Fire Insurance is a contract, between the insurer on the one hand and the insured on the other, under which the insurer, in consideration for a premium payable by the insured, agrees to indemnify the insured for the loss or damage caused to the insured property by reason of fire during the specified period of time and up to an agreed amount.
In case of fire insurance, the insurable interest must exist both at the time of contract and at the time of loss. It is essentially a contract of indemnity and therefore the insured can not claim an amount greater than his actual loss.
The compensation claimed cannot exceed the amount of sum assured. The fire insurance policy is normally issued for a period of one year only.
Important of Fire Insurance:
1. Goods spoiled by water thrown for extinguishing the fire.
2. Pulling down of buildings adjacent to the one which caught fire by the fire brigade in order to prevent the fire from spreading further.
3. Breakage of goods in the course of shifting from the building where the fire is raging. o Any expense legitimately incurred for extinguishing the fire.
General Principles of Fire Insurance:
1. Utmost good faith: The contract of insurance is based on utmost good faith. It is an essential condition of every insurance contract that both the parties (i.e., the insurer and the insured) should display the utmost good faith towards each other.
2. Insurable interest in property: Another principle of an insurance contract is that the insured must have an insurable interest in the subject matter of insurance. A person is said to have an insurable interest in the subject matter of insurance if he is benefited by its existence In fact, without insurable interest, the contract of insurance will be regarded as gambling and so it will be void.
3. Principle Of Indemnity: Except for life insurance, all Other contracts of insurance contracts Of indemnity. means that there is an of insurance company compensate or indemnify the loss suffered by the insured also be the value of the policy.
Kinds of Fire Insurance Policies:
1. Valued policy: Under this policy, the insurance company undertakes to pay a predetermined sum of money declared in the policy on the event of loss or damage caused to the insured property by reason of fire. The principle of indemnity is not applicable to this type of policy. Such policies are usually issued for those properties whose value cannot be determined easily after their loss or damage, e.g., work of art, paintings and sculptures etc.
2. Specific policy: Under this policy, the risk is insured for a specific sum of money and this policy is not subject to the average clause. Under this policy, the insurer undertakes to indemnify the actual loss caused to the insured property by fire but the loss to be compensated for by the insurer can, in no way, exceed the value of the policy.
3. Average policy: When the ‘average clause’ is applicable to a policy, it is called the average policy. This clause is included in the policy of fire insurance in order to penalize the insured for buying a policy for a lower value than the true value of the property.
According to this clause, the insurance claim payable by the insurer is proportionately reduced if the value of the policy is found to be lower than the actual value of the insured property.
4. Floating policy: This policy is effected for properties scattered at different places. If the goods belong to the same person, then one policy will cover the risk for all the lying at different places.
5. Comprehensive policy: It is a policy which covers not only the risk of fire but also the risk of explosion, lightning, burglary, riots and labour unrest etc. It is also known as ‘all-risk policy’ or ‘all in all policy’. In short, it covers all types of risk including fire.
6. Consequential loss policy: It is a policy which not only provides compensation against loss by fire but also compensation for loss of profit during the period the business was disrupted or affected by dislocation caused by fire. Such compensation for loss of profit is calculated on the basis of loss of sales during the said period.
7. Reinstatement policy: Under this policy, the insurer provides compensation on the basis of the fair market value of the property after adjusting depreciation. Under this policy, the compensation is equivalent to the replacement value of the property.