Presentation on Fire Insurance for the benefit of law students, different types of insurance with their definitions and their functions, history with brief detail of fire insurance

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Subject: Banking and
Insurance
Topic: FIRE INSURANCE
NAME: Ishita Srivastava

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WHAT IS INSURANCE?
Insuranceis a legal agreement between two parties i.e. the insurancecompany
(insurer) and the individual (insured). In this, the insurance company promises
to make good the losses of the insured on happening of the insured
contingency.
The contingency is the event which causes a loss. It can be the death of the
policyholder or damage/destruction of the property. It’s called a contingency
because there’s an uncertainty regarding happening of the event. The insured
pays a premium in return for the promise made by the insurer.
HOW DOES INSURANCE WORK?
The insurer and the insured get a legal contract for the insurance, which is
called the insurance policy. The insurance policy has details about the
conditions and circumstances under which the insurance company will pay out
the insurance amount to either the insured person or the nominees.
Insurance is a way of protecting yourself and your family from a financial loss.
Generally, the premium for a big insurance cover is much lesser in terms of
money paid. The insurance company takes this risk of providing a high cover
for a small premium because very few insured people actually end up claiming
the insurance. This is why you get insurance for a big amount at a low price.
Any individual or company can seek insurancefrom an insurance company, but
the decision to provide insurance is at the discretion of the insurance
company. The insurance company will evaluate the claim application to make a
decision. Generally, insurance companies refuse to provide insurance to high-
risk applicants.

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WHAT ARE THE TYPES OF INSURANCE AVAILABLE IN INDIA?
Insurance in India can be broadly divided into following categories:
i). Life insurance
As the name suggests, life insurance is insurance on our life. We buy life
insurance to make sure our dependents are financially secured in the event
of our untimely demise. Life insurance is particularly important if we are the
sole breadwinner for our family or if our family is heavily reliant on our
income. Under life insurance, the policyholder’s family is financially
compensated in case the policyholder expires during the term of the policy.
ii). Health insurance
Health insuranceis bought to cover medical costs for expensive treatments.
Different types of health insurance policies cover an array of diseases and
ailments. We can buy a generic health insurance policy as well as policies
for specific diseases. The premium paid towards a health insurance policy
usually covers treatment, hospitalization and medication costs.
iii). Car insurance
In today’s world, car insurance is an important policy for every car owner.
This insurance protects us against any untoward incident like accidents.
Some policies also compensate for damages to our car during natural
calamities like floods or earthquakes. It also covers third-party liability
where we have to pay damages to other vehicle owners.

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iv). Education Insurance
The child education insurance is akin to a life insurance policy which has
been specially designed as a saving tool. An education insurance can be a
great way to provide a lump sum amount of money when a child reaches
the age for higher education and gains entry into college (18 years and
above). This fund can then be used to pay for the child’s higher education
expenses. Under this insurance, the child is the life assured or the recipient
of the funds, while the parent/legal guardian is the owner of the policy.
v). Home insurance
Home insurance can help with covering loss or damage caused to the home
due to accidents like fire and other natural calamities or perils. Home
insurance covers other instances like lightning, earthquakes etc.
vi). Fire insurance
Fire insurance is property insurance that covers damage and losses caused
by fire. The purchase of fire insurance in addition to homeowner’s or
property insurance helps to cover the cost of replacement, repair, or
reconstruction of property, above the limit set by the property insurance
policy. Fire insurance policies typically contain general exclusions, such as
war, nuclear risks, and similar perils.
DEFINITION OF FIRE IN INSURANCE
The fire insurance contract is defined as “an agreement, whereby one party
in return for a consideration undertakes to indemnify the other party
against financial loss which the latter may sustain by reason of certainly

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defined subject-matter being damaged or destroyed by fire or other
defined perils up to an agreed amount”.
A fire insurance could be bought as a part of property insurance or as a
stand-alone policy. A fire insurance offers compensation for the costs
incurred in the replacement, repair or reconstruction of a property that was
damaged due to fire. Since the estimation of loss from fire is unpredictable,
a fire insurance policy is issued with fixed value compensation as an upper
limit set by the property insurance policy. The actual loss or the maximum
amount agreed beforehand is paid as compensation when you file a claim
for fire insurance.
Fire, in order to make the insurer liable under the contract, must satisfy two
conditions. First, there should be actual fire or ignition, and second, the fire
must be fortuities in its nature. It is a well-known fact that fire causes huge
losses every year. The individual owner by taking fire Insurance can prevent
fire waste to some extent. The insurer acts as a middleman between all the
members of the society who are exposed to the fire risk on the one hand
and the members who will be the actual victims of the fire losses on the
other. The insurer charges the premium from all the insured members and
makes good the losses when they occur to any of them. The system of fire
insurancecannot savethe society from the economic loss to the community
to the extent of the property lost by fire, but it compensates someone and
this saves him from a ruinous loss, at the cost of a group of some others.
The party responsible to indemnify the loss is called the insurer, the party
who is to be indemnified is called the insured, the consideration for the
contract is termed ‘the premium’, the defined subject-matter is termed ‘the
property insured” the sum set forth in the contract is called the assured

