Fire Insurance

Definition
Fire insurance is an agreement where, in exchange for payment (premium), the
insurance company promises to compensate the person insured if their
property or goods get damaged or destroyed by fire within a certain time. It
helps cover financial losses caused by fire incidents.

 The contract specifies the maximum amount, agreed to by the parties at the
time of the contract, which the insured can claim in case of loss.
 The loss can be ascertained only after the fire has occurred.
 The insurer is liable to make good the actual amount of loss not exceeding
the maximum amount fixed under the policy.
Insurable Interest
Insurable interest means the person buying insurance must have a connection
or stake in the value of what's being insured. This connection can come from
owning property, having a contract, or facing potential legal responsibility.
A fire insurance policy cannot be assigned without the permission of the insurer
because the insured must have insurable interest in the property at the time of
contract as well as at the time of loss. The insurable interest in goods may arise
out on account of:
 ownership
 possession, or
 contract.
A person with a limited interest in a property or goods may insure them to cover
not only his own interest but also the interest of others in them. Under fire
insurance, the following persons have insurable interest in the subject matter:-
 Owner
 Mortgagee
 Pawnee
 Pawn broker
 Official receiver or assignee in insolvency proceedings
 Warehouse keeper in the goods of customer
 A person in lawful possession e.g. common carrier, wharfing, commission
agent.

The types of losses covered by fire insurance are:-

 Goods spoiled or property damaged by water used to extinguish the fire.
 Pulling down of adjacent premises by the fire brigade in order to prevent the
progress of flame.
 Breakage of goods in the process of their removal from the building where
fire is raging e.g. damage caused by throwing furniture out of window.
 Wages paid to persons employed for extinguishing fire.

The types of losses not covered by a fire insurance policy are:

 loss due to fire caused by earthquake, invasion, act of foreign enemy,
hostilities or war, civil strife, riots, mutiny, martial law, military rising or
rebellion or insurrection.
 loss caused by subterranean (underground) fire.
 loss caused by burning of property by order of any public authority.
 loss by theft during or after the occurrence of fire.
 loss or damage to property caused by its own fermentation or spontaneous
combustion
e.g. exploding of a bomb due to an inherent defect in it.
 loss or damage by lightening or explosion is not covered unless these cause
actual ignition which spread into fire.

A claim for loss by fire must satisfy the following conditions

1. It has to be from actual fire, not just high temperature.

2. Fire must be the main reason for the loss.
3. The damage must be connected to the insured items.
4. The ignition must be from the goods or where they're stored.
5. The fire must be accidental, not on purpose by the insured or their
[Link] fire must be accidental, not intentional. If the fire is caused through
amalicious or deliberate act of the insured or his agents, the insurer will not be
liable for the loss.

Kinds of Policies of Fire Insurance

There are different types of fire insurance policies:

1. Valued Policy: The property's value is determined at the start of the policy.
The insurer pays the agreed value, regardless of the market value at the time of
the loss.

2. Valuable Policy: The claim amount is based on the market price of the
damaged property. This follows the principle of indemnity.

3. Specific Policy: A specific sum is insured for a particular property during a set
period. The entire actual loss is paid, provided it doesn't exceed the insured
amount.

4. Floating Policy: This covers one or more types of goods at one time under
one sum assured for one premium. It's useful for fluctuating stocks in different
locations.

5. Average Policy: The indemnity amount is determined based on the insured

property's value. If the policy amount is less than the property's actual value,
the insurer pays a proportionate amount of the loss.

6. Excess Policy: For businesses with fluctuating stock, two policies can be
bought - a "First Loss Policy" covering stock up to a certain limit, and an "Excess
Policy" for the amount exceeding that limit.

Sure, here are summaries for the remaining two points:

7. Reinstatement Policy: This policy promises to restore the property lost in a

fire to a new condition, regardless of its value at the time of the loss.
[Link] Policy: This policy provides complete protection, not just
against fire but also covers risks like burglary, riot, civil commotion, theft,
damage from pests, and lightning.

