fire insurance

FIRE INSURANCE

By: SUNIT MATHURRO-1, NEW DELHI

OVERVIEW• No. of Sections : 8• No. of Perils ( In built ) : 12• No. of Exclusions : 13• No. of General Conditions: 15• No. of Add On Covers : 15+6• No. of Clauses : 11 ( A to K )

SECTIONS

SECTION I : GENERAL RULES & REGULATION.SECTION II : POLICY WORDINGSECTION III : DWELLINGS, OFFICES ETC.SECTION IV : INDUSTRIAL & MANU. RISKSSECTION V: UTILITIES OUSIDE MANU. RISKSECTION VI: STORAGE OUTSIDE MANU. RISKSECTION VII: TANKS FARMS / GAS HOLDERS

OUTSIDE MANU. RISKSECTION VIII: ADD ON COVERS

COVERAGES1. FIRE2. LIGHTENING3. EXPLOSION/ IMPLOSION4. AIRCRAFT DAMAGE5. RIOT, STRIKE & MALICIOUS DAMAGE. 6. STORM, CYCLONE, TYPHOON, TEMPEST, HURRICANE,

TORNADO, FLOOD & INUNDATION,7. IMPACT DAMAGE8. SUBSIDENCE & LANDSLIDE INCLUDING ROCK SLIDE9. BURSTING & /OR OVERFLOWING OF WATER TANKS,

APPARATUS & PIPES10. MISSILE TESTING OPERATIONS11. LEAKAGE FROM AUTOMATIC SPRINKLER INSTALLATIONS12. BUSH FIRE

1. FIRE : Excluding (i) own fermentation, natural heating or

spontaneous combustion(ii) Its undergoing heating & drying process(iii) Burning by order of Govt.

FIRE IN INSURANCE :• Actual ignition under accidental circumstances

for insured – Ignition means burning – presence of flames, thus loss by smoke, heating, charring without burning is not considered “fire”

• The property should not be on fire

• FIRE IN INSURACE POLICY :• Fire lighted for definite purpose is not

considered Fire for Insurance unless broken its limits – like sugar processing

• No difference if fire comes to property or property comes to the fire – like unlighted grate

( both the above cases fire breaks its limits & causes ignition or property breaks its proper limits & comes into contact with fire, there is an accidental loss by fire )

• FIRE IN INSURACE POLICY :• Once there is a fire within the meaning of the

policy – other losses becomes payable like:• Smoke & heat• Scorching• Falling Walls• Damage of Fire brigade water, chemical etc.• Damage to property removed from burning

caused by weather provided removal made for LCM.

LIGHTNING ( AOG )• An electricity for clouds – Loss with or without

actual ignition covered3. EXPLOSION / IMPLOSION • Only domestic boilers are covered for

explosion / implosion ( for other perils the commercial boilers can be covered )

4.AIRCRAFT DAMAGE• Damage by Aircraft or other aerial or space

devices and articles dropping therefrom except damage caused by pressure waves

. RIOT, STRIKE & MALICIOUS DAMAGE• Only visible physical damage by external,

violent means – Except(i) Permanent or temporary dispossession by the order of Govt.(ii) Permanent or temporary dispossession resulting from the unlawful occupation by any person(iii) Burglary, housebreaking, theft ( whether or not committed in course of disturbance of public peace)

6. STROM, CYCLONE, FLOOD….ETC. (AOG)( Excluding resulting from Earthquake or other

convulsions of nature – If Earthquake if covered through add on than this exclusion is not applicable)

• Storm: violent disturbance of atmosphere with thunder or strong wind or heavy rainfall

• Tempest : A violent Storm• Cyclone & Hurricane : Storm of greater intensity• Flood : Escape of water from its normal confines

( except water from tanks or apparatus or pipe)

- Overflowing of lakes, rivers, canals, sea by high tides etc.

- Bursting of street water mains, overflowing of sewage pipes

• Inundation : Synonymous of Flood7. IMPACT DAMAGE – Direct physical visible loss

by impact of rail / road vehicle or animal not belonging to :- Insured or occupier of the premises- The employees of the insured

8. SUBSIDENCE & LANDSLIDE INCLUDING ROCKSLIDE - EXCEPT- Normal cracking, bedding down of new bldg.- Settlement or movement of made up ground- Coastal or river erosion- Defective design or workmanship or use of defective material- Demolition, construction, alteration, repair, excavation of the property

9. BURSTING & / OR OVERFLOWING OF WATER TANKS, APPARATUS & PIPES- Largely applicable to cold regions where bursting of pipes takes place