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sum, and the document containing the terms and conditions of the contract
is known as ‘the policy.’
The contract of insurance involves all the elements of an ordinary contract
and insurance contracts. The elements of a contract are discussed in the
following paragraphs. Before discussing the elements of the fire insurance
contract, the special meaning of the ‘Fire’ must be understood.
DEFINITION OF IGNITION IN INSURANCE
The express in the policy we have to construct is loss or damage occasioned
by fire. This means that loss or damage must be either by the ignition of the
article or property or premises or part thereof. In other words, the damage
should be occasioned by fire. Loss or damage caused by excessive fire heat
cannot be included in ‘loss or damage by fire’. If should be proved here,
that the loss should be caused by fire. The cause of the fire is not important.
The fire even if caused by the negligence of the servant or himself may
come under the definition of fire. There should be no fraud or willful
misconduct by the assured. There should be actual ignition but a process
resembling fire may not be fire.
For example, the damage done due to smoke due to faulting chimney or
overheated iron is not the example of fire. Similarly chemical actions,
explosion, lighting, etc. are not occasioned or example of fire.

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FIRE SHOULD BE ACCIDENTAL AND NOT INTENTIONAL
Any loss caused by fire lighted purposely is not a loss by fire if it was
intentional. However, the property burned accidentally in an ordinary fire,
such as domestic fire, the loss is covered even if the fire remains under
control. When a fire was purposely lighted but became out of control at a
later stage is taken under the definition of fire. The object of fire insurance
is to indemnify the insured against accidental loss by fire.
FUNCTION OF FIRE INSURANCE
The function of fire insurance is to make good the financial loss suffered as
a result of the fire. It is not the function of fire insurance to replace the
economic loss termed the ‘fire waste’.
Such damage apart from causing financial loss to the owners dislocates the
economic activity of the community. In spite of sustained efforts made by
human ingenuity to achieve complete mastery of fire, material property
continue to be liable in varying degree to destruction or damage by the
escape of fire from its contract.
Some of the insurable properties are buildings, electrical installation,
contents of building such as machines plant and equipment accessories,
etc. goods such as raw materials, goods in process, finished goods, goods in
the open or in the premises, contents in dwellings, shops, hotels furniture,
fixture and fitting and other movable and immovable properties.
Fire insurance is a device to compensate for the loss consequent upon
destruction by fire. Thus the fire insurer shifts the burden of fire losses from

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their actual victims over to all the members of the society. It is a
cooperative device to share the loss. It relieves the insured from the horror
of the fire losses to which he is exposed.
HISTORY OF FIRE INSURANCE
Fire insurance has not a long history. The real establishment of fire
insurance came only after the Great Fire of London in 1066. This fire lasted
for four days and nights burning, over 436 acres of ground and destroying
over 13,000 buildings was the most disastrous fire in history and forcibly
awakened the people to the necessity for a form of protection against such
calamities.
The main cause of its late development was the slow progress of trade and
commerce. After a certain period when the business and commerce ran
high, fire insurance received a real fillip. Previously there was no basis on
which the premium could be based. There were a few concerns which made
remarkable progress. Gradually as they gained experience the data went on
accumulating and the premium rates became more equitable and scientific.
The decisions of law court also brought the principles of fire insurance a
standard form. With increasing competition and experience, fire insurance
is evolved in its present scientific form. However, the progress in fire
insurance was not so tremendous and categorical as was in the case of life
insurance.
The business of effecting, otherwise than incidentally to some other class of
insurancebusiness, contractof insuranceagainst loss by or incidental to fire

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or another occurrencecustomarily included among the risks insured against
in fire insurance policies.
The occurrence of fire will result not only in the loss of or damage to
material property but also other consequential losses such as loss of
production causing loss of profit.
TYPES OF FIRE INSURANCE PLANS
To avoid ambiguity for the claim amount, certain types of clauses are
included in this policy. Such types give more clarity on premium payable
and claim amount payable without any scope of a dispute. Businessmen
should be clear about the type of policy they need and whether it suits
his/her business operations. Let us look at some of the types of fire
insurance.
i). Valued Policy: When it is difficult to ascertain the value of the
property or articles at the time of claim, a valued policy is issued. For
example, the value of paint or art or jewellery is not constant during
all the days of the year. For such cases, the estimated value is fixed in
advance by the insurance company and policyholder, at the time of
taking the insurance. In case of an unfortunate event, the
predetermined value is paid, and actual loss is not assessed. Here the
principle of indemnity is not applied, but the attempt is made to
compensate the losses to the insured at a predetermined rate
without entering into debates or disputes at the time of actual loss.

