act/fire)
 Proximate cause is very important in fire insurance.
 Warranties are be complied with literally in fire insurance and the effect of a breach of
warranty is to render void the relevant item of the policy, even if no increase in risk is
involved. (Warranty is that by which the assured undertakes that some particular thing
shall or shall not be done, or that some conditions shall be fulfilled or whereby he affirms
or negatives the existence of a particular state of facts : Can be express as well as
implied)
 A fire insurance contract is a personal contract to indemnify a person for any loss which
he may suffer upon the destruction of the thing insured, from fire, explosion, etc and
therefore, if the person transfers the thing insured to another without the consent of the
insurer, he loses his insurable interest in that thing and the contract between him and the
insurer comes to an end.
 Fire insurance being a contract, all the essentials of the valid contract shall be fulfilled.

Insurance Claim

1. Estimate the Losses

It is critical to assess the overall loss in order to be properly reimbursed. Try to keep track of all
the losses sustained as a result of the incident. While doing so, make sure that

· The burnt goods should not be discarded.

· It is not necessary to rebuild or repair the damaged infrastructure.

· Keep proper evidence of the damaged or lost items.

2. Intimate Your Insurance Provider

The first step is to contact your insurance company or agent as soon as the fire incident occurs.
Promptly reporting the incident is essential, as most policies have a time limit for filing claims.
3. File a claim

You will need to fill out a claims form provided by your insurer. This form typically includes
(i) Name and address of the Insured.
(ii) Date of loss, time and place from where the fire started.
(iii) Cause of fire.
(iv) Details of the property damaged such as description, etc.
(v) Value at the time of fire, value of salvage and the amount of loss.
(vi)Details of other policies on the same property giving the name of the insurer,
policy number and sum insured.
(vii) Fire Brigade report details.
(viii)F.I.R. at the nearest police station regarding third party liability, if any.
You must lodge the claim form within a stipulated time frame ( usually within 15 days) of the
fire incident, to claim compensation. A delay in the submission of the claim form may lead to
non-acceptance of the claim.

4. Claim assessment and loss valuation

After receiving your claim, the insurance company will assign a surveyor to assess the extent of
the damage. If the amount of loss is small, the insurance company may depute an officer to
survey the loss and decide on the settlement of the loss on the basis of the claim form and the
officer’s report. However, in large losses, an independent surveyor duly licensed by the
Government is appointed to give a report on the loss. The surveyor will visit the scene of the fire
to evaluate the loss and determine whether it is covered under your policy.
The survey report would generally deal with the following matters:
 Cause of loss.
 Extent of loss.
 Details and value of salvage, and how it has been disposed of or
proposed to be disposed of.
 Details of expenses (e.g. fire brigade expenses).
 Compliance with policy conditions and warranties.
 Details of other insurance policies on the same property, and the
apportionment of the loss and expenses among co-insurers.

The claim will be estimated by the insurer on the basis of the surveyor's report. The objective of
the insurance company here is to investigate the circumstances surrounding the fire to ensure
there was no foul play or insurance fraud involved.

5. Policy review

The insurance company will review your policy to determine the coverage limits, deductibles,
and any applicable endorsements or exclusions that may impact your claim
6. Claim settlement offer

Once the above steps are complete, the insurance company will provide you with a claim
settlement offer. This offer outlines the amount they are willing to pay to cover the losses, minus
any applicable deductibles or depreciation.

7. Negotiation (if needed)

If you believe the settlement offer is insufficient or if there are disagreements about the coverage,
you may enter into negotiations with the insurance company. It's crucial to provide proper
evidence and documentation to support your claims further here.

8. Acceptance of Settlement

If both parties agree on the settlement amount, you can accept it. Once you accept the offer, the
insurance company will proceed with issuing the payment.

9. Payment Issuance

The insurance company will issue a payment, typically in the form of a check, to cover the
approved claim amount. This payment can be used to repair or replace the damaged property or
cover other eligible expenses.

10. Claim Closure

After you receive the payment and use it to address the losses, the claim will be officially closed
 MARINE INSURANCE

Section 3 defines marine insurance in these words: “A contract of marine insurance

is an agreement whereby the insurer undertakes to indemnify the assured, in the
manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incidental to marine adventure.”