10. MISSILE TESTING OPERATIONS: - Carried out by Defence Deptt., Govt. of India

11. LEAKAGE FROM AUTOMATIC SPRINKLER INSTALLATIONS – EXCEPT- Repair or alternation of the bldg.- Repair, removal or extension of sprinkler- Defects in construction known to insured

12. BUSH FIRE :Excluding loss of damage by Forest Fire

GENERAL EXCLUSIONS1. EXCESS ( NOT FOR DWELLINGS ) W.E.F. POLICIES

ON OR AFTER 01.04.2010: - PER EVENT PER INSURED

• Policies having SI of Rs.10 Crores Per location(i) For AOG perils : 5% of claim amount subject to Minimum of Rs.10,000/-. Each & every loss(ii) For other perils : Rs.10,000 each & every loss

• Policies having SI above Rs.10 Crores Per location(i) For AOG perils : 5% of claim amount subject to Minimum of Rs.25,000/-. Each & every loss(ii) For other perils : 5% of claim amount subject to Minimum of Rs.10,000/-. Each & every loss

2. War and kindred Perils3. Radioactive Contamination4. Pollution or Contamination Except :(i) Pollution or contamination caused by the insured

peril or,(ii) The insured peril which did the loss is caused by the

pollution or contamination

5. Loss to any bullion, curios, work of art, antique exceeding Rs.10,000/-, stamps, coins, cash etc. Unless expressly stated in the policy

6. Stocks of cold storage due to temperature change7. Loss to any electrical machine, apparatus, fitting by

over-running, short circuiting, self heating, electricity leakage from whatever cause – exclusion applicable for particular machine

8. (a ) Architects, Engineer’s fee in excess of 3% of claim amount (b) Debris Removal expenses in excess of 1% of claim amount

9. Any Consequential loss – like profit, market etc.10. Loss of spoilage due to retardation or

interruption of any process caused by insured perils

11. Loss by theft during or after occurrence except as provided in RSMD ( burglary or theft due to riots, strikes are covered under Fire Policy)

12. Earthquake Damage13. Loss to any property in the place other than

which stated in the policy except machinery or equipment temporarily removed for repairs, renovation etc. for not more than 60 days.

GENERAL CONDITIONS 1. Misrepresentation, non-disclosure etc.2. Bldg. Fall and displacement : ( part or whole)

(i) All Insurance under this policy cease on expiry of 7 days from the date of such fall if occurred other than insured peril.( ii ) If Fall by insured perils the Co. should be notified within 7 days for continuance of insurance on revised rates, terms & conditions

3. Alternation : Policy becomes void unless notify to the Company(i) If the Trade, Manu. Or occupation changes(ii) If bldg. is unoccupied for more than 30 days(iii) If interest passes from the insured except

automatically by will or law ( in case of death of insured)

4. Marine Clause : If the same property is covered under the Marine Policy the loss will not payable in Fire Policy except any excess amount over the marine policy

5. CANCELLATION : By either Party – giving 15 days notice and refund of premium

6.DUTIES OF THE INSURED : (i) For any claim give notice in writing and a claim statement item wise within 15 days of loss at his own expense without any profit(ii) Details of all other insurances, if any(iii) Co. not liable for loss after expiry of 12 months from the date of loss unless claim is subject to pending action or arbitration .(iv ) If claim is repudiated by the Co., & the insured has not filed a suit within 12 months of date of repudiation, it is not recoverable thereafter

7. RIGHTS OF INSURER : After a loss the Co. without admitting liability can:(i) Enter, take possession, examine, sorting and can

do salvaging operations(ii) If the insured do not co-operate or hinders the

benefits of the Policy forfeits(iii) The insured cannot abandon the property after

loss whether possessed by the Co. or not8. FRAUD : If any fraudulent means used for

claiming, the benefits of policy forfeits.

9. OPTION OF THE INSURER:(i) If Co. feels the claim amount is exaggerated then has option of reinstate or replace the damaged property subject to S.I.(ii) If due to municipal regulations Co. cannot reinstate then Co. will pay such amount requisite to reinstate to its former condition.

