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PROPERTY INSURANCE

-: CONTENTS :-

FIRE INSURANCE
INDUSTRIAL ALL RISK
BUSINESS INTRUPTION-LOP
ENGINEERING INSURANCE
BULLET QUESTIONS AND ANSWERS
MODEL QUESTIONS
KEY FOR ANSWERS
CASE STUDIES
TRADE QUESTIONS

FIRE INSURANCE

STANDARD FIRE POLICY PROVISIONS

FIRE & ALLIED PERILS INSURANCE

o Fire policy is location oriented- property is covered at stated location only
o The address is very important.
o Fire policy is generally issued on annual basis.

This insurance is meant for:

o Buildings
o Plant and machinery
o Furniture, fixtures and fittings
o Other contents
o Electrical installations
o Stocks of raw materials and finished goods
o Stocks in process

WHO CAN TAKE THE POLICY?

o Those who are having insurable interest in the property
o Owners
o Lessor/lessee
o Mortgagors/mortgagees
o Bailees
o Trustees
o Financial institutions that have advanced loans against the property.

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COVERAGE OF FIRE POLICY:

o The policy covers fire and other 11 perils. Other perils may or may not be of fire
nature-
o They may be chemical fire, Act of God Perils, Social Perils and other miscellaneous
perils.
o Essential Features of Fire:
o Fire should emanate from actual ignition
o It should be accidental in nature
o There should be something which ought not to be on fire

Fire means actual ignition- no ignition no fire. Accidental fires, Friendly fires.

COVERAGE DUE TO EFFORTS TAKEN TO CHECK THE INTENSITY OF FIRE

Loss or damage or destruction can be due to smoke resulting from fire, fire fighting
assistance expenses, demolitions by fire brigades for checking the intensity of fire
spreading etc.

o What is meant by fire in the insurance parlance?

o There must be ignition (accompanied with heat &/or flame &/or heat i.e. some
kind Chemical reaction - oxidation/addition of oxygen from air)
A loss or damage may be said to be by fire when:
o There has been ignition of insured property which was not intended to be ignited.
There must be ignition (accompanied with heat &/or flame &/or heat i.e. some
kind Chemical reaction - oxidation/addition of oxygen from air). A loss or damage
may be said to be by fire when there has been ignition of insured property which
was not intended to be ignited. When insured property has been damaged
otherwise than by ignition as a direct consequence of the ignition of other
property not intended to be ignited.
o Damage by smoke, sparks, water etc. consequent on ignition of other property.
o Fire must be accidental and fortuitous.
o All incidental losses covered like water damage while fighting fire, re-fuelling
charges of the Fire Extinguishers used to fight fire, etc.
Fire Insurance Contract:
Fire Insurance Contract is an agreement enforceable at law between the insured
and the insurer whereby the insurer having received the premium, undertakes to
indemnify the insured in respect of his financial loss arising out of any specified
peril within the specified period. The Standard Fire and Special Perils Policy is
formal document issued by the Insurer expressing the contract of fire insurance
between the parties.

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Basic principles of Fire Insurance Contract:
Insurable Interest :
Essential Feature The legal right to insure.
How does the interest arise in fire insurance: May be-
o By ownership,
o Bailer/ Baillie,
o Leaser/ Lessee;
o By Agreed Bank Clause;
o Goods held in trust; etc.

Actual time when the interest should exist both at the time during issuance of policy
and also at the time of claim
Assignment of Insurable interest in various situations

Utmost Good Faith

The contract put the proposer in a superior position- facts material to the risk with
example - duty of utmost good faith evolves-reciprocal duty- breach of duty may make
the contract void or voidable depending upon the nature of the breach- breach of
condition - duration of observance of the duty-before accepting the risk, throughout the
policy- following a loss.

Indemnity
Fire Policy is a strict indemnity policy.

Limit of liability govern by

o Average Clause
o Excess Clause
o Maximum normal liability - sum insured
o Subrogation & Contribution aspects

Tariff Provisions
o General Rules & Regulations
o Standard Fire and Special Perils Policy
o Dwellings, Offices, Hotels, Shops Located outside the compounds of
Industrial/Manufacturing Risks
o Industrial Manufacturing Risks
o Utilities located outside the compound of Industrial/Mfg. Risks
o Storage Risks (Godown &/or in Open) outside the compound of industrial/mfg.
Risks.
o Tank Farms/Gas Holders outside the compound of Industrial/MFG. Risks
o Add-on Covers

o Annexure A: Standard Clauses

o Annexure B: Proposal Form
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SIGNIFICANT POLICY PROVISIONS FOR UNDERWRITER

Standard Fire & Special Perils Policy should be read with schedules,
specifications, endorsements, warranties, clauses as one contract
Value for Insurance should show block wise separate amount on:
o Building
o Machinery and accessories,
o Stock and stock-in-process
o Furniture, fixture and fittings

STFI Storm, tempest, flood and inundation (Flood group of perils) and RSMD
Riot, Strike, Malicious Damage can be opted out with reduction in premium
rate.

VALUED POLICY

when market value cannot be ascertained agreed value policy can be issued for work of
art, curious, etc.

Long term Policy

It can be issued only for dwellings issued for minimum period of three years and
maximum can be for any number of years but discount is maximum for 10 years
Policies for a period exceeding 12 months shall not be issued except for "Dwellings".
Mid-term Cover may be granted for the deleted perils of STFI &/or RSMD.
Generally, it is not permissible to grant mid-term cover for STFI and/or RSMTD perils.
The following provisions shall apply, where such covers are granted mid-term:

Insurers must receive specific advice from the insured accompanied by payment of the
required additional premium in cash or by draft. This additional premium shall not be
adjusted against existing Cash deposits or debited to Bank guarantee.

Mid-term cover shall be granted for the entire property at one complex
/compound/location covering the entire interest of the Insured under one or more
policy(ies). Insured shall not have any option for selection.

Cover shall commence 15 days after the receipt of the premium.

The premium rates as under shall be charged on short period scale (as per Rule 8) on full
sum insured at one complex/compound/location covering the entire interest of the insured
for the balance period i.e. up to the expiry of the policy.

Payment of Premium: Premium shall be paid in full and shall not be accepted in installments
or by deferred payments in any form.

N.B:- It is not permissible to split sum insured of the same property under various
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policies for different periods of insurance to derive advantage of deferred installments
for payment of premium. Notwithstanding the above, different policies may be issued
for stocks where circumstances necessitate issuance of such policies.

Minimum Premium: Minimum premium shall be Rs.100/- per policy except for risks
ratable under Section III and Tiny Sector Industries under Section IV where the
minimum premium shall be Rs. 50/ per policy.

Partial Insurance: It is not permissible-

o to issue a policy covering only certain portions of a building. Notwithstanding

this, the plinth and foundations or only the foundation of a building may be
excluded.
o to issue a policy covering only specified machinery (except Boilers), parts of
machine or accessories thereof housed in the same block/ building.
o N.B. Where portions of a building and/or machinery therein are under different
ownership, it is permissible for each owner to insure separately but to the full
extent of his interest on the building and/or machinery therein. In such cases, the
Insured's interest shall be clearly defined in the policy.
o Rates for Short Period Insurance: Policies for a period of less than 12 months
shall be issued at the rates set out hereunder:

For a period not 10% of the

15 days
exceeding Annual rate
15% of the
-do- 1 month
Annual rate
30% of the
-do- 2 months
Annual rate
40% of the
-do- 3 months
Annual rate
50% of the
-do- 4 months
Annual rate
60% of the
-do- 5 months
Annual rate
70% of the
-do- 6 months
Annual rate
75% of the
-do- 7 months
Annual rate
80% of the
-do- 8 months
Annual rate
85% of the
-do- 9 months
Annual rate
For a period The full Annual
9 months
exceeding rate

N.B.: Extension of short period policy (ies) shall not be

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 permitted..

CANCELLATION OF POLICY:

o At insureds option Short period scale.

o At Insurers option Pro-rata.
o Replacement of policy by new annual policy with same or higher S.I.- Pro-rata

SILENT RISK:

o Factories where no manufacturing / storage activities are carried out continuously

for 30 days or more.
o Premium rate is lower than working rate.
o The silent rates are not applicable if a risk goes silent following a loss under the
policy.

RATING OF RISKS IN MULTIPLE OCCUPANCIES

One of the principles of rating in fire insurance is that if risks with different degrees of fire
hazards are close to one another then the higher hazard risk may cause spread of fire to
other risks close by. Hence this factor should be considered while rating a risk. For
simplification the tariff has allowed per se rating for contents of each insured as per their
occupancy.

PERILS COVERED UNDER STANDARD FIRE & SPECIAL PERILS POLICY:

o Fire- Excl. inherent vice, undergoing heating & drying, burning of property by
public authority.
o Lightning.
o Explosion/ Implosion excl. to pressure vessels by own explosion/ implosion.
o Aircraft Damage.
o Riot, Strike& Malicious Damage
o Storm including hailstorm, cyclone, typhoon, tempest, hurricane, tornado, flood &
inundation.
o Impact damage- rail/ road vehicles or animals not belonging to the insured/
occupier.
o Subsidence & landslide/ rockslide.
o Bursting, overflowing of water tanks, apparatus & pipes.

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Missile testing operations.
o Leakage from automatic sprinklers.
o Bush fire- excl. forest fire.

The loss/ damage under above perils may be of fire or non-fire in nature. Both types of
losses are covered under the policy. In other words the policy is Material Damage policy
which covers physical losses to the insured property arising out of all above perils.

EXCLUSIONS UNDER THE FIRE POLICY:

o Excess-

For policies having S.I.upto Rs. 10 crs, per location:

Non AOG Perils- Rs 10,000
AOG Perils- 5% of claim amount subject to a minimum of Rs 10,000

For policies having S.I.more than Rs. 10 crs, per location:

Non AOG Perils- 5% of claim amount subject to a minimum of Rs 10,000
AOG Perils- 5% of claim amount subject to a minimum of Rs 25,000

N.B. Excess is applicable per event per Insured

o War perils.
o Nuclear losses.
o Pollution, contamination unless caused by insured perils.
o Curios, documents etc. >10,000Rs.
o Change of temp. (Stocks in cold storage)
o Pure electrical fires.
o Architects etc. fees (beyond 3% of claim amount) & Removal of debris (beyond
1% of claim amount).
o Consequential losses.
o Spoilage due to cessation of process.
o Theft- during/ after loss.
o Earthquake.
o Shifting of property to other place But Mechanical items & equipments are
covered for 60 days if shifted for repairs/ renovation etc.
o Terrorism damage.
Out of the above exclusions certain are covered as ADD-On Covers. e.g. Terrorism,
Earthquake, architects fees(beyond 3% of claim amount) & removal of debris(beyond
1% of claim amount), spoilage (due to cessation of process), curios /documents etc. >
Rs.10,000/- can be covered for actual value under Misc. Department (subject to
declaration).

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GENERAL CONDITIONS OF FIRE AND SPECIAL PERILS POLICY:

Condition No. Description

1. Misrepresentation, non-discloser of material facts by the

insured makes the policy voidable
2. Cessation of cover on fall or displacement (other than by an
insured peril) of insured property on expiry of 7 days
3. Cessation of cover on material alteration, if unoccupied for
more than 30 days or passage of insurable interest
4. Loss covered under any marine policy is not payable
5. Cancellation
6. Duties of the Insured in the event of an occurrence giving
rise to a claim
7. Rights of the Insurer in the event of a claim
8. Fraudulent means by Insured forfeits all benefits under the
policy
9. Insurers rights to reinstate or replace the property in case of
a claim
10. Average clause
11. Contribution
12. Subrogation
13. Arbitration
14. All communications by insured to be in writing
15. Reinstatement of Sum Insured after a claim

EXTENSIONS OR ADD ON COVERS OF FIRE POLICY:

o Architects, surveyors and consulting engineers fees in excess of 3% of claim
amount.
o Removal of Debris in excess of 1% of claim amount.

DOS in cold storage due to power failure/ change of temperature due to insured
Peril.
o Forest fire.
o Impact Damage- Own vehicles.
o Spontaneous combustion.
o Omission to insure additions, alterations & extensions.
o Earthquake (fire & shock).
o Spoilage (material damage) covers.
o Leakage & Contamination cover.
o Temporary removal of stocks.
o Loss of rent.
o Additional rent for alternative premises.
o Start up expenses.

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New Add on covers filed with IRDA

1. Housebreaking
2. Electrical appartus clause
3. Spontaneous combustion (wording modified)
4. Insurance of jetties, docks and other properties erected in water & damage by
water borne bodies clause
5. Boiler explosion damage clause
6. Start up/shut down expenses clause
7. Accidental damage clause

SIGNIFICANT ADDITIONAL COVERAGES

ESCALATION CLAUSE
o Automatic gradual increase in sum insured.
o Selected % of increase up to 25%.
o Actual Premium @50% of Fire Premium applicable on selected %of escalation and
it applies for policies covering Buildings, Plant & Machinery, F/F/F, etc. (but
should be other than stocks).
o In the event of loss Sum Insured (SI) will be calculated taking into consideration
Escalation % opted by the Insured.
o Example: Loss after 73 days.
Available S.I. = S.I. + (S.I. x 73/365 x Escalation %)

OMISSION TO INSURE, ALTERATIONS, EXTENSIONS CLAUSE

o Buildings, plant & machinery, furniture, fixtures and fittings can be covered up to
5% of the sum insured without specific insurance.
o 5% additional premium to be paid at inception.
o Within 30 days of expiry of policy all such additions, etc. to be declared and
premium on this account to be adjusted.

TEMPORATY REMOVAL OF STOCKS- CLAUSE

o Up to 10% of stocks in process can be covered whilst lying at un specified
locations undergoing process.
o 10% extra premium to be paid in advance.
o No adjustment of premium.
o Stocks in excess of 10% of sum insured to be covered specifically.

