FIRE INSURANCE Policy

Fire Related Accidents have been all too common for Business Disasters. A small Short – Circuit or an Explosion has destroyed huge Factories and Buildings. Fire Damage can result in losses of Crores of Rupees. It can easily destroy years of savings and set your business back by years.

Moreover, after a Fire Incident, you would require substantial investments to resurrect your business. These Investments will be required precisely at a time when you are stretched for resources as your business has been destroyed by a Fire.

That is why it is always a wise idea to take a property insurance and insure your valuable assets with a Fire Insurance Policy.

A Fire Insurance Policy in India offers coverage against a range of perils apart from the basic cover against fire. The Fire Insurance coverages are as listed below:

1. Fire
2. Riots, Strikes and Malicious Damage
3. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation
4. Explosion /Implosion
5. Lighting
6. Impact Damage
7. Subsidence, Landslides and Rockslides
8. Bursting and/or Overflowing of Water Tanks, Apparatus and Pipes

You can read our blogpost on Fire Insurance Coverages to understand about the Perils Covered under a Fire Insurance Policy in detail.

A Fire Insurance Policy works on the following principles:

Principle of Insurable Interest

Insurable Interest means that a person benefits from the continued presence of the asset or is prejudiced by the loss of the subject-matter. Principle of Insurable Interest in a Fire Insurance Policy means that the Insured can insure only those assets which he benefits from. Insurable Interest must exist at the time of purchasing the fire insurance policy, during the currency of the policy as well as at the time of loss.

Principle of Utmost Good Faith

Uberrimae Fidei or Principle of Utmost Good Faith is another important principle of Fire Insurance and means that all parties to an Insurance Contract must make a complete declaration of all facts that are material for accepting or declining the Fire Insurance Proposal. The Insured has a duty to disclose all material facts and not conceal, misrepresent, or withhold any material facts which might change the decision of the insurance company to accept or reject the risk proposal.

Principle of Proximate Cause

Proximate Cause or Efficient Proximate Cause is the dominant risk factor in the chain of causation which has caused the loss. It need not be the initiating or last act in the chain of events. Proximate Cause needs to be identified when 2 or more causes are responsible for the loss. In that case, the Proximate Cause or the dominant factor which has caused the loss needs to be determined. If the Proximate Cause falls within the perils named in a Fire Insurance Policy, the claim is payable. If the Proximate Cause does not falls within the perils named in a Fire Insurance Policy or falls within the exclusions in a Fire Insurance Policy, the claim is repudiated.

Principle of Indemnity

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. As per the Principle of Indemnity, the Insured is not allowed to make a profit from his insurance policy.

Principle of Subrogation

Principle of Subrogation allows the Insurance Company to recover losses from a negligent third party after it has paid the losses to the Insured Party. The Principle of Subrogation places the Insurance Company in place of the Insured, allowing the Insurance Company to pursue all rights and remedies available to the Insured to recover his losses. Additionally, the Insurance Company is allowed to recover losses only after payment of the claim to the Insured, and any excess amount that the insurance company receives should be remitted back to the Insured.

Principle of Contribution

Principle of Contribution in a Fire Insurance Policy means that, if an Insured has the 2 or more policies covering the same subject-matter at the same time, then the Fire Insurance Company will pay the losses on a pro-rata basis in case of a claim. The Principle of Contribution prevents the policyholder from profiting from his insurance policy by insuring the same assets under multiple fire insurance policies.

As part of a Standard Fire and Special Perils Insurance Policy, one can opt for Add-On Covers by paying additional premiums such as:

1. Damages due to Earthquake
2. Damages due to Storm, Tempest, Flood, Inundation, Hurricane, Cyclone, Typhoon and Tornado (STFI Cover)
3. Damages due to Terrorism
4. Removal Of Debris
5. Architects and Surveyors Fees
6. Spontaneous Combustion Cover
7. Start-Up Expenses
8. Omission to Insure Additions, Alterations or Extensions
9. Escalation
10. Forest Fire

You can read our blogpost on important add-on covers in fire insurance policy to understand about these add-on covers in detail.

There are different types of Fire Insurance Policies in India such as:

Stock Declaration Policy

A Stock Declaration Policy is issued when there are frequent changes in stock value during the currency of the policy. The Insured has to make monthly declarations of stock values to the fire insurance company under the Stock Declaration Policy.

Floater Policy

A Floater Insurance Policy is issued when the stocks are stored at different locations. The advantage of a Floater Policy is that the Insured has to declare only a single Sum Insured for stocks stored at all locations.

Average Policy

An Average Policy has an average clause attached to the Fire Insurance Policy and this clause comes into play when the Insured has underinsured the property by declaring a lower Sum Insured than the actual value of the property. In such a case, the Fire Insurance Company will only pay a pro-rata claim amount at the time of a claim.

Agreed Value Policy

Some assets are hard to value and, in such cases, the assets are insured under an Agreed Value Policy where the value of the goods to be insured is pre-decided and this is the value that the Insurance Company will be liable to pay if the Insured good is damaged or destroyed.

A Bharat Sookshma Udyam Suraksha Policy, also referred to as BSUS Policy is a standard Fire Insurance Policy designed to cover SMEs and small businesses. The Bharat Sookshma Udyam Suraksha Policy can insure assets such as buildings, plant and machinery, furnitures and fixtures etc for loss or damage due to Fire, Explosion, Natural Calamities etc. Bharat Sookshma Udyam Suraksha Policy can be purchased only if the total value of insurable assets is less than or equal to Rs5 Crores.

A Bharat Laghu Udyam Suraksha Policy, also referred to as BLUS Policy is a standard Fire Insurance Policy designed to cover medium sized businesses who have insurable assets upto Rs50 Crores. The Bharat Laghu Udyam Suraksha Policy can insure assets such as buildings, plant and machinery, stocks etc. for loss or damage due to Fire, Explosion, Earthquake, Lightning, Storm, Floods etc. Bharat Laghu Udyam Suraksha Policy can be purchased only if the total value of insurable assets is between Rs5 Crores to Rs50 Crores.