10. CONDITION OF AVERAGE ( UNDERINSURANCE)

11. CONTRIBUTION

12. SUBROGATION : Company take rights & remedies even before payment of claim

13. ARBITRATION ( only in case of quantum of claim, loss otherwise admitted under the Policy)

14. ALL NOTICE / CORRESPONDENCE MUST BE IN WRITING

15. REINSTATEMENT OF SUM INSURED AFTER A LOSS : (i) By deducting pro-rata premium from the net claim

amount(ii) If insured notify the Co. immediately after the loss for not

reinstating the SI, then the SI will be reduced by the amount of claim paid

S.NO. ADD ON COVER RATE APPLICABLE VALUE TO BE INSURED

1. Architects, consulting Engineers fees in excess of 3% of claim amount

Policy Rate Specified SI not exceeding 7.5% of claim amount

2. Removal of Debris ( in excess of 1% of Claim Amount)

Policy Rate Specified SI upto maximum 10% of S.I.

3. (a) Deterioration of Stock in Cold Storage by to change of temperature due to power failure at Power Station by insured perils

Policy Rate Sum Insured of the Stocks

(a) Deterioration of Stock in Cold Storage by to change of temperature due to loss to machinery at premises by insured perils

Policy Rate Sum Insured of the Stocks

4. Forest Fire Minimum 3.75%o Specified SI

5. Impact Damage due to Insured’s own Rail/road vehicle, lifts, cranes

5% of Policy Rate Policy Sum Insured

6. Spontaneous Combustion Category I Category II

Category I : 0.20%0Category I : 0.45%0

SI of relative commodity

7. Omission to Insure additions, alterations or extensions

Policy Rate 5% of SI of BMA

8. Earthquake ( Fire & Shock ) Zone IZone IIZone IIIZone IV

Zone I : 0.75%oZone II : 0.40%oZone III : 0.15%oZone IV: 0.075%o

Policy S .I. ( Dwellings, offices ratable under Section III will be charged as Zone IV rate regardless the Zone

9. Spoilage Damage Material Cover(i) Stocks in specified blocks(ii) Machinery in specified blocks

(i) 5 times of policy rate(ii) 2.5 times of policy rate

(i) Value of stocks in specified blocks

(ii) Value of M/A in specified blocks

10. Leakage & Contaminationa. Where tanks located in insured’s premises

Only leakagea. 3.75%o

Leakage & Contaminationa.7.5%o

Specified Sum Insured

b. Where tanks are located elsewhere

b. 4.5%o b. 9.00%o

11. Temporary removal of Stocks 10% of Policy Rate Policy S.I.

12. Loss of Rent Clause ( For Owner of Bldg.)

Policy Rate Specified SI

13. Addl. Expenses of rent for an alternative accommodation ( For Tenant )

Policy rate Specified SI

14. Start up expenses Policy rate Specified SI

15. Terrorism ( Only with RSMD ) Rates as per the Terrorism Pool

Policy Sum Insured

CLAUSES

A. AGREED BANK CLAUSE : To protect the interest of a banker or financer whose interest is in the insured property

B. CONTRACT PRICE INSURANCE CLAUSEFor imported goods only where the prices are fixed as per contract – little deviation of indemnity

C. DESIGNATION OF PROPERTY CLAUSECo. accept the designation under which the property entered in the insured’s book

D. REINSTATEMENT VALUE POLICIES• Only for Bldg., P & M, FFF & not to stocks• Reinstatement must commence and complete within

12 months of date of loss • Underinsurance will also apply• If need extension of time notify the Company• If insured fail to intimate the intention of

reinstatement within 6 months than the this clause will not apply

• If insured unwilling to replace the property than on market value basis

• Reinstatement can carry out at another site also

E. LOCAL AUTHORITY CLAUSE• Reinstatement Value policies can be extended

for this clause• Some extra expenses can be allowed to

comply the local by laws but subject to S.I.F. ESCALATION CLAUSE • Maximum 10% if allowed ( IGT )• 50% of full rate on selected percentage• Only for Bldg., P & M & not for stocks & FFF

G. ARCHITECTS FEE ( upto 3% of claim amount)H. REMOVAL OF DEBRIS ( upto 1% of claim amt.)I. FLOATER CLAUSE• One, more or all locations as specified• Should have good internal audit & account • Change of location must be intimated J. DECLARATION CLAUSE• Basis of declaration (i) Average of value on each day of

the month or (ii) Highest Value during the month• Declaration must be latest by the last day of next

month

J. DECLARATION CLAUSE• On expiry subject to adjustment by taking

average of 12 declarations – Maximum refund 35% only

• Basis of valuation – Market Value basis• If stock is covered by any other insurance than

this policy will be used only for the excess amount, if any

K. VOLUNTARY DEDUCTIBLE CLAUSE

GENERAL RULES AND REGULATIONS

• All India Fire Tariff effective from 31.03.2001• Detariff from 01.01.2007 ( IGT from 01.01.2008 )• Only SFSP with permitted add on covers is allowed• Only land based properties are allowed• Policy covering Bldg. & Contents shall show all block-wise

separate amount on (i) Bldg. (ii) Machinery & Accessories (iii) Stock & Stock in Process & (iv) Furniture & other contents