REINSTATEMENT VALUE CLAUSE

o For building, plant & machinery, electric installations, F/F/F only.
o Sum Insured to represent Reinstatement value of the property insured.
o In the event of loss payment for Reinstatement Value of property of same kind or
type.
o Depreciation not to be deducted.
o Average clause is still applicable

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 o Reinstatement of property is compulsory.
o Within 6 months intimation to reinstate to be given to insurer & actual re-
instatement to be completed within 12 months- extension possible with prior
approval of insurer. Otherwise it will follow normal indemnity without RIV basis.
o Reinstatement possible at other site provided liability of the insurers is not
increased.

LOCAL AUTHORITIES CLAUSE

o Extension for Reinstatement Value policies endorsed by Local Authority Clause.
Wherever RIV Clause is attached Local Authority Clause is a must to attach.
o No additional premium for this extension.
o Covers additional cost to comply with local regulations in reinstating the property.
o Liability if reduced under policy- under clause also reduced proportionately.
o Applies only to the damaged property, prior to extension losses not covered,
additional tax, duty etc. not payable.
o AGREED BANK CLAUSE
o To be applied when financial institution is interested.
o Any money payable to be paid to Bank.
o Notice by Co. to Bank sufficient.
o Adjustment, settlement, arbitration- if made by Bank binding on the insured.
o Alteration etc. in risk not to prejudice Bank interest.
o Co. will be subrogated of Banks rights of recovery from insured on payment.

DECLARATION POLICY
o Applicable for policy covering stocks only. To take care of frequent fluctuations in
stocks/stock values, Declaration Policy can be granted subject to the following
conditions (Standard Declaration Clause J to be inserted).
o To take care of frequent fluctuations in the SI of stock (i.e. current asset) this
policy is issued.
o The minimum sum insured shall be Rs 1 crore in one or more locations and the
sum insured shall not be less than Rs. 25 lakhs in atleast one of these locations.
It is necessary that the declared values should approximate to this figure at
sometime during the policy year.
o Reduction in SI not allowed during the currency of policy.
o Maximum refund on downward adjustment 50% and no upward adjustment is
allowed.
o Basis of valuation- The basis of value for declaration shall be the Market Value
only anterior to the loss.
o If after occurrence of any loss it is found that the amount of last declaration
previous to the loss is less than the amount that ought to have been declared,
then the amount which would have been recoverable by the insured shall be
reduced in such proportion as the amount of said last declaration bears to the
amount that ought to have been declared.

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Basis- Monthly declarations based on either
o a) The average of the values at risk on each day of the month or
o b) The highest value at risk during the month shall be submitted by the Insured
latest by the last day of the succeeding month.

If declarations are not received within the specified period, the full sum
insured under the policy shall be deemed to have been declared. It is not
permissible to issue declaration policy in respect of:
o Insurance required for a short period.
o Stocks undergoing process.
o Stocks at Railway sidings

FLOATER POLICY
o Floater Policy can be issued for stocks at various locations under one Sum Insured
(The Standard Floater Clause I, Annexure A shall be attached to such policies).
o Unspecified locations are not allowed.
o Applicable Fire Rate= Highest rate applicable to any of such locations +10%
o Presence of " Kutcha" construction under any location may be ignored for rating.
o If stocks are in godown/ process blocks in same compound, no floater extra
premium.
o In case Stocks in a process block are covered under the Floater Policy and the
rate for the process block is higher than the storage rate, the process rate plus
10% loading shall apply.

FLOATER DECLARATION POLICIES

o Floater Declaration policy (ies) can be issued subject to a minimum sum insured
of Rs 2 Crores and compliance with the Rules for Floater and Declaration Policies
respectively.
o The minimum retention shall be 80% of the annual provisional premium.
o Standard Floater Clause I and Declaration Clause J both shall be attached to
Floater Declaration policy.

DEGIGNATION OF PROPERTY CLAUSE

o Available without additional premium

o Whatever designation is given to a particular item of property in Insureds books
of accounts is accepted as such by the Insurers.

RATING OF STADARD FIRE & SPECIAL PERIL POLICY

Rating under the Policy depends upon the following factors:-
o Occupancy
o Construction
o Fire Extinguishing Appliances.
o Option to delete RSMD &/or STFI Add on covers.
o Voluntary Higher Deductible (Excess) opted by Insureds.
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 o Claims experience ( SI > Rs. 50 crores)
o Principle of One Risk One Rate whichever will be higher ofProcess (Mfg.) risks,
or ii) Storage risk,
o Entire property in one complex/ compound will attract the same rate irrespective
of kind of occupancy (Mfg./ storage/ utilities etc.).
o Dwelling exempted from the above rule.
o Two or more factories in the same compound /independent products per se
rating if detached, otherwise the highest rate.

For storage Risks rating depends upon occupancy- type of storage

o Non- hazardous
o Category I goods
o Category II goods
o Category III goods
o Open storage
o Tank farms, etc.
For simple risk like dwellings, offices, hotels, shops etc. rating Per Se i.e. on
its own without considering other occupancies in the building.

FOR MULTIPLE OCCUPANCIES:-

o For Entire Building Tariff Rate Rs. 1.80%o less De-Tariff Discount.
o For Contents of individual owner - Per Se (Partially on-merit).

DISCOUNTS APPLICABLE
o For fire fighting appliances.
o For deletion of certain perils like STFI & RSMD
o If sum insured is more than 50 Crores for claim experience.
o For opting voluntary deductibles.
o Discount for paid up capital.
o De-Tariff Discounts for good features/ technical features/ ISO Certification or
other Accreditations.

FIRE EXTINGUISHING APPLIANCES DISCOUNTS

Discounts applicable block wise, when the system is as per erstwhile TAC regulations &
certified by authorized agency
The installations to be maintained in efficient working condition & AMC with authorized
external agency to be in force.

DISCOUNT APPLICABLE:
o Hand Appliances +Trailer/ fire engine- 2.5%
o Hand Appliances+ Hydrant - 5%
o Hand Appliances &Sprinkler/fixed water spray - 7.5%
o Hand Appliances + Hydrant & Sprinkler/fixed water spray - 10%

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CLAIMS EXPERIENCE
Applicable when SI is Rs. 50 Crores +
Claim experience of last 3 years (Excluding the current) to be taken.
Discounts- 5% Claims > 10% - 15%
10% > 5% - 10%
15% 0% - 5%

On renewal when claim experience is not available 15% loading to be

charged.
Loading 2.5% Claims > 30% - 40%
5% > 40% - 55%
10% > 55% - 75%
15% > 75%- 100%
20% > 100- 200%
25% > 200- 300%
50% > 300- 500%
100% + 500%

VOLUNTARY DEDUCTIBLESDISCOUNTS

@ AOG perils@5% of the Other Perils Discount %

claim sub to minimum
10 lacs 5 lacs 2

20 lacs 10 lacs 4

30 lacs 15 lacs 6

60 lacs 30 lacs 8

100 lacs 50 lacs 10

100 lacs+ 50 lacs+ As per HO

Authority

FIXING OF SUM INSURED

Importance of fixing the Sum Insured:-
Fire insurance Policy- SI should be adequate otherwise for Underinsurance
we need to apply Pro-Rata condition of Average Clause.
o S.I. represents the limit of liability under the policy.
o S.I. is the amount on which the premium is charged.
o Consequences of insuring for < or > than actual value of property is
underinsurance or over insurance.

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SUM INSURED FOR BUILDINGS:
o Original cost- Inadequate for insurance purpose except when new.
o Book value- Not considered in Insurance (Adequate only for the first year and not for
succeeding years- considering the depreciation aspect).
o Market value- Present cost less depreciation for age and/ or usage.
o Reinstatement value- Present cost of replacement ( No depreciation applied)
o Formulae: Market Value = Reinstatement Value less (-) Depreciation.
o Land value not to be included.
o No fixed rate of depreciation- it depends upon the age and future expected life.
o Items like electrical installations and fittings to be included in the building value.

SUM INSURED FOR PLANT & MACHINERY:

o SI = Landed cost at site + installation charges.
o Reasonable depreciation depending upon the age and future life to be deducted.
o RIV policy has no depreciation.
o Items like accessories, electrical fittings and other things which are necessary for
running of the machinery to be included in the machinery value.

SUM INSURED FOR STOCKS

o Raw materials- Cost price including all the expenses like octroi, freight etc. to
bring up to the place.
o Stocks in Process: Cost of raw materials + process cost including labour, etc.
o Finished goods Manufacturer - Cost of manufacturing.
o Wholesaler - Purchase price from manufacturer.
o Retailer- purchase price from wholesaler
o Profit not to be included - exception Declaration Policy

DUTIES & RESPONSIBILITIES BEFORE LOSS:

o To intimate insurer-
o In case of any fall / displacement of building or any part without operation of any
insured peril within 7 days.
o Alterations of trade, manufacturing, occupational change immediately.
o If un-occupancy for more than 30 days.
o Change of interest by sale etc.

DUTIES & RESPONSIBILITIESAFTER LOSS (CLAIM PROCEDURE):

o Intimation to fire brigade, police, etc.
o Loss minimization exercise to be taken by the insured.
o Notice to insurer within 14 days.
o Co operation with surveyor when appointed.
o Lodge claim within 15 days with supporting documents.
o Furnish particulars of other insurances available with the affected properties.
o Enforce rights against third parties.
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COST REDUCTION MEASURES
o Opt for clause like Designation of Property clause- No Extra premium.
o Insure non-stock items on Reinstatement Value basis.
o For non-stocks items opt for Omission to insure . Clause and see that at the
end of policy within 30 days the insured send the declaration.
o Go for stocks declaration policy for finished goods and raw materials, send
declarations in time to take the maximum advantage.
o Floater cum declaration policy decision depends upon the fluctuations in the stock
levels.
o When many locations are covered and when it is not possible to keep a track of
sum insured at every location, better to go for a floater policy.
o Opt for suitable voluntary excess.
o Keep fire fighting system in good working condition, obtain periodical certificates.
o Intimate to the insurer when in any unit production stops for more than 30 days.
o Advice decrease in sum insured immediately.
o As far as possible go for annual cover- avoid short period covers they are costly.
o Though it is cost saving it is not advisable to go for deletion of flood, etc. unless
the unit is situated in area where chances of flood are NIL- However this should
be a thoughtful decision.
o Riot etc. perils not to be deleted.
o Premium can be saved by deleting from the cover the value of plinths and
foundations of the buildings.

ISSUES RELATED FOR FIRE CLAIMS:

o The processing and settlement of claims constitute one of the most important
functions in an insurance organization. Indeed, the payment of claims may be
regarded as the primary service of insurance to the client. The prompt and fair
settlement of claims is the hall mark of good service to the insuring public.
o The proper settlement of claim requires a sound knowledge of the law, principles
and practices governing insurance contracts and in particular, a thorough
knowledge of the terms and conditions of the standard policies and various
extensions and modifications there under.
o Finally we can conclude that prudent underwriting of the policy ensures prompt
settlement of claims which is main stream to satisfy the insured.

INTIMATION OF CLAIM:

o Claim intimation is to be given in time along with estimated amount of loss. In

case, claim intimation is delayed, proper clarification is required to be obtained.
Further, amount of loss is not ascertainable instantly, then sum insured of the
affected property may be the point of consideration for the purpose of
appointment of surveyor.

o On receipt of claim intimation, the first step is to examine the policy from the
underwriting point of view to confirm the acceptance of liability under the policy.

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 o Claim is registered and claim no. is allotted and surveyor is appointed based on
the estimated amount of loss declared.

o As per present practice, the financial authority for appointment of surveyor is

same as the financial authority for settlement of claim.
o As per IRDA guide line, the surveyors are categorized asA, B and C to survey
and assess the loss under Fire and Engineering Deptt. with the limit of under
noted estimated amount of loss.

Category A : Above Rs. 20.00 lacs (LOP-above 50.00 lacs)

Category B : Above Rs. 5.00 lacs ( do -upto 50.00 lacs)
Category C : Upto Rs. 5.00 lacs ( -- no provision -- )

In case, Interruption Loss is reported, estimate amount of loss is to be added

with estimate amt. of loss under M.D. Policy and then surveyor would be
appointed.

FINANCIAL AUTHORITY FOR SETTLEMENT OF FIRE CLAIMS.

Administrative Officer : Rs. 1,00,000/-

Assistant Manager : Rs. 2,50,000/-
Deputy Manager : Rs. 10,00,000/-
Manager : Rs. 15,00,000/-
D.C.C. : Rs. 30,00,000/-
Regional Manager : Rs. 40,00,000/-
R.C.C. : Rs. 80,00,000/-
Deputy General Manager : Rs.100,00,000/-
General Manager : Rs.200,00,000/-
Chairman-cum-Managing Director : Rs.400,00,000/-
H.C.C. : --- Actuals.---

Under Fire Insurance variety of buildings, machinery, equipments and stocks are
involved. In addition to a competent surveyor it is recommended that the Company
officials should visit the site of loss as far as possible.

If the estimated loss is within Rs.20,000/- and loss of profits claim is not involved, the
underwriting office shall have the discretion to waive an independent survey and settle
the claim on the basis of the claim form and other supporting documents after being
satisfied that it is admissible under the policy and that the amount claimed is reasonable
and consistent with the extent of damage. Where necessary, an official in the
underwriting office may inspect the damage.

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PROCESSING OF CLAIMS:
The documents generally required for processing fire claims:
o Copy of the policy complete with term, conditions and
o warranties
o Section 64VB compliance confirmation
o (iii) Claim form duly completed by the insured
o (iv) Survey report which should include:
o Occurrence of loss
o Indication of the cause of loss
o Establishment of liability
o Assessment of loss
o Confirmation of compliance of policy terms, conditions
o warranties
o Admissibility of the claim
o Photographs
o Police Report* (i) Fire Brigade Report *
o *these two reports may be waived if the survey report is clear and does not
cause and doubt on
o the occurrence as well as extent of loss.

CLAIMS ARISING OUT OF ACT OF GOD PERILS:

Documents like newspaper cuttings, photographs and meteorological reports are helpful
in substantiating such losses. Where the incident is localized, not reported in the media,
the surveyor should enquire about the incident from local government/statutory
authorities and is required to be supported by photographs of the damage.

LOSSES REPORTED UNDER THE RSDMD & TERRORISM.

o In case of isolated losses under the above endorsements, copy of the FIR lodged
with the police is required to be furnished.
o Disposal of claims where all records are destroyed in fire &/or allied perils like
flood.
o Settlement in these circumstances would generally be a negotiated one because
of non-availability of accounting records and other evidences. Therefore, the
surveyor should be advised to assess such losses on a realistic and reasonable
basis after discussions with the insured/Bank/Financial Institution (if involved),
and if required with suppliers/customers/statutory bodies like tax authorities,
excise authorities etc.
o At present post-loss inspection by LPA is not required. Instead Company
Engineer/Officers may carry out such inspection.

FIXING OF SUM INSURED.

o Buildings & Machinery: Original Cost/Book Value not applicable in Insurance,

Only Market Value or Reinstatement Value
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 May be considered
o Stocks (Raw Materials): Procurement Cost (Market Value + Freight + Handling etc.)
o Stocks (Finished Stock): Net Manufacturing Cost (cost of raw materials + production cost
including overheads).
o Stock-in-Process: Manufacturing cost till that stage of production.

CLAIMS ASSESSMENT:
A. Market Value Basis:
o Gross Loss
o Less: Depreciation
o Less: Salvage
o Gross Assessed Loss
o Less: Under Insurance
o Less: Excess.
o Net Loss Payable.

B. Reinstatement Value Basis:

o Gross Loss
o Less: Salvage
o Gross Assessed Loss
o Less: Under insurance
o Less: Excess
o Net Loss Payable

C. Market Value Basis (Stock)

o Gross Loss
o Less: Salvage
o Gross Assessed Loss
o Less: Under insurance
o Less: Excess
o Net Loss Payable.

Under single loss, if Buildings, Machinery and Stocks are affected, only ONE
excess will be applicable. In other words, excess is applicable per event per
Insured.

DISPOSAL OF SALVAGE:

o Salvage is deteriorated faster. Therefore, disposal of salvage should be

undertaken on priority basis for and on behalf of the concerned parties without
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 waiting for the liability to be established with the help & under supervision of the
surveyor. This disposal of salvage guidelines should always be followed.

o Insured officials also need to visit the site of loss and hasten disposal of salvage.
It will also give moral support to the clients at the time of need.

o When the surveyor is required to undertake reconditioning and sale of salvage on

behalf of the Account/interest concerned, he may be paid fees and actual
expenses maximum up to 5% of value realized.

SETTLEMENT OF CLAIM WHERE ALL RECORDS REQUIRED FOR THE

ASSESSMENT OF THE CLAIMS ARE DESTROYED IN FIRE &/OR ALLIED PERILS
RISK:

o In all such cases like what happened in Mumbai during July 2005 flood
settlement was generally be a negotiated one because of non-availability of
accounting records and other evidences.
o The surveyors should be advised to assess such losses on a realistic and
reasonable basis after the discussions with the insured (even with the Bank/ other
Financial Institutions whenever involved).
o If required with suppliers/ customers/ statutory bodies like Tax Authorities etc.
and definitely with the Insurers.

LOSS OF PROFIT /CONSEQUENTIAL LOSS/ BUSINESS INTERRUPTION LOSSES:

o Claims need to be monitored regularly by the insurer to ensure that the insured is
doing the needful to minimize the period of indemnity as much as possible. If the
insured has opted for more indemnity period more is the likely chances of higher
liability for the insurers.
o In case the surveyor for MD loss is different from the LOP policy, co-ordination
between both the surveyors is definitely needed and effective control is to be
maintained by the insurer.

CLAIMS UNDER INDUSTRIAL ALL RISK POLICIES:

Claims under the industrial all risk policies will be dealt with as per the
relevant section under which the claim has arisen.

SURVEYOR APPOINTMENT:
o Points to be noted
o The surveyor must be holding a valid license
o Selection of surveyor should be restricted depending on the type of loss and the
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 nature of the subject matter involved
o When for assessment of some losses specific technical expertise is required -
consultants having such technical expertise normally are associated with the usual
surveyors. The consultants remuneration needs to be negotiated in advance
bearing the expertise in mind and the same will be in addition to the survey fee
payable to the surveyor.
o Category of Surveyors (i.e. A,B,C) will be checked and appointment of surveyor
must commensurate with this category & quantum of loss
o Appointment of joint surveyor may be done on the merits of the claim.
o No second surveyor may be deputed.
o Wherever the Loss of Profit losses are involved, the surveyors for the material
damage and the business interruption losses, if several, should be competent to
complement one another. One surveyor can be utilized for both the material
damage

Guidelines on the financial authority for appointment of surveyor ( i.e. H.O. /

R.O./ D.O./ B.O.) will be as per scale followed by each insurer.

DOCUMENTS REQUIRED FOR PROCESSING OF CLAIMS:

o Documents generally required for processing of claims are specified, which
normally include:
o Policy copy complete with terms, conditions and warranties.
o Claim form duly completed by the insured
o Survey report indicating-
o Cause of loss;
o Establishment of liability
o Assessment of loss
o Confirmation of compliance of policy terms& conditions, warranties and
endorsements.
o Admissibility of the claim
o Photographs/ Bills & vouchers/ Police report/ Fire brigade report may be
submitted along with the survey report
o Since under Fire Insurance variety of buildings, machineries, equipments and
stocks are involved, in addition to a competent surveyor it is recommended that
the insurer should visit site of losses reported as far as possible.

FOR CLAIMS ARISING OUT OF AOG PERILS:

o In addition to the documents specified earlier, other documents like newspaper
cuttings, photographs of the devastating damage and meteorological reports are
normally required in substantiating such losses. When the incident is localized, not
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 reported in the media or not recorded by any Meteorological Department, the
surveyor should enquire about the incident from local Government / statutory
authorities and support the description of the occurrence and the loss by taking
the photographs of the damage.
o The surveyor should cover in his report the vivid details of the loss, confirm the
incident clearly & unambiguously - then only the documents of Meteorological
Report may be waived. Attention must be paid for concurrent policies & Agreed
Bank (Financial Institute) Clause

LOSSES REPORTED UNDER THE RSMTD PERILS:

o In case of isolated losses under the RSMD Perils, copy of the first information
lodged with the police and their Final Investigation Report of police must be
furnished.
o The surveyor needs to give detailed report on the occurrence and confirm that
the loss/damage is admissible under the policy.
o Loss / damage, if any, arising out of omission or commission not involving
physical damage must be segregated.

FOR ON ACCOUNT PAYMENT TO BE MADE:

o Pending final assessment of a claim an On Account payment may be considered
subject to confirmation of the following:
o Loss due to occurrence of a peril covered by the policy .
o The establishment of liability leaves no doubt.
o The minimum liability based on assessment on market value basis (in case of
Building, P&M and accessories) that arises under the policy has been specifically
examined & stated by the surveyor.

PROCEDURES FOR FINAL PAYMENT:

o When the Final Survey Report is submitted by the surveyor the Claim Processing
Official / Authority will process and recommend the exact claim amount for
approval by the Competent Authority (as per the Financial Settlement Authority of
various claims laid down by each insurer).
o The insured / claimant should be advised of the final amount of claim approved,
with details thereof.
o The full & final discharge by the insured (The bank/ financial institutions
discharge where required) must be obtained before release of the amount of
claim.
o If the loss or any part thereof is recoverable from a Third Party, a letter of
subrogation and/or assignment and Special Power of Attorney, to suit special
cases, is to be sent to the insured for completion on requisite stamp paper and
return before settlement.

o In case of Close Proximity Cases detailed investigation should be immediately

instituted when a loss occurs in close proximity, i.e. within 5 days for all classes of
insurance under Fire & Engg. Dept. of the date of inception of risk. The close
proximity mentioned here is in reference to new insurance or where there has
been a break in insurance. Close proximity investigation should also be carried out
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 in cases where it is found that insurance has been taken out significantly later
than it ought to have been taken, i.e. the risk has remained un-insured or
inadequately insured prior to the insurance cover under reference.

PROCESS OF CLAIM SETTLEMENT IN CASE OF CO-INSURANCE:

o The leader will process the claim on behalf of all the co-insurers. A decision by
the leader regarding claim settlement, taken at the appropriate level according to
the existing tenets of delegation of financial authority, shall be final and binding
on all the co-insurers. Claims decided at the appropriate level by the leader will
not be processed again by co-insurers, regardless of the amount. The leader will
intimate to the co-insurer details of a claim settled by him with copies of all
relevant reports and documents. The coinsurer will settle his share of the claim
within 15 days from the date of receipt of such intimation from the leader without
any delay.
o In case of a claim requiring Board decision the decision taken by the Board of the
leader shall be binding on the other co-insurers. There shall be no separate need
for the co-insurers to approach their respective Boards for decision in respect of
such claims. A suitable note may, however, be placed by the co-insurers before
their respective Boards for information in such cases.

APPOINTMENT OF INVESTIGATOR:
o Depending on the circumstances it may be necessary to appoint an investigator to
verify the claimed version of a loss. A separate surveyor appointment may be
considered if any actual physical survey/ assessment are possible and called for.
While referring such matter to R.O. from DO/BO, specific terms of references
must be mentioned clearly to justify its necessity.

o The letter appointing the investigator should mention the terms of reference and
make it clear that the report should contain no references or doubts unless these
are well documented and substantiated and can stand the scrutiny of a court, if
so required.

o In the absence of any laid down schedule of fees for investigators, it is advisable
to negotiate and decide the fees to be paid in addition to expenses actually
incurred before formally appointing the investigator and that decided fee to be
recorded in the letter of appointment.

o Investigators fees are required to be negotiated and are to be paid in addition to

the expenses actually incurred. The negotiated fees to be recorded in the letter of
appointment to avoid any dispute in future.

CLOSE PROXIMITY CLAIM:

Detailed investigation should be initiated immediately when a loss close proximity i.e.
within 5 days of the date of occurs in inception of the risk. Reference is to be made to
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R.O. along with underwriting details to verify the close proximity aspect. The Close
Proximity aspect is applicable for new business or where there has been a break in
insurance.

RECTIFICATION OF POLICY AFTER A LOSS:

o When collection of additional premium is required, the same is to be charged on

the affected policy period only in which the claim has arisen. Rectification can be
done by the authority competent for settlement of the claim.
o Rectification of a policy after a loss is reported for reasons other than breach of
condition/ warranty should be carried out as under:
o Where rectification involves collection of additional premium, the additional
premium may be charged only on the affected policy period in which the claim
has arisen.
o Rectification can be done by the Authority Competent for settlement of the claim.

REPUDIATION OF CLAIM:

If a claim warrants repudiation, the competent authority would be the authority

competent to settle the claim. Letter of repudiation must state the reasons and/or the
policy condition under which it is repudiated.

RE-OPENING OF CLAIM FILES:

Re-opening of the claim file can be done by the authority one step higher than the
appropriate claim settlement authority.

END OF PART-A

PART-B
INDUSTRIAL ALL RISK INSURANCE
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 SALIENT FEATURES OF INDUSTRIAL ALL RISK INSURANCE.

Eligibility - All Industrial risks including petrochemicals risks irrespective of Sum

Insured are now eligible subject to compliance of file & use guidelines by insurers.

Policy consists of 2 sections viz.,

o Section I Material damage AND

o Section II Business Interruption (following Fire and allied perils (FLOP).
o MLOP cover is also available at option of the Insured under Sec II.

SECTION I MATERIAL DAMAGE

SCOPE OF COVER :

ALL RISK POLICY.

ALL TYPES OF ACCIDENTAL LOSSES OTHER THAN THE NAMED EXCLUSIONS.

SCOPE OF COVER INCLUDES THE FOLLOWING :

PERILS COVERED UNDER STANDARD FIRE AND SPECIAL PERILS POLICY

Act of god perils namely STFI, EQ (Fire & Shock), landslide, rockslide and
subsidence.

OTHER SPECIAL PERILS VIZ., (offered free of cost)

o Spontaneous combustion.
o Sprinkler leakage.
o Spoilage material damage.
o Leakage and contamination.
o Missile testing operations.
o Forest fire.
o Subterranean fire.
o Bursting and over flowing of water apparatus and pipes.
o Theft/Burglary
o M.B.D.
o Boiler explosion.
o EEI.

EXCLUSIONS: in two parts 1. Excluded causes 2. Excluded properties

Excluded causes:
o Interruption of the water supply gas electricity or fuel systems or failure of the
effluent disposal systems
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 o Collapse or cracking of buildings.
o Faulty or defective design of materials, inherent vice, wear and tear.
o Corrosion, rust, shrinkage loss of weight, contamination etc.
o Larceny.
o Dishonesty, inventory shortage.
o Coastal or river erosion, normal settlement or bedding down of new structures
o Wilful negligence, cessation of work, loss of market.
o War and war group of perils.
o Nuclear group of perils.
o Destruction of the property by order of public authority.

EXCLUDED PROPERTY :

o Money, cheques, securities of any description, jeweler, works of art, goods held in
trust or on commission, computer system records unless specifically covered.
o Vehicle licensed for road use.
o Property in transit outside the premises.
o Property or structures in the course of construction, demolition or erection.
o Land, Pavements, roads, runways, railways lines, etc. unless specifically covered.
o Livestock, growing crops or trees.
o Property damaged as a result of its undergoing any process
o Property removed to other location for a period exceeding 60 days.
o Loss payable to the property covered under marine policies.
o Property more specifically insured under any other policies.

CLAUSES :

o Agreed Bank clause.

o Architects, surveyors and consulting engineers fees clause3.
o Designation of property clause.
o Escalation clause.
o Omission to insure additions, alterations or extensions clause.
o Temporary removal of stocks clause.

SUM INSURED :

For building, plant and machinery, furniture, fixtures and fittings on

reinstatement value basis.
For stock on market value basis.

FACTORS FOR RATING :

o The detailed risk assessment report of the company engineer.

o Deductibles opted by the insured.
o Claims experience.
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o COMPULAROSY DEDUCTIBLES

Policies having Sum Insured upto 100 cr per location for PD & BI
5% of claim amount subject to a minimum of 5 lakhs
Policies having Sum Insured above 100 cr per location for PD & BI
5% of claim amount subject to a minimum of 10 lakhs

SCHEME FOR VOLUNTARY DEDUCTIBLES :

Insured may opt for higher deductibles and based upon the various voluntary options,
the discounts from 10 % to 25%.

DISCOUNTS AVAILABLE UNDER SECTION I (ON TARIFF RATES )

o Physical features based upon the general checklist and special check list,
maximum discount of 35%.
o Electrical and FEA discount.
o ACT of god perils viz., STFI, EQ 10%.
o For coverage under MB/Boiler/EEI, Entire value of plant and machinery should be
declared.
o Reduced rate of Rs. 0.25% will be applied.

PACKAGE DISCOSUNT :

o 20% if MLOP is not opted for.

o 30% if MLOP cover is opted in
o Claim experience discount starts after completion of 2 years.
o Claims experience ratio should be below 30% ranges from 5% initially and
progresses upto 25% after completion of 6 years.

N.B. Market practices prevalent at the moment render these discount

provisions redundant. Hence inclusion of these may be reviewed.

SEDCTION II - BUSINESS INTERRUPTION

1. Loss of Gross Profit arising out of interruption of insureds operation.

2. Arising out of a loss payable under section I.

SCOPE OF COVER UNDER SECTION II :

1. Loss of Gross profits & Increase in cost of working.
2. Loss of Gross Profits arising out of failure of utility services.

EXCLUSION APPLICABLE UNDER SECTION II :

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 1. Insureds lack of sufficient capital.
2. Any restrictions imposed by any public authority.
3. Loss of business due to causes such as cancellation of a lease license or order
etc.
4. Damage to boilers, economizers, machinery, electronic installations and data
processing equipment.

NB : Arising out of the above, MLOP may be included by means of buy back
arrangement.

SPECIFICATION : Difference form of specification used.

SUM INSURED :
Estimated gross profit.
Extracted from the previous years profit and loss account.
Facility of return of premium clause.

EXPTENTION UNDER SECTION II :

Special perils namely STFI and Earthquake.

Business interruption extended to customers and suppliers premises.

RATING :
1. As per the procedure adopted in Fire/Engineering portfolio.
2. COMPULSORY DEDUCTIBLES : 03 days gross profit subject to minimum of Rs. 5
lakhs and maximum of Rs. 50 lakhs.

Policies having Sum Insured upto 100 cr per location for PD & BI:

Business Interruption (FLOP)-

Other than Petro Chemical Risks - 3 days of Standard Gross Profit
Petro chemical risks - 7 days of Standard Gross Profit
Business Interruption (MLOP)- 14 days of Standard Gross Profit

Policies having Sum Insured above 100 cr per location for PD & BI:

Business Interruption (FLOP)- 7 days of Standard Gross Profit

Business Interruption (MLOP)- 14 days of Standard Gross Profit

3. SCHEME FOR VOLUNTARY DEDUCTIBLES : Discount ranges between 5% to 25%

for opting higher deductibles.
4. DISCOUNTS AVAILBALE UNDER SECTION II :
5. Business interruption (Fire and all perils) 10% of tariff rates.
6. Business Interruption following MB/Boiler/EEI 20% on tariff rates.
7. Package discount.
8. 20% if MLOP cover is not opted for.
9. 30% if MLOP cover is opted in.
10. DISCOUNTS FOR VOLUNTARY DEDUCTIBLES ranges from 5% to 25%.
11. Claims experience discount starts after completion of 2 years and for claims ratio
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 below 30%.
12. Ranges from 5% initially and progressed upto 25% after completion of 6 years.

CASE STUDY ON FROM MUMBAI FLOOD LESSONS LEARNT THEREFROM:

While the fury of nature unleashed itself across Maharashtra during the last week of
July, 2005, the entire nation waited with fingers crossed for the floods to abate. It is not
only 94.4 cm. (37.1 inches) of rain lashed down on Mumbai on a single day but also
made all Mumbaikars became aware on How does the flood cover operate in India?-
under various General Insurance Policies like- Fire policies, Motor policies, Marine Transit
policies, Engineering (like EAR/ CAR/ CECR/ CPM/ EEI) Insurance policies, Householders
& Shopkeepers policies- everywhere FLOOD is an inbuilt peril. Simultaneously it also
revealed the fact that there is huge number of losses remained uninsured because of

Deletion of cover: The major uninsured losses have arisen in cases where the
insured has opted to delete the risk of flood from the Fire policies as a method of
premium savings.

Business Interruption: This insurance is intended to compensate the insured for

the income lost during the period of restoration or the time necessary to repair or
restore the physical damage to the covered property. In all such similar situation
when a business flow is interrupted and the owner makes a seemingly simple request
to an insurance provider pay me for the sales I would have had. Coverage is
usually provided for the period of restoration, which would be required to rebuild,
repair or replace the damaged property at the described premises with reasonable
speed and similar quality. It usually commences with the date of such damage or
destruction and it is not usually limited by the date of expiration of the policy. This
insurance was not sold in tandem with Fire property coverage in most of the cases of
industrial floods- mainly due to lack of knowledge & awareness on this specific
product.

It is, therefore, the disaster of July, 2005, which made the Mumbaikars
aware of taking the flood cover under different general insurance policies.
Now-a-days people here are crazy about opting for flood cover in various
policies they avail under general insurance sector.

PART-C
LOSS OF PROFITS (CONSEQUENTIAL LOSS OF PROFIT)

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What is the need for Business Interruption?
Business Interruption [sometimes known as consequential loss or loss of profits and
hereinafter known as BI is of recent origin. It was only with the improvement in the
standard of accountancy practice that the possibility of covering financial loss following
fire could be met with a practical solution.

Fire destroys everything that men possess. Fire destroys buildings, Hotels,
cinema theatres, factories, and contents therein such as machinery and stock,
shops and warehouse leaving only crippled remains of man's labour. The only
solution to this ever-present threat is Fire Insurance

When a property is destroyed or damaged [whether by fire or any other insured peril]
the owner of the property is indemnified by the payment of a sum of money, which will
enable them to repair or replace it. This is not, however, the full extent of their loss. If,
for instance, they are a manufacturer then, as the owner of the business, they will try to
sell their products for more money than the sum spent on buying materials and
converting them to completed products. This is their reason for being in business in the
first place. If the facility to manufacture is diminished because of the destruction of their
property, their earnings will fall off or even cease.

The insurers offer standard fire and special perils policy, which can only take
care of the victim of fire. As a result, only the damaged buildings can be
reconstructed, destroyed plant and machinery can be reinstated and lost stock
can be restored with the compensation paid by the insurer towards such
material damages.

WHAT HAPPENS TO BUSINESS DURING THE PERIOD OF RECONSTRUCTION?

The destruction caused by fire does not end with the smoldering shell of buildings or the
mangled skeleton of expensive machinery or worthless stocks.

Destruction goes on, business comes to a standstill. The factory cannot produce goods, in
other words, money stops coming on.

The earnings of the business dwindle, if not cease totally while business expenses have still
to be met. Wages and salaries have to be paid. So also overheads, rent, rates and
insurance. The net result - "LOSS". In extreme cases the business may have to be wound
up. This is a very real risk.

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However, just as the policy comes to the rescue of the insured when he incurs material
damage, the profit policy works to protect against the consequent disruption to the
business itself.
If damages occur to the property owned by the insured causing his business to suffer, the
policy would pay the amount of loss resulting from that interruption.

o Fire occurs due to a combination of fuel , oxygen and heat. To bring fire, fuel ,
oxygen and heat should work together.

o For the purpose of fire insurance, there should actual ignition, something on fire,
which ought not to be on fire and it should be an accidental one.

o Only after the payment of premium, any part of the property or property be lost,
destroyed or damaged by any of the perils specified in the policy gives the
insured the rights to claim insurance compensation.

o Fire insurance policy is designed to take care of the material damages and not the
consequential loss of earning that may result due to the damages to the property
insured.

o The cost of some of the damages resulting from Smoke, Scorching, Falling walls
and fire fighting damages like water damage is covered under property insurance.

o The burden of establishing the occurrence of insured peril is on the shoulder of

the insured and if the claim is to be turned on the plea of remote cause or
excepted peril then the onus is of the Insurer.

o Insurance is available against Act of God and social perils.

o Property insurance extends a special peril known as Impact damage.

LOSS OF PROFIT POLICY

Whereas, the insured may have to incur the loss of profit, constant expenses
irrespective of business interruption brought by the accidental fire and allied perils.
The standard fire policy does not offer such benefits. Therefore, there is a need for a
separate policy to take care of the consequential loss. This benefit is offered by a
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 separate policy which can be an extension of fire policy , or engineering policy and or
project insurance.

The extension of LOP to Fire Insurance is known as FLOP (Fire Loss of Profit).

The extension of LOP to Engineering Policy is known as MLOP(Machinery Loss of

Profit).

The extension of LOP to Project Insurance is knows as ALOP ( Advance Loss of

Profit).

Loss of Profit Policy can also be termed as Consequential Loss Policy or Business
Interruption Policy.

MATERIAL LOSS POLICY

It is meant to take care of loss or damage or destruction of properties such as Building,

Plant and Machinery , Furniture and fixture and stocks.

SCOPE OF POLICY:

o Loss of earning (Net Profit)

o Standing Charges
o Increased cost of working

Standing Charges include all fixed expenses such as rent, salary, electricity exp., audit
expenses etc. which have to be incurred by the insured irrespective of whether the
business activities interrupted due to material damage or loss or destruction brought by
the operation of insured perils.

The indemnification under this policy is admissible only when the insurer admits the
claim for material loss or damage or destruction.

WHAT EXACTLY NEEDS TO BE COVERED UNDER LOSS OF PROFITS POLICY

SUBJECT MATTER OF BEFORE FIRE AFTER FIRE

INSURANCE

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 Capital Building, Machinery and Fire insurance pays for
stock these

Variable expenses Cost of raw materials These expenses

used. Unskilled Labor. diminish in proportion
Variable charges to the stoppage in
production.

Fixed Expenses (Standing Continuing standing Consequential loss

charges) charges such as insurance is available
salaries, interest, rent for these expenses.
etc.

Earning Net profit Consequential Loss

Insurance pays for
these expenses this
component

No Consequential Insurance covers for variable expenses.

An Hypothetical illustration to demonstrate the impact of fire accident on the business
activity
BEFORE FIRE (Example)
Example:
I Income From Sales Rs.1, 00,00,000
II Production costs RS. 60,00,000
Raw materials, Unskilled Labor and
Other variable charges RS. 20,00,000
III Over heads
Rent, rates printing and stationery,
Wages and salaries etc. RS. 20,00,000

AFTER FIRE (Example)

50% cut in production

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Income from sales RS. 50,00,000
Less: Production costs RS. 30,00,000
Overhead expenses RS. 20,00,000

Net Result RS. 50,00,000

Additional expenses Nil
Purchase of goods elsewhere )(
Premises on hire )( RS. 20,00,000
Overtime )(

NET RESULT - LOSS RS. 20,00,000

Therefore, there is a need for insurance protection for the resulting

consequence.

If the premises are destroyed what happens to the costs of maintenance? They may
almost vanish, no repairs, painting, changing light bulbs, paying cleaners, servicing lifts
etc.

1) The insurers seek to indemnify, therefore a five factor comes into the equation.

2) Loss of Income -- When the factory is unable to function

3) Loss of Income -- after the repairs and repurchase until the entire activity
commences.

4) Additional expense -- to engage rented building until the damaged building is

reinstated

5) The machines installed.

6) Indemnity period -- must be long enough to cover the above [i] and [ii]

7) Saving -- due to the damage are deducted from the settlement.

WHAT DOES THE CONSEQUENTIAL LOSS POLICY PROVIDE

The scope and purpose of the consequential loss insurance is given as under:
NET PROFIT IN TERMS OF THE POLICY

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This policy is designed to take care of loss of net profit, which is differently meant by
this policy unlike the net profit derived from trading and P & L account. Such loss of
profit should result from the cause of insured peril covered under Standard Fire policy
and that cause should have brought the interruption of business.

STANDING CHARGES - FIXED CHARGES

In spite of the stoppage of the business, the fixed remuneration and other standardized
fixed expenses have to be incurred by the insured. Such expenses have to be incurred
irrespective whether the business is carried on or not due to the occurrence of the
insured peril.

INCREASED ALTERNATE COST OF WORKING

To pay the additional expenditure incurred by the Insured to maintain the normal
business activity during the period in which the business is affected.

DEFINITION OF TURNOVER
Modern BI policies are based on the turnover of the business. Profit comes out of
turnover and is supported by it. Turnover can be conceived of as representing the
activity of the business, but is defined as the money paid or payable to the insured for
goods sold and delivered and for services rendered in the course of the business at the
premises. Turnover actually consists of Variable charges, standing charges and net
profit as we have already seen. If the ratio of variable charges of a business to it is
turnover is a constant [and this must be so, because the definition of variable charges is
simply those charges, which vary directly to the turnover. ] Then the remainder [ the
turnover less such variable charges]. Is also constant to the turnover of the business.
Thus, on the basis that turnover does represent the activity of a business. we can
measure this fall in activity of a business. we can measure this fall in activity [which we
do by calculating the fall in turnover] and then, by applying the remainder constant to
the amount of this reduction, we can get at the true indemnity.

It is against the background of the definition of rate of gross profit annual turnover
and standard turnover that the financial loss will be calculated[these are discussed in
depth later on]

GROSS PROFIT
It may be defined that it is the amount by which the sum of the turnover and the values of

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the closing stock shall exceed the value of the opening stock and specified working
expenses.
DIFFERENCE BETWEEN ACCOUNTANTS AND INSURERS GROSS PROFIT.
The basic difference is that accountants will take Turnover and deduct Purchases of raw
materials to produce gross profit.

Insurers are, however, concerned with identifying that part of gross profit which
o Relates to the business insured and
o Can be the subject of an indemnity from insurance

The insured pays only for insurance on those elements of gross profit which continue to be
payable after an interruption in the business [and on net profit] by using the insurers
definition and the premium relates only to the business insured. Additionally, the insureds
accountant will need to know on what basis to prepare the declaration of gross profit for
the insurance company.

There are two methods in which the gross profit can be arrived at:

ADDITIONAL METHOD:

In this method, insured adds standing charges to the net profit before taxation and
excluding capital receipt as per the Profit and Loss Account of the Company.

DIFFERENCE BASIS:
Under this method, gross profit is arrived at as the "Difference between turnover and
variable charges " as detailed below.
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Turnover 10,00,000
Less: Whatever trade discounts allowed 20% 2,00,000
__________
8,00,000
Add: Closing Stock as on 31.03.2001 50,000
8,50,000
Less: Opening Stock as on 01.04.2001

Specified working expenses

Less: Purchases net of discounts 1,00,000
Bad debts 50,000 1,50,000

____________________________________________________________________
___
Gross profit 7,00,000

The original definition of gross profit was net profit plus insured standing charges.

The insureds account were the starting point. All non business items were taken out [such as
rent and upkeep of let-out portions, stock market gains and losses etc].

Net trading profit was the surplus left after taking from the turnover of the business insured
All the costs of making it, from purchases of raw material to the cost of delivery by the insureds
vehicles or by post etc .

The Difference method starts with the accounts but uses them the other way round. Basically, it
lists specified working expenses such as purchases these are the previously mentioned variable
charges which vary directly in proportion to the turnover. Obviously, if your turnover is down you
do not need to buy so much. Once you have deleted the variable charges you are left with the
standing charges and net profit or [to put it another way ]the gross profit.

STEPS INVOLVED
1) Take out all income and expenditure extraneous to the business insured. E.G
rent of tenanted portions and costs of upkeep of that portion profit or loss on
share transactions [in other firms].

2) Identify the specified working expenses and take them off the total of the turnover
and the closing stock. The result is gross profit.

The term difference basis describes the current definition of gross profit which can be phrased as

The difference between turnover plus closing stock and opening stock plus specified working expenses.

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STANDING CHARGES - ILLUSTRATIVE LIST
o Salaries to permanent staff
o Contribution to PF, FPF, Super annuation, Perquisites, ESI, etc.
o Rent, Rates, Taxes, Duties and License fees'
o Director's fees, remuneration
o Total audit fees and professional charges
o Conveyance, Travelling expenses and other office expenses
o Interest on loan, debentures, bank charges, guarantee, commission
o Dividend on preference shares
o Depreciation on various assets
o Miscellaneous standing charges
o Not exceeding 5% of the total listed insured standing charges.

INCREASED COST OF WORKING

o Rent for temporary premises
o Payment of overtime
o Hire of machinery etc

PERIOD OF INSURANCE:
Period of insurance of LOP policy is usually in consonance with material damage policy. It
runs and expires almost simultaneously.

PERIOD OF INDEMNITY
THE SELECTION OF INDEMNITY PERIOD
The indemnity period commences with the date of damage and lasts till such time as the
business is restored to its pre-damaged level or the period stipulated in the policy,
whichever comes first.

A consequential loss insurance policy insures earnings of the business lost during the
indemnity period.

HOW TO ARRIVE AT THE SUM INSURED

The Sum Insured is based on the gross profit of the business. The sum insured is extracted
from the previous year's account.

If the indemnity period is 18 months, the amount is increased by 50%. This is the basic
sum insured.

Assuming the business would be interrupted for not more than 12 months, there are
adjustments to be made and this is where a little forecasting comes in.

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Normally business does not standstill, year after year, it generally expands. Then there is
another factor to be taken into consideration i.e. Inflation.

Even if the business does not expand in terms of goods produced the expense and income
levels do expand in terms of money, roughly in conjunction with the general inflation rate.

Therefore, a sum to be insured needs to be drawn from the previous years accounts and
an upward adjustment is done in such a way that takes care of any future influence of
inflationary factors.

It is not sufficient if the sum insured is influenced by such factors pertaining to a particular
period of insurance as the indemnity period commences only in succession to the date of
occurrence of insured peril causing material damages. Supposing, a loss takes place on the
last date of a policy i.e. expiry date of the policy, the indemnity period may be twelve
months from that date or may be twenty four months from that date or the period agreed
between the parties to the contract. This makes it clear that factors pertaining to the
period of indemnity chosen is very relevant while deciding the level of sum insured.

ADDITIONAL ITEMS WHICH CAN BE INCORPORATED AS PART OF THE SUM

INSURED
1. WAGES:
Two methods in which wages can be included.
a) Pro-rata Basis:
It is possible to cover under a separate policy to claim wages for a Standard Period for an
amount to represent the wages for the selected period.

Example:
Wages of all employees
The wages of a specified category or categories of employees.
The wages of all employees who are normally paid on weekly basis.
b) Dual Basis:
100% cover for a selected initial period and for the remainder of the indemnity period, a
selected percentage only. On Dual basis it is necessary to have a minimum indemnity
period of 12 months.
The sum insured must represent the full annual payroll. If saving in payroll are made
during 100% cover period, such saving can be carried over to boost the partial cover
period during the indemnity period.
The insured has the option of converting the combination to a straightforward 100% cover

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for a stipulated period longer than initial period.

DUAL BASIS PROVIDES A FLEXIBLE COVER

There are two main advantages to the Dual Basis cover. They are
o Carry over of saving
o Option to Consolidate
o Insurance of lay off and/or retrenchment compensation
o Auditors fees

Hence, selection of the indemnity period is of utmost importance.

ASCERTAINMENT OF THE LIABILITY OF INSURANCE

What should be identified first before looking at the claim for business interruption?

o Whether there is a standard fire policy and claim for material damage has been admitted.
o What would be period of indemnity in case of reinstatement of property damaged.
o Turnover earned by the insured after the damage but preferably at the different premises of
the insured.
o The insurance is limited to reduction in turnover.
o Limited to increase in cost of working.
o The amount payable as indemnity shall be additional cost of working with some standing
charges of the business insured.
o How the premium is adjustable with the gross profit earned by the business
differs from the sum insured during the year.

EVIDENCE FOR ADMITTED MATERIAL DAMAGE OR DESTRUCTION

Basically, it is a precondition that there should be a claim towards material damages
under the policy admissible as the terms and conditions of the standard fire policy. The
insured peril must have operated and the damages resulted. Inotherwords, the
resultant damages that has arisen out of the insured peril should have been admitted
by the insured. A point should always remains the minds of the insurers that the policy is
designed to cover the effect of a cause, which is falling under the scope of the policy
and does not fall under any of the exception specified in policy.

THIS BRINGS TWO SITUATIONS

INSURED PERIL
The first one is the situation where the peril operates that is termed as insured peril as
per the policy. Admit both claims material damages and loss of profit resulting the
insured event.

OTHER UNKNOWN PERIL

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The second situation is where a peril operates but is not found in the listed perils of the
policy. Under the new circumstances, what do we do .

Reference is made to ensure that it is not found in the exceptions mentioned in the
policy and also verify whether this peril is an insured peril under any other product of
the insurer .

Where property suffers damage by a peril, which might not have been insured under the
policy, the course of the damage may lead to a fire starting. If the proximate cause of
the fire is not specifically excluded, the policy will respond to the fire damage. However,
damage caused by the original peril will not be recoverable.

It being so, a suitable adjustment need to be made necessarily in the business

interruption period on the would have been basis as if both unknown peril as well as
insured peril had happened separately. Of course, the onus is on the insured to establish
damages separately towards what is covered and what stands uncovered due to the
operation of an other peril unknown to the policy. [ an international author of a
book on practice of insurance says that the insured commits fatal to his policy if he fails
to establish the distinction between the losses].

It is our view the similar effect would happen in the Business interruption policy too as it
operates only on the admission of a claim towards material loss. It will be explained
more in the paragraphs to follow .

WHAT IS TURNOVER?

It may be defined as consideration measurable in terms of money received or receivable by

the insured for goods sold and delivered and services rendered in the course of the
business carried out within his premises.

What does not fall under Turnover?

o Any sum receivable for the sale of redundant plant and machinery.
o Income from any source not insured under the policy. Example rental income from the tenants.
o Any other business carried out within the insured's premises or goods sold or services rendered but
not insured under the policy.

STANDARD TURNOVER
The Turnover during that period in the 12 months immediately before the date of incident,
which correspond, with the indemnity period. Example -Indemnity period for the
restoration of the business disturbed is 01.06.2001 to 30.10.2001 and this period is the
period of interruption. The standard turnover for this purpose means the turnover for a
period from 1.6.2000 to 30.10.2000.

Rate of Gross Profit

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The rate of gross profit earned on the turnover during the financial year immediately
before the incident. This can be expressed by a formula
Gross Profit
______________ x 100
Turnover

However, the estimated gross profit for the period of insurance should be based on the
previous years audited accounts but not less than that of the nearest financial year.

N.B. Standard turnover, annual turnover and rate of gross profit are subject to
adjustment to take care of trend of business and special circumstances
affecting the business. For example a workers strike, a big event (like IPL for
sports goods manufacturers) providing extraordinary business opportunity.

INCREASE IN COST OF WORKING AND SAVING

The insured may have to incur any additional expenditure for the sole purpose of averting
or minimizing the reduction in Turnover which, but for that expenditure, would have taken
place during the indemnity period in consequence of the incident. But such expenditure
should not exceed the sum produced by applying the Rate of Gross Profit to the amount of
the reduction thereby avoided.

EXAMPLE:
Incurring expenditure for overtime or hiring alternate machinery or occupying the alternate
premises on rent.
Basis of Indemnity for IC
The insured should remember that his payment would not exceed the amount arrived as
under.
Rate of Gross Profit x Reduction in T/o avoided
But, if the insured agrees to pay more, then this can be expressed in the policy.The
limitations which are usually imposed are largely common sense and are that the increase
in cost of working shall be

o Absolutely necessary and reasonable

o That increased cost, which is incurred with a purpose to avoid or minimize a reduction in
turnover and therefore a loss of gross profit.
o Such IC is only in consequence of the damage [or incident]
o Necessarily incurred during the indemnity period and
o Equitably limited in the amount payable by insurers

The effect of this equitable limit is to restrict the maximum recovery as increase in cost in
working to the amount that would otherwise have been payable as a loss of gross profit if
such expenditure had not been incurred . This is often referred to as the economic limit
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This limit is clearly equitable but there are occasions when expenditure is incurred with the
agreement of insurers, which proves later to have been uneconomic. Insurers must then
stand by their original agreement.

SAVINGS
Any sum saved during the indemnity period in respect of such of these charges payable out
of gross profit insured based on the past records, may be used to set off against the
standing charges that are constant in nature.

ANNUAL TURNOVER
It is the Turnover during the twelve months immediately preceding the incident. It is not
the Turnover taken from the Audited accounts, as the figures shown in the Audited Final
accounts must have become outdated. The rate of Gross Profit is applied to the Annual T/o
and the proportion of the loss to be borne by the insured is

Sum Insured
__________________________________ = Amount payable
Rate of Gross Profit x Annual T/o

Those cost which should continue wholly or in part or deducted from the Gross Profit
amount.

PROVISION FOR UNDERINSURANCE

The sum insured by this item is less than the sum produced by applying the Rate of Gross
Profit on Annual T/o, the amount payable shall be proportionally reduced.

TIME EXCESS
Every claim under the Loss of Profits attracts the deduction of deductible equivalent to the
loss during the first seven days and any claim amount in excess of this only becomes
payable in respect of petrochemical risks. A time excess of 3 days is applicable for other
risks.

ACCUMULATED STOCKS CLAUSE.

If stocks of finished goods which is accumulated is used to maintain the turnover when
production is affected adversely, during indemnity period, account is to be taken of this
use and turnover figures are adjusted accordingly.

SUM TO BE INSURED
o The sum insured should be at least one years gross profit, even if indemnity
period is less that 12 months.
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 o If indemnity period is more than 12 months, the sum insured will be a multiple
(i.e. proportionate) of the annual G.P.
o Operating profit and insured costs need to be estimated with the help of data on
the current and projected business performance.
o Rating
o Average (weighted) rate of the contents of the process blocks as per fire tariff.
o + 25% LOP loading.
o +25% loading if the plant is having continuous process.
o For indemnity period of more than 12 months Sum insured is to be increased
proportionately.
o Sum Insured: NP +SC= GP

WAGES INSURANCE
o As standing charges
o On separate item on annual basis
o Separate item on period basis (pro- rata).
o Separate item on Dual basis.
o Lay off and retrenchment compensation (Add on ).

ADD ON
o Auditors fees.
Earthquake
o Terrorism
o Spontaneous combustion
o Spoilage cover.
o Premises in the Insureds own occupation.
o Suppliers & customers premises.
o Electricity station, gas works, and water works.

CLAIMS-1
o Claims under Lop policies payable only when there is admissible claim under
Material damage policy (i.e. as per Material Damage Proviso).
o If claim under MD policy is rejected, claim under LOP policy also not payable.
o An only exception is - when claim under MD policy is not paid because it is within
Excess.
o Perils covered under C.L. policy shall be those covered under the material damage
only.
o However some of the perils covered under M.D. policy may not be included in C.L.
cover.
o It is not possible to issue a policy with an indemnity period commencing at a date
later than the date of the damage.
o It is not possible to change the indemnity period during policy period.

Minimum Deductibles:

Other than Petro Chemical Risks - 3 days of Standard Gross Profit

Petro chemical risks - 7 days of Standard Gross Profit

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RATING
The basis rate for consequential loss resulting from destruction or of damage to the
property by the perils covered under the standard fire & special perils policy shall not be
less than 1.25 times the full average of the items covering the contents of the process
blocks of the premises occupied by the insured for the purpose of the business to which
the consequential loss insurance applies except where otherwise provided.

1) In calculating the basis rate the contents of any storage/ utility blocks (even if
they are communicating with the process blocks) should not be taken into
consideration.

2) For other business premises where no manufacturing process is carried on, the
basis rate shall be 1.25 times the average rate of the contents of the whole
premises.
3) THE AVERAGE FIRE RATE(AS BASIS RATE) SHALL BE THE PERCENTAGE WHICH
IS THE AGGREGATE NET PREMIUM IN RESPECT OF THE WHOLE ANNUAL RATE
OF THE STANDARD FIRE POLICY(M.D. POLICY- i.e. FIRE & SPECIAL PERILS
INSURANCE)OF CONTENTS OF THE PROCESS BLOCKS AND/OR THE WHOLE
PREMISES AS APPLICABLE UNDER THE ITEM 1 & 2 ABOVE BEARS TO
AGGREGATE SUM INSURED ON SUCH CONTENTS.
4) THE BASIS RATE SHOULD NOT BE ALTERED WHEN THE FACTORY BECOMES
SILENT DURING THE POLICY PERIOD.
5) PILOT PLANT AND ALL THE LABORATORIES SHALL BE CONSIDERED AS
PROCESS BLOCKS FOR RATING.
6) PERCNTAGE OF THE BASIS RATE IS APPLICABLE ON THE SUM TO BE INSURED(
100% OF ANNUAL GROSS PROFIT OR ABOVE DEPENDING ON THE INDEMNITY
PERIOD OPTED BY THE INSURED ) FOR ALL THE PERILS NORMALLY COVERED
UNDER THE MATERIAL DAMAGE COVER.

FOR ADDITIONAL (EXTENSION) COVERS:-

1. Wages (other than those covered as part of gross profit)- on dual basis( whole
wages for initial 4 weeks & for a lesser percentage for the remaining period of
not less than total 12 months).

2. Wages (prorata basis) for a selected period as multiple of basis rate.

3. Lay-off compensation &/or retrenchment compensation (with /without notice

wages liability) - 50% loading on profit rate for each item.

4. Auditors fees (only for the coverage of the fees required to be paid for
preparation of papers relating any claim assessment) separate sum insured
to be declared and premium to be charged at 100% of basis rate.
o RATE FOR VARIOUS SEPARATE EXTENSIONS TO BE COVERED UNDER
F.L.O.P.
o SUPPLIERS PREMISES.
o CUSTOMERS PREMISES.
o INSUREDS PROPERTY STORED AT OTHER LOCATION
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 o FAILURE OF PUBLIC ELECTRICITY, GAS, WATER SUPPLY.

PART-D
ENGINEERING INSURANCE

Types of policies

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PROJECT INSURANCE POLICIES
1.Marine-Cum-Erection(MCE),
2.Erection All Risk (EAR),
3.Contractors All Risk(CAR),
4. Contractors Plant & Machinery(CPM),
5. Advance Loss of Profit (ALOP).

Installed machinery policies (Annual Policies)

Machinery insurance (MI),
Boiler & pressure plant (BPP),
Electronic equipment ins.(EEI),
Deterioration of stock(potatoes)-DOS(p),
Deterioration of stock(other than potatoes)-DOS(otp),
Machinery loss of profit (MLOP).
Civil Engineering Completed Risks Insurance (CECR)

Other ways of grouping

All risk policies

Nos. Of project polices as given below fall under the group -

MCE
EAR
CAR
CPM

No. Installed machinery policy is in this group -

EEI

Limited peril / named peril policies-

Boiler & pressure plant (BPP).

Dependent policies
MLOP
DOS(P) & DOS(OTP)
ALOP
Sec.3 of EEI
MI for M/Cs
BPP for boilers

Machinery insurance (MI) for cold storage m/cs.

MCE
Ear/car
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 Depends on sec.1
Never depends on sec.2
Marine-cum-erection

Composite cover
Marine/inland transit & erection both are combined in one pool.
All risk policy- exclusions specified
Cover from 1st.matl.meant for project when dispatched by supplier/entire period
of transit/storage at site/being erected/terminates on completion of testing
MCE = M/T + EAR OR CAR

Marine cum erection cover (MCE)

Marine transit & storage-cum-erection (SCE) cover
- Coverage as per ICC (a)
- Insurance extended to cover
War & SRCC risks
Storage at discharge port
Loading & unloading
Incidental transhipment
What can be insured ?
Plant & machinery (to be erected)
Entire factory
Expansions
Additions
Civil engineering works < 50%
Who can insure?
Manufacturer
Supplier
Purchaser
Contractor
Joint names
Scope of cover - all risks

Location risks
- Fire
- Lightning
- Theft
- Burglary
Handling risks
- Impact
- Collision
- Dropping/ falling
- Unloading/ loading
Scope of cover
Operational risks

Failure of safety devices

Leakage of electricity
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 Insulation failure
Short circuit
Tearing apart
Centrifugal forces
Explosion/ implosion
Scope of cover
risk of human element
Carelessness
Negligence
Faults in erection
Sabotage
Riots , strikes, terrorism & malicious damage
Acts of god perils
Earthquake
Fire & shock
Storm
Tempest
Hurricane
Landslide
Rockslide
Subsidence

What is not covered

exclusions .Applied internationally

Faulty design
Defective material/ castings
Bad workmanship
Rectification of defects
Manufacturer's guarantee
Wilful act
Wilful negligence
Consequential loss
Penalties
Delay
Lack of performance
Loss of contract

Premium rating-basis

Premium rates, terms, policy wordings would depend on

Project size
Special characteristics
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 Comprehensive details of the project
Assessment of exposures
Period of project
Sum insured
Contract price + duties + taxes + freights
Marine (imports)
Marine (indigenous)
Erection cost
Permanent civil engineering works
Additional covers
Construction plant & machinery
Additional customs duty
Express freight (repairs)
Overtime (repairs)
Clearance & removal of debris
Civil works
Surrounding property
Escalation
Air freight
Maintenance cover
- limited contract
- extended visits
Third party liability
- cross liability

ERECTION ALL RISK (EAR)

Covers perils/risks/materials involved in installation of plant & m/cs
Various stages covered storage/erection/cold & hot testing of all kinds of
machinery/maintenance
All risk policy-exclusions specified
Indemnifies almost any form of accidental/unforeseen loss occurring to property
on erection site during the period of insurance

Erection all risk

Insures the projects where the erection of plant & machinery and equipments &
structures are the major part of the project & project have insignificant civil
works.
Erection all Risk
Risks covered: all risks insurance policy and mainly covers the following named
risks:
Location risk: fire, lightning, theft and burglary.
Operation risks: leakage of electricity, insulation failures, short circuit, explosion,
etc.
Human risks like carelessness, negligence, faults in erection, riot/strike/malicious
damage (RSMD).
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 Natural calamities like storm, cyclone, landslide, subsidence, etc.
Accidental external means like accidental falling of objects, impact and thereby
the resultant damage of property.
Extension of ear policy
To cover extra risks at extra premium (along with the basic cover at basic
premium).
The policy can be extended to cover the following
Third party liability risks
Surrounding property damage
Earthquake risks & terrorism risks.
Construction plant and machinery like cranes, dumpers, earth excavators etc.
Extra charges for overtime, express freight etc.
Increased replacement value ( escalation benefit)

PREMIUM COST IN E.A.R.POLICY

Depends on the term & period of project and nature of project depending on the
hazards associated with it. The rates are in per mille and this is a tariff business.
It is a tariff policy & in the tariff all project names are given in alphabetical order

Details of ear underwriting

Sum insured is equal to replacement cost of project. Sum insured is the landed
cost of items at project site plus freight, cost of erection, etc.
Premium installment facility is given in all project policy with period of insurance
more than 12 months
Frequency of installment is either quarterly of half-yearly but client always
prefers qtly as outgo is less.
the first installment premium must be paid, on or before the commencement of
cover and this first installment premium will be calculated & collected at being 5
%(of total premium) higher than the all other equal installments .
Last installment premium should be paid at-least 6 months prior to the expiry of
policy period.
Erection all risk

Period of cover
Insurance cover under ear commences after unloading of first consignment at
site.
The policy period continues the entire period of storage, erection, testing (until
testing operations have completed and the project is declared as successfully
commissioned) and maintenance(either limited maintenance or extended
maintenance)
Erection all risk- extra benefits(extensions)

By payment of additional premium, following can be covered

Increase in policy period.
Removal of debris, contractors plant and machinery, third party liability, owners

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 surrounding property, escalation etc.
Risks of earthquake and terrorism.
Dismantling cover for second hand machinery.
Adjustment of sum insured
- for variable charges like freight, custom duties, cost of erection etc. Are
adjustable.
Ii)prime cost of plant & equipment is not adjustable and no refund of premium is
considered for this. Exclusions under ear cover
following perils are excluded :

EXCLUSIONS UNDER EAR COVER

following perils are excluded :

Faulty design
Defective material/ castings
Bad workmanship
Rectification of defects
Manufacturer's guarantee
Wilful act
Wilful negligence
Consequential loss
Penalties
Delay
Lack of performance
Loss of contract
Excess: All deductible amounts appearing in erstwhile TAC Tariff are increased to
5 times of the minimum amount.

CONTRACTORS ALL RISKS POLICY(CAR)

This is an all-risks project policy, always issued for civil engineering projects like
construction of residential complexes, bridges, etc. The following items can be
covered in this policy
Civil works as per contract
Contractors plant and equipments
Cost of clearance &removal of debris
Third party liability arising out of third partys injury, property damage or any fatal
damage in relation to the project activities.
Insureds own surrounding property.

PROJECTS COVERED

Civil works for residences, factories, warehouses, bridges, roads, canals, dams,
hospitals, schools etc.
Risks covered: all risks namely fire, lightning, riot, strike, malicious, bad
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 workmanship, burglary/theft accidental external means etc.

EXCLUSIONS
Nothing is payable for the losses arising out of the following reasons:-
Loss or damage due to faulty design.
due to wear and tear, deterioration due to atmospheric conditions.
inventory losses.
War, srcc and allied risks.
due to nuclear reaction, nuclear radiation etc.
willful act or willful negligence of the insured.
Excess: All deductible amounts appearing in erstwhile TAC Tariff are increased to
5 times of the minimum amount.

MACHINERY INSURANCE POLICY

Property covered: all electrical and non electrical (mechanical & chemical) items
like electric motors, transformers, diesel generator sets, air compressors, boilers,
blowers, etc.
Scope of cover : against sudden, accidental loss due to vibration, maladjustments,
falling, impact, collision and the like, obstruction or entry of foreign bodies, etc.

SCOPE OF COVER
Losses from unforeseen and sudden damage to machinery from following causes:
Faulty material, design, construction, erection;
Vibration, malalignment, maladjustment;
Defective lubrication, loosening of parts, stress, explosion due to centrifugal force,
or internal pressure;
Failure of insulation and electrical breakdown.
Human failures like lack of skill, lack of knowledge & mere negligence.
The cover applies within the insureds premises specified in the policy while the
insured plant is covered under the following situations:
When it is at work or at rest.
While being dismantled for cleaning or overhauling.
During cleaning and overhauling operation.
When being shifted within the premises.
During subsequent erection.
Machinery insurance

PREMIUM:
Premium cost is high due to unfavorable claim experience.rates are in per
hundred of sum insured. 4 different sets of rates for m.i. policy:
Mechanical items;
Electrical items;
Machinery in cold storages and ice plants;
Fertilizer plants / petrochemical plants/ refineries.

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POLICY EXCESS

1% of sum insured of each item of machinery subject to minimum of Rs.2,500

RISKS COVERED
Mechanical failures like mal-alignment, nom-adjustment of parts, impact of
foreign elements, faulty operation, failure of safety system/failure lubrication
system,etc.
Human failures like lack of knowledge, lack of skill, mare negligence.
Electrical equipments suffer electrical failures or breakdown losses due to "short
circuit, excess/surge voltage, voltage fluctuations, defective insulations, .. " etc.

EXCLUSIONS -1
Fire and allied perils
Internal fire due to electrical faults in electrical equipment is covered.
Explosion due to centrifugal force & internal pressure is covered.
War & warlike perils
Nuclear risks
Experiments or overload or similar tests
Gradually developing flaws, defects, cracks
Normal wear and tear
Wilful negligence

EXCLUSIONS-2

Consequential loss
Defect in existence before insurance
Special exclusions
Excess
Damage due to faults/defects for which manufacturer is responsible
Exchangeable parts, non metallic parts (except electrical insulation), operating
media, coating of metal parts

SUM INSURED/ AVERAGE

Sum insured
The s.i. of each individual item must represent its new replacement value (current
replacement value ) including transportation cost to site, custom duty, insurance
premium, other erection & installation cost i.e. Sum insured = new value + freight
+ customs & duties + other erection & installation costs.

Optional items:
cost of civil foundation & oil in transformer & for
swichgear
Condition of average is applicable for underinsurance

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 Minimum premium
rs. 100/-
Provision for special rating
Short period rates
as per short period rates for motor insurance.
Escalation to the tune of 25% may be obtained by the insured

INDEMNIFICATION
Repair basis
no deduction for depreciation for parts with unlimited life.
necessary bills and documents for repairs be submitted.
The value of salvage, under-insurance and excess is deducted from loss.
Total loss basis
Actual value of item after applying depreciation from the replacement value of
item.

CONTRACTORS PLANT AND MACHINERY POLICY ( CPM)

Items covered: cranes, bumpers, excavators , tunnel boring machines etc. Which
are used for the erection/construction of projects.
This cpm policy is issued as an extension of the mother project policy(i.e. Mce/ear
or sce/car policy) if s.i. of cpm items is less than 5% of the s.i. of the mother
project policy or up to the value of rs. 25 lacs for these machines . But if value
exceeds limit of 5% of proj.pol. Or rs 25 lacs in a particular project site then a
separate cpm policy has to be issued.
This policy is given to contractors who may be using plant and machinery at
different projects during the policy period on a separate annual policy with
appropriate earthquake loading considering the sites falling in the earthquake
zones.
This is an all risks policy with specified exclusions printed on the policy.
The cover is operative for machines when they are at work or being dismantled or
cleaning or overhauling or reassembling thereafter.
Rating. Equipments are classified into 5 groups and rates are prescribed for each
group as per internal guidelines.
A few important Exclusions
Loss or damage due to
electrical or mechanical breakdown
consumables parts like knives, ropes, belts, chains etc.
wear and tear
Loss of or damage to plant and/or machinery working underground popularly
known as exclusion K. Not applicable to machineries used in tunneling work.
Loss or damage whilst in transit
War and Nuclear perils
Compulsory Excess:
-
For all Machinery under Group I,II,III,IV, including cranes above 10 tonne capacity under Group
III

EXCESSES
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 For claims arising
Value of equipments For claims arising out of out of perils other than AOG
AOG perils

Individual value upto Rs.1 10 % of S.I. Subject to a 2 % of S.I. subject to

lakh. minimum of Rs. 5,000/- minimum of Rs. 1,500/-

Individual value over Rs. 1 5 % of S.I. Subject to a 1.5 % of S.I. subject to

lakh and upto Rs. 5 lakh. minimum of Rs.10, 000/- minimum of Rs.2, 000/-

Individual value over Rs. 5 3 % of S.I. subject to a 1.25 % of S.I. subject to

lakh and upto Rs.10 lakhs. minimum of Rs. 25, 000/- minimum of Rs. 7,500/-

Individual value over Rs. 2 % of S.I. subject to a 1.00 % of S.I. subject to

10 lakhs upto Rs. 25 lakhs minimum of Rs. 30, 000/- minimum of Rs. 12, 500/-

Individual value over Rs. 1 % of S.I. Subject to a 1 % of S.I. Subject to a

25 lakhs upto Rs. 50 lakhs minimum of Rs. 50, 000/- minimum of Rs. 50, 000/-

Individual value over Rs. 1 % of S.I. Subject to a

50 lakhs minimum of Rs. 50, 000/- 1 % of S.I. Subject to a
minimum of Rs. 50, 000

Boom Section- 20 % of claim amount subject to minimum of Rs. 25, 000/-

For Machinery under Group V - Rs.2,500/- Flat. Excess.

SUM INSURED
On new ( current ) replacement value basis.
Escalation maximum to the tune of 20 25% can be opted by the insured.

BOILER AND PRESSURE PLANT INSURANCE(BPP)

Items covered: boilers and other pressure vessels (which generate pressure
during their normal operations)
Scope of cover:
Explosion and collapse damage , other than by fire ,to the boiler &/or other
pressure plant and to surrounding property of the insured.
Legal liability for death, bodily injuries or property of third party.

Sum insured
current replacement value of these items( to avoid under insurance).
Escalation maximum to the tune of 20 25% of s.i. can be opted by the insured.

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EXTENSIONS OF BPP POLICY:-
By payment of additional premium ,following risks be covered:
surrounding property damage
Damage to third party property,death/bodily injuries.

WARRANTIES:
Boiler and pressure plant comes in statutory regulations.
Following conditions specifically apply to BPP:
The insured boiler should be certified by boiler inspector for use. Otherwise the
premium rates to be loaded by 50%for the current session only.
Boilers being operated by persons holding valid certificates.
Permission to use the boiler from the authority(by the boiler inspector).
Rating:-basic rate is as per guidelines. additional premium be charged for
extensions like surrounding property damages, third party liability/property
damage, etc.
Exclusions:- loss or damage due to -
Fire and allied risks of standard fire policy,
Damage by chemical explosion except in recovery boilers and waste heat boiler.
Wear and tear, wasting of boiler materials.
4.failure of individual tubes

Compulsory Excess:

5% of claim amount subject to a minimum of Rs 10,000/-

MACHINERY LOSS OF PROFITS POLICY( MLOP)

This policy covers loss of gross profits (consequential losses) following breakdown
of machine/s due to accidental.
This may so happen that after breakdown of a critical machine the entire
manufacturing process comes to a halt .the actual cost for replacing the damaged
part may not be very huge but following losses may follow:
No profits as no production.
Standing expenses like salary, interest, rent, etc. Are to be paid (even after the
loss & stopage of production).
Extra money may be required to start production from an alternate place or with
some alternative machines on hire [which is known as increased cost of working
(icow) ].
All above losses are covered under machinery loss of profit insurance policy.
For claim to be paid in this policy, firstly the claim should be admitted in the
concurrent machinery insurance policy for breakdown (as per the material
damage proviso of mlop policy) .

Sum Insured:-
Sum insured is being fixed keeping in view the expected gross profit for year which is
equal to net profit plus all insured standing charges calculated on last years annual
a/c figures basis (i.e. This can be determined from gross profit of the previous year
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and including the trend for increase or decrease expected in current year of
underwriting).

Premium rate
This depends on-
Relative importance
(normally expressed in %) of the insured machines in relation to the final product &
in comparison to other machines. Stand-by machinery will reduce the relative
importance,the interruption period and the loss amount.

Indemnity Period
(defined as the maximum period of interruption following breakdown of insured
machines for which insurer is liable. This can be equal or less than the policy period)
i.e. The liability for payment of loss due to reduction in turnover/output during this
period only, is accepted by the insurer. Higher indemnity period means higher liability
for the insurers, hence higher premium. Repair facility( in-house/local) will reduce
quantum of loss in policy.
Time excess
Machinery Breakdown Loss of Profits (Standalone policy with MBD cover)-
14 days of Standard Gross profit

Exclusions
Time excess( for all loss of profit policies the stipulated deductible franchise are
always expressed in terms of number of days (i.e. The initial stipulated number of
days period, during which period the loss due to reduction in turnover/output has
always to be borne by the insureds).
Intangible losses such as loss of market/goodwill which are not insurable risks .
Alterations, improvements or overhauling made while repairing the insured
machines.
Willful or gross negligence of insured(s).

Deterioration of stocks insurance

This is also known as stock spoilage insurance policy.

This policy is a consequential loss policy and covers the risk of
deterioration/contamination following breakdown of refrigeration plant and
machinery.
Precondition for this dos insurance is , first there should be machinery insurance
cover for refrigeration plant and machinery of the cold storage.
There are two kinds of deterioration insurances:-
Insures stocks of fish, meat ,prawn ,frog-legs, various fruits (like apples/ oranges
etc.), cheese, dairy products, pharmaceutical drugs.this is known as dos(otp)
Insures stocks of potatoes in cold storage. This is also called dos(p) policy. pre-
acceptance inspection is a must.

D.o.s.: subject matter of inusrance

Contents of cold storages e.g.- potatoes and other than potatoes (fish, sea foods,
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 cheese, dairy products, fruits, etc.)
Risks covered contamination, putrefaction and/or deterioration following a
breakdown of refrigerating unit.
It is definitely a c.l. policy to m.i. policy issued to cold storage machineries.
Scope of cover of dos policy
Loss to contents of cold storages caused by:-
Damage to any cold storage machinery by accidental means subject to
admissibility of the claim under m.i. policy covering the cold storage machines.
rise or fall in temperature at the cold storage chamber resulting from breakdown
of refrigerating machinery.
Minimum rate of d.o.s.(p)
The minimum period for which the policy shall be issued is 7 months.
For any period less than 7 months, the minimum rate to be charged will be as
under : (a) in respect of cold storages which have opted for foes
extension rs. 0.84% ( i.e. Rate with foes is rs.0.12% per month).
- in respect of cold storage which have not opted for foes-rs. 0.70% (i.e.
Rate w/o foes is rs. 0.10% per month).

DETERIORATION OF STOCKS INSURANCE

Sum insured :

Maximum value of stocks in the

cold storage at any one time.

EXTENTION
failure of electrical supply -
at terminal end due to machinery breakdown -
at local supply place.
(excluding rationing, fuel shortage etc.)
D.o.s.-losses not covered
Exclusion:- following losses are not covered-
Shrinkage, inherent defects or disease
Improper storage, damage to packing material,
Insufficient circulation of air,
Willful act on part of insured or his representative.
Excess or deductible franchise as stipulated in the policy

INDEMNITY:-
Market value of the stocks at the time of loss.
Rates of dos ( potato)
Rates for deterioration of stocks insurance for cold storage plants
- for cold storages which have opted for foes extension the rate will be
0.12% per month or part thereof.
- for cold storages which have not opted for foes extension the rate will be
0.10% per month or part thereof.
note : these rates are to be charged on the sum insured i.e. The value of the
goods obtained by multiplying the actual storage capacity
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Special Conditions-1
Compulsory excess in two slabs-
Without f.o.e.s. extension &
With f.o.e.s. extention
Special conditions:-
Pre acceptance inspection for
the concurrent machinery insurance policy as well as for d.o.s. insurance.
Careful underwriting in view of huge loss potential

Special Condition-2
Pre acceptance inspection is a must.
Detailed inspection report by co. Engineer.
Mid- term inspection if dos claim occurs.
Owner of cold storage to maintain log book for critical machines at least for
compressors with records of temperature & humidity in different floors in
prescribed form.
Stock register- declaration of stocks levels periodically.

EXCESSES APPLICABLE
In respect of those cold storages which have not opted for foes extension - 10% of
the claim amount subject to a minimum of rs.20,000/-.
In respect of those cold storages which have opted for foes extension -
20% of the claim amount subject to a minimum of rs.20,000/-.
The following deductible franchises are in addition to franchise for lack of spare
parts as follows :
Compressors:- rs. 1000/-
Diffusers:- rs. 750/-
Diffusermotors:- rs. 750/-
Expansion valves:- rs. 500/-

ELECTRONIC EQUIPMENT INSURANCE

Objects covered:computers,bio-medical equipments,x-ray equipments, audio /
video equipments, epbax,various medical / equipments like scanners,e.c.g. etc.
This is an all risks policy and covers namely the following risks:-
Damage due to carelessness, negligence of employees
Fire, lightning, explosion, flood , storm ,earthquake etc
damage due to moisture and humidity.
Riot, strike, malicious damage
Burglary, housebreaking or theft.
Electrical, mechanical breakdown.

THIS POLICY COMPRISE OF THREE SECTIONS:-

Section-1
Cover material damage to equipments only i.e. Physical/tangible part of machines
with auxiliaries like cpu,vdu(monitors),printers, key-board, speakers, external
modems even the items which provide the computer environment like room air-
conditioners, upss, voltage stabilizers all such items are insured against above
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 risks.
Section-2
Cover material damage to external data media. The sum insured shall be the
amount required for replacing lost or damaged data media by new material and
for reproducing lost information only for back-up data but not for master data.
Section-3
Covers increased cost of working following breakdown of equipments as covered
under section i. The additional cost may be for using substitute edp equipment,
for personal expenses and cost of transportation of materials.

Premium rate is rs. 1.00 % with annual maintenance contract.

Otherwise in the absence of amc the premium will be loaded by:- 50% loading for
equipments with individual sum insured upto rs.1lakh & 100% loading for
equipments with sum insured above rs.1iakh.
For personal computers with sum insured upto rs.1lakh, maintenance agreement
warranty is waived.

Excess deductible under eei policy for m/c s.i.<rs.1 lac:

For sum insured of individual machine value upto rs. 1 lac:-5% of the claim
amount subject to minimum of rs.2,500/- for normal claims.
10% of the claim amount subject to minimum of rs.2,500/- for winchester drive &
hard disk claims.
Excess deductible under eei policy for m/c > rs. 1 lac:

For sum insured of individual machine value above rs. 1 lac:- 5% of the claim
amount subject to minimum of rs 2,500/- for normal claims.
- 25% of the claim amount subject to minimum of rs 10,000/- for winchester
drive & hard disk claims.

Technical survey : is conducted of all electronic equipments and computer

installations. This insurance cover is given only fort those equipments which have
completed at least 3 months trouble free operations.

Escalation maximum to the tune of 20 25% can be opted by the insured.

EXCLUSIONS
Loss /damage due to
Wear and tear,
Defects for which manufacturer is responsible.
Due to willful act of insured.
War, invasion and allied risks
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 Loss or damage to bulbs, valves, tubes etc.
Consequential loss of any kind in section ii of policy. Any cost arising from false
programming, punching or inadvertent canceling of information etc
For claims under e.e.i. policy:-

Material damage
Repairs:-indemnity is cost of repairs plus the cost of dismantling and re-
erection.no deduction for depreciation for parts with unlimited life in case of
repairs (i.e. For partial loss ). The cost of any alterations, improvements or
overhauls shall not be recoverable under the policy.
For claims under e.e.i. policy:-
External data media for floppies, discs etc.
Indemnity is for all expenses within a period of 12 months from the date of
loss.expenses incurred will be for restoring the insured external data media to a
pre loss condition.as from the date of loss , the sum insured shall be reduced for
balance policy period unless the sum insured is reinstated.
Increased cost of working
Indemnify the additional expenditure following admissible loss in policy. This may
be in terms of hiring additional machines or for using new premises to carry out
the work at higher cost.

RATING
Rate : section i and section ii @ 1.00%
If annual maintenance agreement is not executed the premium will be loaded by
100%. If annual maintenance agreement is not executed but the insured has got
sufficient in-house facilities for proper maintenance of the equipments of the
equipments, the premium will be loaded by 50% only. For p.c. no loading.

DISCOUNT FOR FIRE INSURANCE:

for equipments covered under e.e.i. policy as also under fire policy with all
extensions : a discount of 10% of the applicable e.e.i. rate (for sec.-i only);
without any extension or with some extensions only under fire policy: 5%
discount on fire rate (for sec.-i only) .

ADVANCE LOSS OF PROFITS POLICY (ALOP )

Advance consequential loss insurance or loss of profit policy are issued only to the
principals/owner of the project, in advance of the actual commencement of
business for delay in commencement of the project .
This alop policy covers financial loss due to delay in start of project (because of
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 loss/damage to the project arising out of the insured peril of the project policy
during transit /storage/erection/ commissioning phase of the project).

Warranty
It is warranted that the maintenance agreement in force at the inception of this
policy is maintained during the currency of this policy and no variation in the
terms of the agreement shall be made without the written consent of the
company being obtained.
For the purpose of this warranty the word maintenance shall mean the following
-

Safety checks,
Preventive maintenance
Rectification of loss or damage or faults arising from normal operation as well as
from ageing.
Claims in this policy are paid when material damage losses are admissible in
terms of project insurance policies like sce / mce or car.
Other name of this policy is "delay in start up policy".
This cover shall indemnify the insured i.r.o. Loss of standing charges (debt service
+ fixed cost) & net profit actually sustained due to the actual turnover falling
short of the targeted turnover which would have been achieved had the delay in
project commissioning not occurred subject to md proviso.

SCOPE OF COVER PRINCIPAL/OWNER

Loss of gross profit
(also covers any loss minimizing expenses up to the costs thereby avoided)
Due to delay in project commissioning
and
Increase in cost of working
(subject to limit of savings in profit)

DSU- PRINCIPAL
(narration of scope of cover)
This cover shall indemnify the insured in respect of loss of standing charges (debt
service + fixed cost) & net profit actually sustained due to the actual turnover
falling short of the targeted turnover which would have been achieved had the
delay in project commissioning not occurred subject to md proviso.

SCOPE OF COVER CONTRACTOR

In built/operate/transfer ( b.o.t.) contract
interest on retention money.
salary & wages of employees for maintenance of
- site facilities for extended period.
additional higher charges for construction, plant
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 - & machinery.
extension premium for project policy.
loss of revenue (for bot projects).
Dsu terminology
Indemnity period and time excess.
Standing charges.
Turnover.
Gross profit.
Rate of gross profit (gross profit : turnover).
Rating- alop(m.d.- ear/ car) _
(100% r. I. Dependent)

Depends upon
Indemnity period & time excess
Project/ plant capacity
Specification of major equipments
Implementation schedule and buffer time in-built
Reliability of technology used - prototype or time tested ?
Inventory of spare parts
Imported or indigenous equipments
Maximum expected project down time period

Rating - marine (alop)

(ri dependent)
Depends upon :
Indemnity period & time excess.
Specification of major equipments.
Imported or indigenous origin.
Maximum expected replacement time of major equipment.
Project equipment delivery schedule.

TIME EXCESS DSU

(ri dependent)
generally of the order of 30/45/60/90 days
(minimum t.e. is project period specific)
Dsu extension
Suppliers premises.
Accidental failure of public electricity supply.
Special points to be remembered :

INSURED & UN-INSURED DELAY :

reasons for all delay would be ascertained and only the delay caused by an indemnifiable
event & indemnifiable in material damage erection policy is covered.

EXTENSION OF PERIOD :
Any extension of the period of insurance under the ear section the policy shall not
automatically lead to an extension of the period of insurance of the alop policy.
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 Basis of loss settlement :
Reduction in turnover
Rate of gross profit
Increased cost of working
Advance lop
Exclusions
Deductible stated in the schedule.
Any interference in the work directly or indirectly due to the following :-
- Loss or damage covered under material damage policy unless specifically
agreed,
- Loss or damage to surrounding properties,
- Loss or damage due to e.g. , volcanic eruption, falling of meteor, etc,
Loss or damage to the prototype nature of work
Loss or damage due to operating media such as fuels, chemicals, catalysts, filter
substances, heat transfer media and lubricants etc.

Exclusions

Consequential loss of any kind such as penalties, lack of performance, loss of

contract, fines for breach of contract etc.
Exclusions
Shortage, deterioration or damage to any materials.
Any restriction or reconstruction or operations imposed by public authority.
Alterations, additions, improvements, rectifications to eliminate the deficiencies
Non-availability of funds for repair or replacement of damaged items.
Basis of premium rating
Amount of sum insured
Excess and indemnity period limit
The type of project
General and special risk involved
The loss prevention measures and fire fighting facilities provided during
construction.
Relative importance.
The reserve capacities.
The repair facilities.
Major spare parts availability
What we require from insured
Details of contractors when selected
Detailed sequence of works
of erection/ construction
Bar chart
Geological reports
- Ground conditions
- Soil investigations
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 - Seismology reports
- Nature of piling activities/ foundations
- Site protection to avoid flooding
- Nearby seas, rivers, lakes
- History of flooding
- Preventive measures
- Drainage etc.
- Wet works

WHAT WE REQUIRE FROM INSURED-2

Fire fighting facilities provided
Full technical details
Confirmation that no unproven / prototypical equipment is involved
Detailed site location plot plan showing proximity to existing units/ habitations
Premium rating
Tariffed- upto sum insured of rs 1500 cr.
Beyond rs1500 cr- it is re-insurance driven.
Instalment facility available for premium payment.
Alop (underwriting suggessions)
To include following add-on covers:
-third party legal liability including cross liability
-extended maintenance cover
-design defect cover
-escalation clause

Policy suggested with voluntary deductibles

CLAIM PROCEDURE
In the event of loss
- Notify company immediately (within 14 days)
- Initiate action to minimise the extent of loss
- Preserve damaged parts for inspection
- Furnish following information/ documents
Completed claim form
Repair bill, photographs
Replacement invoice, bills
Police/fire brigade/met. Report
Fir, final/ internal investigation report

COVER
Max. Si/ si per day=
Rate of standing charges to shortfall in production
&
Increase in cost of working due to insured perils.
Perils covered
Physical loss/ damage to cargo
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 Loss of mechanical breakdown or damage to the hull & machinery.( as if insured
under hull clauses- voyage or aircraft all risks policy)
Loss of,mechanical breakdown of , or damage to other conveyance on which
property is conveyed.
G.a., salvage or life saving operations.
Duration
Ware house to ware house
Including ordinary course of transit, &
Incidental storages if agreed

EXCLUSIONS
Material damage.
Un satisfactory repairs, from clients viewpoint causing delays and consequential
losses.provided such repairs are proper as per the surveyors./ classification
societies.

CLAIMS
Supporting papers and evidences to be given by the insured.
In case of loss/ damage notice also to be given to lop underwriters.
If start up date is delayed due to un insured peril, the next claim(insured peril)
will start from the delayed date and not the original date.

SPECIAL CONDITIONS
Compulsory insurance of cargo under customary marine insurance
policy.(including war and strikes)
The despatch to be made by vessel confirming to the institute classification
clause, otherwise insurers consent required.
Definitions of terms on expected basis against the actual- expected net profit
etc.

There are two other policies

Some part of the compulsory portion & the only optional portion of the policy
involves some cover from various engineering insurance policies and the policy
is known as

INDUSTRIAL ALL RISKS INSURANCE

The second policy covers the civil engineering subject matter but the policy is
nothing but the wider form of cover of standard fire policy and the polcy is known
as civil engineering completed risks
insurance
BULLET QUESTIONS
Steps to be taken while extending an expired Project Insurance Policy.

To ascertain reasons why the policy was not extended although the project is not completed.

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 To find out whether there was any loss after the expiry of the policy.

If there is no loss and the reasons explained by the Insured for not extending the expired
policy is satisfactory; the proposal may be considered.

The Insurance Company will arrange a pre-acceptance inspection by a qualified engineer to

evaluate the project in terms of percentage completion as well as the quality of project work.

The sum insured in that case will be reckoned as of incomplete percentage on 100% project
cost.

If the report of the inspecting engineer is not a qualifying report, the extension of Insurance
may be considered.

Accordingly, the Insurance premium bill will be raised at the initial project premium rate but
the premium amount will have to be paid on the sum insured stated above from the date of
expiry of the policy.

If there is a loss, the Insurance Company will impose additional deductible with a specific
condition that for the earlier loss the company will have no liability.

If all the conditions are satisfactory the company will issue the endorsement extending the
policy after receipt of the premium.

List out the limitations of the fire consequential loss policy.

Under Insurance against property damage under fire policies

Difference between the value of stock at the time of fire and the value at the time of
replacement

Undamaged stock in the fire

Cost of preparation of fire and consequential loss claims

Litigation costs

Third party claims

Failure to recover book debts owing to destruction of records

Loss of good will

Deterioration of spoilage of goods of perishable nature or goods in process not damaged by

fire

Fines and penalties payable due to delayed fulfillment or cancellation of sale/ service contract

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Escalation clause in Fire Insurance Policy

Insurance may allow automatic regular increase in the sum insured throughout the period of
the policy in return for an additional premium to be paid in advance.

Selected percentage increase shall not exceed 25% of the sum insured.

The sum insured at any point of time would be assessed after application of the Escalation
clause.

Escalation clauses apply to policies on building, machinery and accessories only but not to
policies covering stock.

Escalation clause will apply to all policies and is not restricted to policies issued on
reinstatement value basis.

Pro-rata condition of average will continue to apply as usual.

Automatic increase operates from the date of inception up to the date of operation of any of
the insured perils.

Fire Floater Policy

Floater Policy can be issued for stocks at various locations under one SI with Floater clause.

Unspecified locations not allowed

Rate shall be highest rate applicable to any location with 10% additional floater charge.

In case of stocks in a process block are covered in floater policy and rate under process block
is higher than the storage risk, the process rate plus 10%.

If stocks situated within go downs/ process blocks in the same compound, no floater extra is
chargeable.

At all times during the currency of the policy, the insured should have a good internal audit
and accounting system.

What are the Add On covers available under the standard fire policy.

Architect/ Surveyors/ Engineer fee in excess of 3% of claimant

Removal of debris in excess of 1% of the claim amount

Deterioration of stock due to power failure in cold storage due to loss/ damage to cold
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 storage machinery

Forest fire

Impact damages due to insureds own rail/ road vehicles/ lifts etc.

Spontaneous combustion

Omission to insure additions/ alterations

Earthquake

Leakage and contamination

Temporary removal of stocks

Additional expenses of rent for alternative accommodation

Start up expenses

MODEL QUESTIONS
1. Which one of the following is a mega risk?

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 (a) A petroleum refinery with sum insured Rs 3000 cr

(b) An organization having 25 different location with overall SI of Rs 2500 cr

(c) A power plant with sum insured Rs 2000 cr

(d) A fertilizer plant with SI of Rs 600 cr

2. Silent risk under fire policy in manufacturing premises are treated as silent risk
when

(a) The factory is closed for 1 week continuously

(b) The factory is closed for 15 days continuously

(c) The factory is closed for 30 days or more continuously

(d) None of the above

3. Please indicate which of the following statements is true.

(a) Tsunami is a peril covered in standard fire policy

(b) Fire policies are agreed value policies

(c) Stocks can be covered with replacement value clauses

4. Which one of the considerations are not taken into account for processing fire
claims:

(a) Condition of average

(b) Breach of warranty

(c) Confirmation of Surveyor about verification of books of accounts

(d) Distance from fire station

5. Which will be treated as Hazardous goods under Fire and special perils policy?

(a) Methylated spirits

(b) Common salt

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 (c) Sodium carbonate

(d) Sugar

6. Long term Fire Policy can be issued for dwellings

(a) For minimum period of 2 years

(b) For minimum period of 3 years

(c) For minimum period of 5 years

(d) None of the above

7. Following Add on covers are not available in standard fire Special Perils Policy

(a) Spontaneous combustion

(b) Loss of rent clause

(c) Start up expenses

(d) None of the above

8. Which of the following losses is not covered under fire insurance policy?

(a) Process losses

(b) Impact Damage

(c) Missile testing operations

(d) Aircraft damage

9. In consequential Loss(Fire) Insurance policy, the sum insured is arrived at by

(a) All standing charges plus net profit

(b) Specified standing charges plus net profit

(c) Only net profit

(d) None of the above

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10. Subsidence and landslide loss covers

(a) Coastal and River Erosion

(b) Visible physical damage to property

(c) Defective design

(d) Demolition by government authority

11. Standard Fire Policy contains the following number of conditions

(a) 13

(b) 14

(c) 15

(d) 16

12. As per AIFT how many earthquake zones are available?

(a) 3

(b) 4

(c) 5

(d) 6

13. Loss or damage to property caused by sprinkler leakage is covered under Fire
Policy if leakage is caused by

(a) Heat due to fire

(b) Leakage due to repair or alteration to the building or premises

(c) Loss or damage to property caused by sprinkler installation

(d) Sprinkler installation by either repaired or extended

14. Stock is divided into how many categories for spontaneous combustion cover

(a) 3

(b) 4

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 (c) 5

(d) 6

15. Which of the following risks is not considered as add on cover?

(a) Spontaneous combustion

(b) Lightning

(c) Earthquake

(d) Startup expenses

16. What is meant by spontaneous combustion?

a) Charring due to self heating

b) Spread of fire

c) Change of color or deterioration in quality due to self heat

d) Loss or damage due to fire caused by own fermentation or natural heating

17. Reinstatement value policy can be issued for

a) Stock in process

b) Building

c) Stock in go down

d) None of the above

18. Standard Fire policy covers

a) Loss due to explosion of boiler

b) Loss due to explosion of domestic boiler

c) And (b)

d) None of the above

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 19. Terrorism cover under fire policy can be granted on First loss limit up to

a) Rs. 200 crore

b) Rs. 300 crore

c) Rs. 500 crore

d) Rs. 600 crore

20. Declaration Policy has minimum SI of

a) Rs. 5 Crores

b) Rs. 10 Crores

c) Rs. 1 crore

d) Rs. 0.50 crore

21. Declaration policy can be issued

a) For short period

b) Stocks undergoing process

c) Stocks in Rly Slidings

d) Fluctuation in stock

22. Minimum SI for floater declaration policy

a) Rs. 5 Crores

b) Rs. 10 Crores

c) Rs. 15 Crores

d) Rs. 2 Crores

23. Co-Insurance in Fire Policies pertain to

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a) SI distributed over no. of locations

b) Policy shared amongst various insurers

c) Double insurance

d) Insured opting for an higher excess

24. Reinstatement value policy can be given to

a) Stocks

b) Building, Plant & machinery

c) Stock in process

d) All the above

25. Which of the following statements is incorrect under fire policy subject to
agreed bank clause?

a) Material change in risk does not affect the interest of the Banker

b) Valued policies can be issued whose mkt. value cannot be ascertained

c) In multiple occupancy building per se ratings is permitted

d) Insurable interest does not automatically pass onto the legal heir

26. Ex-gratia settlement in fire policies are

a) Under Insurance

b) Loss outside the ambit of the policy

c) Contribution

d) Subrogation

27. Policy wording after 01/01/2007 cannot be altered earlier than

a) 30.06.2007

b) 30.09.2007

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c) 01.04.2008

d) 31.12.2007

28. Project Policies are

a) All Risk

b) