Principles Of Fire Insurance Policy

Contents hide

1 What is a Fire Insurance Policy?

2 What are the Principles of Fire Insurance Policy?

3 Principle of Insurable Interest in Fire Insurance Policy

3.1 When should Insurable Interest exist in a Fire Insurance Policy?

4 Principle of Utmost Good Faith in Fire Insurance Policy

5 Principle of Proximate Cause in Fire Insurance Policy

6 Principle of Indemnity in a Fire Insurance Policy

7 Principle of Subrogation in a Fire Insurance Policy

8 Principle of Contribution in a Fire Insurance Policy

9 Get Best Quotes for Fire Insurance Policy with Qian

What is a Fire Insurance Policy?

A Fire Insurance Policy is a type of property insurance policy which compensates the policyholder for loss or damage to insured assets because of fire and allied perils. The coverages in a fire insurance policy include cover for allied perils like explosion, implosion, earthquakes, storm, floods, etc.

There are certain principles of fire insurance which the policyholder/insured must be aware of in order to gain full benefits under the Fire Insurance Policy.

What are the Principles of Fire Insurance Policy?

This article will explore the principles of Fire Insurance Policy in detail namely:

Principle of Insurable Interest
Principle of Utmost Good Faith
Principle of Proximate Cause
Principle of Indemnity
Principle of Subrogation
Principle of Contribution

Principle of Insurable Interest in Fire Insurance Policy

Insurable Interest means a relationship where a person benefits from the continued presence of the subject matter or is prejudiced by the loss of subject matter.

Thus, the Principle of Insurable Interest in Fire Insurance states:

There has to be a subject matter to insure
The insured must have a legally recognized relationship with the subject matter to be insured. Insured must benefit by the safety of the subject matter and prejudiced by its loss

The most common way to ensure Insurable Interest is to have direct ownership of the property. Apart from Ownership of Subject Matter, Insurable Interest may arise in the following ways:

Bailor and Bailee relationship
Mortgagor and Mortgagee relationship or Financier’s Interest as per Agreed Bank Clause
Lessor and Lessee relationship

When should Insurable Interest exist in a Fire Insurance Policy?

The Insurable Interest in Fire Insurance must be present:

at the time of the taking the Fire Insurance Policy
continue over the duration of the policy
Fire Insurance Policy must be active at the time of loss.

Principle of Utmost Good Faith in Fire Insurance Policy

Another important principle governing a Fire Insurance Policy is the principle of Uberrimae Fidei, a Latin phrase meaning Utmost Good Faith. The Principle of Utmost Good Faith means that all parties to an Insurance Contract must make a complete declaration of all facts which are material to the Fire Insurance Policy.

Disclosure of Material Information: The Insured must disclose material information regarding the subject matter to be insured in the Fire Insurance Proposal Form. The Insured is expected to honestly disclose all the details about the subject matter and not misrepresent or conceal any facts which might change the decision to accept the risk.

The Principle of Utmost Good Faith in Fire Insurance Policy is implemented on the basis on following 3 legal doctrines:

Representation: The Insured must disclose all the material facts about the risk or subject matter that he is seeking to insure. A False statement or misrepresentation of material facts might lead to claim repudiation by the Insurance Company.

Concealment: The Insured must not withhold or conceal deliberately any material facts about the subject-matter.

Warranties: A Warranty in Fire Insurance is a promise by the Insured to comply with certain terms and conditions which are necessary for the Fire Insurance Policy to operate. Failure to comply with warranties might lead to rejection of Fire Insurance Claim.

The Principle of Utmost Good Faith is applicable to both, the Insurer and the Insured, and the principle is valid at all stages of the insurance policy.

Principle of Proximate Cause in Fire Insurance Policy

Proximate Cause is defined as “the active and efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”

The efficient proximate cause is the risk that sets the cause of loss in motion. Efficient Proximate Cause might not be the initiating cause and nor is it necessary that it is the last act in a chain of events. The Efficient Proximate Cause looks at the predominant risk factor in the chain of causation which has caused the loss. The dominant factor is then held responsible for this loss.

A Fire Insurance Policy is a named peril policy, and the policy reimburses the policyholder if the loss is caused by any of the insured perils. The loss is not payable if it is caused by excluded peril or a peril that is not mentioned in the named perils policy. Thus, there is no ambiguity when the loss is caused by any of the insured perils.

However, in certain cases, two or more perils, operating simultaneously or one after another, may be responsible for loss. In such cases, it is necessary to determine the proximate cause, i.e. dominant factor which has contributed to the loss. Once the proximate cause of loss has been identified, it is necessary to determine whether the peril is covered, not covered or specifically falls within the exclusions in a Fire Insurance Policy. If the proximate cause of loss is an excluded peril under the Fire Insurance Policy, then the claim would be repudiated.

Another important point to note is that under the Principle of Proximate Cause, the onus of proof to show that an insured peril has caused the loss falls on the Insured.

For example, if an earthquake resulted in an explosion that caused fire to a building, then the proximate cause is the earthquake and the remote cause is the “explosion”. The insurer will provide reimbursement if “Earthquake” is included under the compensations for the policy.

Principle of Indemnity in a Fire Insurance Policy

The Principle of Indemnity in a Fire Insurance Policy aims to place the Insured in the same financial position after the loss as the Insured was in before the occurrence of the loss, and neither a superior nor an inferior position to the position as the insured was before the occurrence of the loss. As per the Principle of Indemnity in a Fire Insurance Policy, the aim is to not allow the Insured to make a profit from his insurance policy. Thus, the compensation received under the Fire Insurance Policy cannot exceed the value of the asset.

Principle of Subrogation in a Fire Insurance Policy

The Principle of Subrogation in a Fire Insurance Policy allows the fire insurance company to recover losses from a negligent third party after it has paid the losses to the Insured Party.

Subrogation means “to stand in place of”, meaning that the insurance company the Principle of Subrogation entitles the Insurance Company to stand in place of the Insured and pursue all rights and remedies available to the Insured to recover losses. However, the Insurance Company cannot stand in place of the Insured until it has paid the losses to the Insured and made good the loss. Thus, the Principle of Subrogation is applicable after the settlement of the claim. On his part, the Insured should not renounce any right to pursue losses against the third party as doing so, could jeopardise his claim settlement.

Similar to Principle of Indemnity, the Insurance Company cannot make profits from Subrogation Rights. The Insurance Company is entitled to recover only that amount which it has paid out as claim to the Insured. Any excess amount which is recovered should be remitted to the Insured.

Principle of Contribution in a Fire Insurance Policy

Principle of Contribution in a Fire Insurance Policy aim to disallow the Insured to make profits by insuring the same subject-matter with multiple insurance companies.

This means, that if 2 or more fire insurance policies insure the same subject matter, then the insurance companies will pay the losses on a pro-rata basis.

For the Principle of Contribution to apply, following conditions must be met:

Fire Insurance Policies must cover the same Insured
Fire Insurance Policies must cover the same Subject-Matter
The Peril causing the loss must be covered by both policies
Both Policies must be active

Get Best Quotes for Fire Insurance Policy with Qian

Qian is an experienced insurance broker for Fire Insurance Policy in India. Our dedicated team of Fire Insurance experts will assist you with obtaining comprehensive coverage for fire insurance policy and also customize coverage by including important add-on covers in a fire insurance policy. Additionally, our dedicated claims settlement team will also assist you with entire Claims Process in a Fire Insurance Policy, should such a need arise.

Contact us for your Fire Insurance Policy right now at insurance@qian.co.in or call us at 022-22044989. We will respond within 24 hours, guaranteed.