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ii). Specific Policy: Under this policy, the maximum amount payable is
fixed in advance. In case of an unfortunate event, the amount
equivalent to the actual loss or prefixed amount, whichever is less, is
paid. For example, if a fire insurance policy is taken with a specific
value of Rs. 2 lakh, then in case the loss due to fire is worth Rs.3 lakh,
the amountpayable is Rs. 2 lakh. However, if the loss is worth Rs. 1.5
lakh, the full amount of Rs. 1.5 lakh will be payable.
iii).Average Policy: Many a times, the applicant prefers the insured
amount to be less than the value of the property. In such cases, the
insurance company imposes the “average clause” to penalise the
insured for taking up a policy less than the value of the property. For
example, the valuation of your shop and goods inside the shop is Rs.
20 lakh, but you are taking a fire insurance of Rs. 10 lakh. In such a
situation, if a fire in the shop leads to damage worth Rs. 20 lakh, the
insurance company will pay you Rs. 10 lakh only, under the average
policy clause.
iv).Floating Policy: If a businessman has warehouses at different
locations, s/he may opt for a floating policy. With the help of this
single policy, all the goods lying in different warehouses can be
insured together. Such an arrangement eliminates the need for
buying separate policies for every warehouse. Moreover, you can opt
for an average clause if you want to reduce the premium. However,

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at the time of loss, the amount payable is substantially lower than
actual loss, in case of the average clause.
v). Consequential Loss Policy: The loss due to fire is not the only loss an
insured person faces after fire break. Your factory may lose important
machinery and the production line could go down for several weeks
or months after the fire. The loss of production is a loss of business or
profit. Such indemnity can be claimed under consequential loss
policy. The business in which continuous production is the essence
must take consequential loss policy to make good of such losses.
vi).Comprehensive Policy: It can happen that business owners want to
cover their properties against all possible mishaps like fire, burglary,
theft, explosion, earthquake, lightning, labour unrest, and similar
other reasons. In such a case, the business owner should go for
comprehensive policy or all risk policy, which can take care of all
possible causes of loss.
vii). Replacement Policy: The loss of property due to fire raises the
need to get a new property to restart business operations.
The fire insurance policy comes with two variants. In the first option, it
makes good of lost property on depreciated value bases. Alternatively, it
makes good to compensate for the actual cost of the replaced property.

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While taking the fire insurance, you must understand the replacement
policy clause to get appropriate claim at the time of the unfortunate event.
WHAT FIRE INSURANCE COVERS?
Fire insurance covers all the losses arising out of the accidental fire, subject
to terms and conditions of the fire policy which is limited by the policy value
and not by the extent of damage sustained by the property owner. In
general, the following losses are covered:
a) Actual loss of goods due to fire
b) Additional living expenses due to damage to personal property
c) Loss to adjacent building or property due to fire in the insured
building
d) Compensation paid to fire fighters
e) Fire triggered by electricity
f) Overflowing of a water tank or pipes
CLAIM PROCESS
If you happen to encounter an eventuality because of fire, you need to
make claims under fire insurance. To avoid rejection and fasten the claim
process, you should be clear of the procedure and the documents needed.
a) Immediately inform the insurance provider either online or by
calling on their 24/7 toll-free number
b) Also, contact the fire brigade and the police

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c) Insurance company will appoint a surveyor for scrutiny of the
situation
d) Submit the duly filled in claim form and other proofs and
photographs
e) If approved, the claim can be settled from 15-30 days, as the time
duration is different for the insurance companies
EXCLUSIONS
Not all situations and cases are covered by fire insurance. Some situations
are excluded.
a) Fire caused by war, nuclear risks, riot or earthquake
b) Planned or intentional fire by the enemy or public authority for
whatsoever reasons
c) Underground fire
d) Loss because of theft during or after the fire
e) Malicious or hostile, human-made causes of fire
This list does not include all the exclusions as they vary for different
providers
IMPORTANT ASPECTS
The concept of fire insurance is based on three essential conditions which
should be met before you can file a claim
a) There must be an actual fire in the insured premises

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b) The fire must be accidental and beyond the reasonable control of the
policyholder
c) Loss or damage must be due to burning triggered by accidental fire.
The damage by heat or fire, if not accidental, won’t be considered as
loss due to fire. Hence, insurance is not applicable in such instances
ADVANTAGES OF BUYING FIRE INSURANCE
Considering the amount that the insurance company can pay for the losses
and save you from further problems, you should not ignore and
underestimate fire insurance. Let us look at some of the advantages of
buying fire insurance.
a) Homeowners can get back the cost of damage to the structure of the
house
b) It also covers the cost of replacement of the items in the house, such
as AC, television, computer, etc.
c) In case of factory and office, the insurance can cover the cost of
damaged stocks
d) The insurance can cover the cost of repair of machines, if they are
damaged

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CONCLUSION
A fire has the potential to destroy a property or a business, leading to
losses of great scale. To get compensated for such losses, you can opt for
fire insurance, covering your movable and immovable property. The
property that you want to insure could be residential, commercial or
industrial. While homeowner's insurance includes coverage for fire
damage, fire insurance provides extra coverage to offset any additional
costs to replace or repair property that surpasses the limit set by the
insurance policy. Fire insurance is property insurance that provides
coverage for loss or damage to a structure damaged or destroyed in a fire.
Homeowner's insuranceusually covers fire damage but it may be capped at
a rate that is less than the cost of the losses accrued, necessitating a
separate fire insurance policy. The policy pays the policyholder back on
either a replacement-cost basis or an actual cash value (ACV) basis for
damages