• Deletion of STFI & RSMD is allowed• Rates shown are minimum rates & higher rates can be

charged

• Valued Policies : For property whose market value cannot be ascertained like works of art, obsolete machinery etc. subject to valuation certificate

• Long Term Policies : No policy exceeding 12 months can be issued except “Dwellings”

• Mid Term Cover: Generally not permissible to grant STFI & RSMD perils mid term. If allowed with certain conditions :(i) Must receive specific advice from insured with payment in Cash or draft. No adjustment from existing CD or Bank Guarantee(ii) Should be for entire property covering entire interest

• Cover shall commence after 15 days of receipt of premium

• Premium rates as under shall be on Short Period Scale

Mid-term Inclusion of

SECTION III

SECTION VI SECTION IV, V & VIIMaterial in

GodownMaterial in Open

STFI 0.20%o 0.35%o 2.00%o 0.35%o

RSMD 0.15%o 0.15%o 0.15%o 0.15%o

• Payment of Premium : Shall be paid in full & no installment is allowed – not permissible to split SI of same property in various policies to take advantage of deferred payments. However various policies of stock can be issued where necessitate.

• Minimum Premium : Minimum Premium shall be Rs.200. ( IGT )

• Partial Insurance a. Not to issue certain part of Bldg. However Plinth & Foundation or only foundation can be excludedb. Not to issue covering specified machinery ( except boilers ) or part of the machineryc. Where portions of a bldg. or machinery is under different ownership, in such cases it is permissible for each owner to insure his own portion but full extent of his interest.

• SHORT PERIOD RATES

Not Exceeding 15 days 10% of Annual Rates

Not Exceeding 1 Month 15% of Annual Rates

Not Exceeding 2 Months 30% of Annual Rates








Exceeding 9 Months The Full Annual Rates

Extension of Short Period Policy shall not be permitted

• Rules for Cancellation At the Option of Insured : (i) Retention of SP Rates(ii) During Currency if the policy replaced by same

Co. by new annual policy for same property then Pro-rata refund is allowed

(iii) For the SI not replaced refund after retaining premium on SP Rates for such S.I.

(iv) In Case of S.P. policies premium retained as per S.P. Rates

(v) In case Policy cancelled by Govt. Orders or on completion of a Bldg. in course of construction or where bldg. is demolished, pro-rata refund be allowed

At the Option of Insurer : Pro-rata refund is allowed

• Mid Term Revision in S.I. Increase in S.I. : On Pro-rata Basis

Decrease in S.I.: On Short Period Scale• Escalation Clause

a. Only upto 10% of the S.I.b. 50% of Full Rate to be charged on selected %agec. Only for Bldg., Machinery & Accessories & not for stocksd. Average condition will also apply

• Floater Policy : Can be issued for stocks at various locations under one Sum Insured ( unspecified locations are not allowed )- Rate Shall be highest rate applicable at any location with 10% loading- In case stock in process block is covered under Floater Policy & the rate of process block is higher than the storage rate, the process block rate plus 10% loading shall apply- If stock situated within godown / process block in the same compound are covered under floater policy, no floater extra is chargeable

• Declaration Policies : For frequent fluctuations in Stock / Stock Values

- Minimum SI shall be Rs. 1 Crore in one or more locations & the SI shall not be less than 25 lacs in atleast one of these locations. Declared value should approximate to this figure at sometime during the policy year

- Monthly declaration based on (a) average of the values at risk on each day of month or (b) highest value at risk during the month. If declaration not received within specified time the full SI shall be deemed to have been declared

- Reduction of SI is not allowed- Refund of premium on adjustment shall not

exceed 35% of the total premium

- Basis of Valuation will be Market Value

- Not Permissible for (a) on Short Period Basis (b) Stocks undergoing process © Stocks at Railway sidings

- If at the time of loss it is found that the last decl. previous to the loss is less than the amt. ought to have been declared, the claim amt. shall be reduced in such proportion as the amt. of said last decl. bears to the amt. that ought to have been declared.

• Floater Declaration Policies :- Minimum S.I should be 2 Crores- Both Floater & Declaration policy rules will

apply- Minimum retention of premium shall be 80%

• Rating of Multiple Occupancy Industrial Estate- Shall be rated ‘per se’- If the Entire Bldg. of Industrial Estate is insured

under one S.I. a rate of 1.80%o be charged- The Contents will be rated ‘per se’

• Silent Risk : Under Section IV & V Only

- Factories where no manufacturing & Storage work is carried out for continuously 30 or more days

- Retention of premium shall be based on appropriate storage rate or silent risk rate of Rs. 1.00%o whichever is higher

- The Silent risk rates are not applicable if risk is silent due to a claim / loss.