Basic Principles

Here's a simple summary of the basic principles of fire insurance:

1. Contract of Indemnity: The goal is to restore the insured to the same

financial position before a loss. The recovery is limited to the actual loss within
the sum assured.

2. Insurable Interest: The interest in the insured property must exist at the time
of getting insurance and during the loss. It can be legal, equitable, or arise from
a purchase/sale contract.

3. Contract of Good Faith: Full and honest disclosure of all material facts is
required. This includes accurate property descriptions and information about
goods and articles on the premises.

4. Loss Through Fire: The policy covers losses resulting from fire or a proximate
cause. However, if the fire is caused by the insured, with connivance, or by an
excluded peril like an earthquake, it won't be covered.

5. Contract from Year to Year: Fire insurance policies typically last one year and
can be renewed.

6. Principles of Subrogation and Contribution: Subrogation allows the insurer,

after compensating the insured, to claim rights against third parties responsible
for the loss due to negligence or default.

Miscellaneous Insurance

1. Crop Insurance: Protects farmers against losses due to natural disasters,

inflation, and damages to farming property and assets.
Example : Sarah's wheat crop is ruined by a cyclone. Crop Insurance helps her
recover financially.
2. Property Insurance: Covers a wide range of assets, providing protection
against risks like theft and damage.
Example : James's business property suffers fire damage. Property insurance
covers the repair costs, ensuring James can resume business.
3. Liability Insurance: Safeguards individuals or companies legally against
negligence, malpractice, or injury claims.
Example : Emma's bakery customer slips and gets hurt. Liability Insurance
covers legal and settlement costs, protecting Emma's business.

4. Commercial Vehicle Insurance: Specifically designed to protect businesses

from losses related to accidents, damages, and theft involving commercial
vehicles.
Example : XYZ Logistics truck is in an accident. Commercial vehicle Insurance
covers repair and cargo loss, keeping deliveries on track.

5. Annuities Insurance: Ensures financial security during retirement,

guaranteeing income for a certain period or until demise.
Example : Retiree Robert invests in an insurance company for a fixed monthly
income to get insured amount after retirement.

6. Commercial Insurance: Comprehensive coverage for businesses against risks

to property, workers, assets, and liabilities.
Example : Pran company faces a product lawsuit. Commercial Insurance covers
legal costs, keeping the company running.

7. Credit Insurance: Protects businesses involved in credit transactions,

providing stability and peace of mind when dealing with credit aspects.
Example : ABC Electronics' client goes bankrupt. Credit Insurance compensates
for the debt, minimizing the impact.

8. Home Owner Insurance: Safeguards homes and belongings against

calamities, thefts, fires, and other disasters.
Example : Jhon’s home is damaged by a storm. Homeowner Insurance covers
repairs, easing the financial burden.

9. Product Liability Insurance: Protects businesses from claims of personal

injury or property damage caused by their products.
Example : XYZ company’s faulty product causes a fire. Product liability
Insurance covers legal costs, protecting the company.

10. Mortgage Insurance: Covers mortgages, ensuring repayment in case of

financial difficulties and making one eligible for loans.
Example : a short-term policy might pay if you just had a baby or had surgery
and temporarily can't work.

11. Disability Insurance: Replaces a portion of regular income in the event of

injury, ensuring financial stability during disability.
Example : Mark, a computer engineer, is injured. Disability Insurance replaces
part of his income for recovery amount.

12. Professional Liability Insurance: Covers legal costs for companies providing
complex advice or services, known as Errors and Omissions Insurance.
Example : :Medical malpractice insurance is a form of professional liability
insurance for healthcare professionals, such as counselors, doctors, nurses

13. Workers’ Compensation Insurance: Provides wage replacement and

medical benefits to employees injured during employment, helping employers
avoid legal issues.
Example : if your restaurant chef spills a pot of boiling water on your arm and
can't work for two weeks, workers' compensation coverage can help replace
some of your lost wages.

14. Renters Insurance: Protects renters by covering belongings, damages to the

owner's property, guest injuries, and increased living expenses during repairs or
maintenance.
Example : 1. Your phone's stolen at a music festival · 2. Your laptop's swiped
while traveling ·