Fire Insurance - 1

Fatema Afreen
Department of Business Administration

Premier University
Fire Insurance
Meaning of Fire Insurance:
The fire insurance contract is defined as “an agreement, whereby insurer in return for a consideration
(premium) undertakes to indemnify the other party ( insured) against financial loss, where the insurer
undertakes to pay the insured in case of damage caused by fire.
Principles of Fire Insurance:
Fire insurance has three important principles:
1. Principle of Utmost Good Faith.
2. Principle of Insurable interest in property.
3. Principle of indemnity.
1. Principle of Utmost Good Faith:
The contract of fire insurance is one in which the observance of the utmost good faith by both the
parties are of vital significance.
The utmost good faith in fire insurance has two aspects first, the disclosure of material facts and second,
preservation of the property insured. The insurer and the insured must furnish detailed information
regarding the subject-matter to be insured. The second phase of good faith is the preservation of
property.
2. Principle of Insurable interest in property:
Insurable interest is the general principle of insurance without which an insurer cannot lawfully be
enforced for insurance unsupported by an insurable interest would be a gambling transaction.
Insurable interest will be there where the subject-matter should be in such a position that the insured
may suffer loss at the time of damage and may gain by its protection.
3. Principle of indemnity:
The doctrine of indemnity aims to compensate the insured for a loss sustained, and the compensation
should be such as to place him as nearly as possible in the same pecuniary position after the loss as he
occupied immediately before the occurrence. The insured cannot claim anything in excess of the
amount required to recoup tie actual loss sustained.
The insurers undertake to make good the insured’s loss by monetary payment or by reinstatement or
replacement so that the insured shall be fully indemnified, but this is subject to the sum insured.
Fatema Afreen
Premier University
Elements of Fire Insurance Contract:
A. Elements of General Contract:

1. Proposal
2. Acceptance
3. Commencement of risk
B. Elements of Special Contract:

1. Insurable interest
2. Principle of good faith
3. Doctrine of subrogation
4. Warranties
5. Proximate cause
Classification of Fire Insurance Policies:

Classification/ scope of fire insurance may be considered under two broad headings, which are ~
A. Material loss insurance

B. Consequential loss insurance
A. Material loss insurance:

1. Standard fire policy
2. Special perils policy
3. Declaration policy
4. Blanket policies
5. Reinstatement policy
6. Building in course of erection policy
7. Household policy
8. Sprinkler leakage policy
C. Consequential loss insurance
Policy Conditions for Fire Insurance Contract:
A. Implied Conditions:
1. Existence of property
2. Insured property
3. Insurable interest
4. Good faith
B. Express Conditions:
1. Misdescription
2. Alteration
3. Exclusions
Fatema Afreen
Premier University
4. Fraud
5. Claim
6. Reinstatement clause
7. Insurer’s right after fire
8. Subrogation
9. Arbitration
System of Rate Fixation in Fire Insurance / Factors Affecting Premium Calculation:

The actual process of rating consists of three steps:
A. Classification
B. Discrimination
C. Schedule rating
A. Classification:
1. Construction/ Structure
2. Occupancy
3. Nature of flooring
4. Height
5. Floor & wall opening
6. Exposure
7. Lighting, heating & power
8. Place/ situation
9. Protection
B. Discrimination
C. Schedule rating
Claim Settlement Procedure:

On receipt of a loss intimation through in writing or over telephone the first step is to verify
that:
 The policy is in force.
 The risks under which the loss is reported is covered under the policy.
 The items of properties affected and location of the same is under the scope of policy.
After checking the policy a claim is registered and a claim numbers allocated to the Insured. This
claim number is used in all future correspondence for easy reference. A claim form is issued to
the Insured for completion and return with some papers/ documents in support of the loss. A
Surveyor is appointed to investigate and report on the cause and extent of loss.
Fatema Afreen
Premier University
The following papers/documents are usually required for settlement of fire claim:
 Copy of G D Entry/FIR.
 Stock Report duly Certified by the Bank (in case of Bank Loan)
 Fire Brigade Report.
 Import/Purchase documents of Fire affected items.
 Statement of a responsible Officer/Staff regarding the incident.
 Copy of Fire Licence.
 Valid papers regarding the Electrical Connection of the Insured Premises.
 Periodic Test Report of Electrical Circuit Board from a competent authority.
 Approval letter from Competent Authority in case of Captive Power Plant.
 Claim Bill showing value of fire affected items (supported by price quotation/Bill).
 Any other papers depending on circumstances of the loss.

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Fatema Afreen

Department of Business Administration

Meaning of Fire Insurance:

Principles of Fire Insurance:

Fire insurance has three important principles:

1. Principle of Utmost Good Faith.

2. Principle of Insurable interest in property.

1. Principle of Utmost Good Faith:

2. Principle of Insurable interest in property:

A. Elements of General Contract:

B. Elements of Special Contract:

Classification of Fire Insurance Policies:

A. Material loss insurance

A. Material loss insurance:

C. Consequential loss insurance

Policy Conditions for Fire Insurance Contract:

System of Rate Fixation in Fire Insurance / Factors Affecting Premium Calculation:

Claim Settlement Procedure:

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