VOLUNTARY DEDUCTIBLES – both SFSP plus add ons

Deductible Amount (Rs. In Lacs) Discount (%)AOG Perils

5% of claim amt. subject to minimum to Rs.

Other Perils

10 Lakhs 5 Lakhs 4

20 Lakhs 10 Lakhs 8

30 Lakhs 15 Lakhs 10



>100 Lakhs >50 Lakhs Refer to HO

SECTION III• Dwellings, Officers, Hotels, Shops Etc. Located outside the

compound of a Factory• Long Terms Policy for ‘Dwellings’ only- Minimum for 3 yrs.- Refund : Subject of Circular dt.03.03.2009 i.e.- (i) If cancelled within 3 years – retain premium with normal rates

with no discount- (ii) If cancelled after 3 years – rework premium as per discounted

slabs – For fraction of year, rounded of to next higher year – Subject to retention of minimum premium

- No inclusion of perils mid-term- Method : A- Method : B ( Discount upto 50 % for 10 yrs. & above)

SECTION IV• INDUSTRIAL / MANUFACTURING RISK- One rate for entire property in one compound i.e.

process area, storage, office, utilities etc.- If more than one product is manufactured in the

same block the highest rate will be applicable- If 2 or more factories are there or independent

products are manufactured in the same compound the manu. Block shall be rated ‘per se’ if located detached. Misc. Blocks / utilities / godowns / tank farms etc. in such cases shall carry lowest rate of all such manu. Blocks.

- Dwelling located inside the factory may be rated ‘per se’

SECTION V

• Utilities outside the Manufacturing Risks- Rates given for various utilities

SECTION VI• Storage outside Indl./ Manu. Risk- Two Rates – Within Godown & Open- 4 Categories – NH, I, II, & III- Rates will apply for bldg./ storage area and stocks- Operation like packing/selecting/mending /stitching etc.

are covered if do not materially alter nature of risk- Presence of hazardous goods of higher category not

exceeding 5% to total S.I. are also covered- Utilities / Misc. Blocks shall be rated Re. 1.00%o- Open Storage of 2% of S.I. is allowed when the risk is

rated within godown

SECTION VII

• Tanks Farms / Gas Holders outside the Factory• All tanks in same area shall carry highest rate- Tanks of hazardous chemicals / liquid are covered

- Utilities & Misc. Blocks shall be rated at Re.1.00%o

- Associated properties like pumping station, compressor house, blower house etc. will rated at par with Gas holder

CLAIMS

• While Deputing Surveyor the nature of subject matter involved should be kept in mind and appropriate Surveyor should be appointed

• A Company official should visit to site as early as possible• If there is a doubt in admissibility of claim – an

investigator should also be appointed• For disposal of salvage the general guidelines laid down

should be followed – but salvage disposal be undertaken on priority basis because the salvage due to Fire deteriorate faster.

• Processing of Claims – documents requiredA. Common1. Claim Intimation2. Policy3. Claim Form4. Survey ReportB. SpecificIn case of Fire & Explosion : (i) FIR & Fire Brigade ReportIn case of AOG:(i) Meteorological Report or in absence (a)

Local Bodies certificate or (b) cutting of newspaper

In case of RSMD & Impact damage : Police Report

DOS due to Power Failure :(i) Log Book Maintained by the insured for

maintaining temperature (ii) Certificate from Electricity Deptt.

In Addition to the above the U/W may insist any other document / evidence to establish loss

NON-STANDARD / COMPROMISE

• When breach is not material or of tech. nature or beyond the control or knowledge of insured : (i) Policy is rectified after collecting addl. Premium if due(ii) A deduction is made from assessed amt. equivalent to 3 years premium – which would have come had correct information available

• If breach is material to loss or insured or his agent contributed to loss and has not consciously committed the breach :

- Payment can be considered on merits of each case upto a maximum of 75% of the Assessed Loss

STEPS INVOLVED IN LOSS ASSESSMENT

1. Gross Loss AssessedLess : Depreciation = A

2. Less : Salvage = B3. Less : Under Insurance = C4. Less : Excess = D5. Net Claim Payable = A-B-C-D

THANK YOU

Date post:	13-Nov-2014
Category:	Economy & Finance
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fire insurance

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