The Marine Insurance Act, 1906 was passed in England and the Indian marine
insurance business was conducted according to the provisions of that Act. As there
was no Indian legislation to govern the marine insurance, it continued to be
governed by the British Marine Insurance Act, 1906. At the same time the
insurance contracts in India also became subject of the Indian Contract Act, 1872.
The insurance policy forms used in India were the English forms based on
mercantile customs and business conventions. At times, it appeared to be in
conflict with the provisions of Indian Contract Act which resulted in the own
interpretations by the courts. To overcome these difficulties, the Marine Insurance
Act was enacted in the year 1963

SCOPE

The marine insurance is not confined to maritime perils only. Section 4, Marine
Insurance Act provides that it may cover a mixed sea and land risk. It provides that
a contract of marine insurance may, by its express terms, or by usage of trade, be
extended so as to protect the assured against losses on inland waters or on any land
risk which may be incidental to any sea voyage.
 FEATURES OF MARINE INSURANCE ACT, 1963
The Marine Insurance Act of 1963 in India provides a comprehensive framework for regulating
marine insurance contracts. Here are some key features of the Marine Insurance Act, 1963:

Insurable Interest (Section 7):

The Act emphasizes the requirement of insurable interest, stating that the assured must have a
valid interest in the subject matter of the insurance at the time of the loss. Every person has an
insurable interest who is interested in a marine adventure.

Attachment of interest:( Section 8)

The assured must be interested in the subject-matter insured at the time of the loss, though he
need not be interested when the insurance is effected. However certain exceptions are given in
the sction.

Utmost Good Faith (Sections 19-20):

Both the insurer and the insured are bound by the principle of utmost good faith. The insured is
obligated to disclose all material facts, and any misrepresentation or concealment of facts can
lead to the voiding of the policy.

Measure Of Insurable Value - Section 18 of the Act provides for measure of insurable value. In
view of this section, the policy itself may provide through an express provision for valuation.
However, if the policy is silent over it, the insurable value shall be ascertained in accordance
with the provisions of this section.

Fraudulent Devices (Section 22):

The Act specifically addresses fraudulent devices, making it clear that any fraudulent acts or
devices by the insured to inflate a claim can lead to the policy being void.

The Policy :

A contract of marine insurance shall not be admitted in evidence unless it is embodied in a

marine policy in accordance with this Act. The policy may be executed and issued either at the
time when the contract is concluded, or afterwards needs to include key details:

 The name of the person getting insurance or someone acting on their behalf.
 Subject matter of insurance.
 Details about the voyage, time period, or both covered by the insurance.
  The specific amount or amounts insured.
 Names of the insurer or insurers.

The policy must be signed by or on behalf of the insurer. If multiple insurers are involved, each
subscription is treated as a separate contract with the person getting insured. (s.24, 25 and 26)

Warranties (S.35 to 43)

The Act defines warranties as specific promises or undertakings in the insurance contract. It
establishes that warranties must be strictly complied with, and any breach, whether material or
not, can discharge the insurer from liability.

Types of warranties –

 Express Warranties: It is expressly included in the Marine insurance contract.

 Implied Warranties: It is not covered in the contract but it is assumed to be binding on the
parties.

Warranties under act –

 Express warranties.
 Warranty of neutrality.
 Warranty of good safety.
 Warranty of seaworthiness of ship.
 Warranty of legality

Different kinds of policies

 Valued Policy (Section 29): The Act recognizes valued policies, where the agreed value
of the subject matter of insurance is specified in the policy. In case of a total loss, the
agreed value is paid as the sum insured.
 Unvalued policy: It refers to that policy where the value of the subject matter is not
mentioned in the contract. The compensation is paid after ascertaining the value of the
loss(S. 30)
 Time policy: As the name implies, the subject matter is covered for a specific period of
time which is usually one year. In the case where time has to be extended more than one
year, a Continuation clause is to be added in the contract.(S. 27)
 Voyage Policy: It refers to policy issued for a specific passage from departure location
to the destination location (S.27)
 Floating policy: This policy is useful for those who have frequent cargos to transport or
are involved in large scale trade activities. In this policy only the general terms and policy
 coverage amount are specified and other details such as ship name can be subsequently
declared(S.31)

Rights of Insurer

 Subrogation (Sections 79): Subrogation rights are outlined, allowing the insurer, after
settling a claim, to step into the shoes of the insured and pursue any rights or remedies the
insured may have against third parties responsible for the loss.
 Contribution (Section 80):
The Act addresses contribution, where multiple insurers covering the same subject matter
are required to contribute proportionately to a loss. Each insurer's liability is determined
based on the agreed amounts in their respective policies.

Assignment of Policies (S 52-53)

The Act allows for the assignment of marine insurance policies, subject to certain conditions. An
assignment involves the transfer of rights and benefits under the policy from the original insured
(assignor) to another party (assignee).

Loss and Abandonment - The act includes provisions regarding loss and abandonment. The act
allows the insured to abandon a vessel or cargo to the insurer in the case of a total loss. It sets out
the conditions under which abandonment is valid and the rights and responsibilities of both
parties.(S.55 to 63)

These features collectively contribute to the comprehensive regulatory framework of the Marine
Insurance Act, 1963, ensuring a fair balance of rights and responsibilities between insurers and
insured parties in the context of marine insurance.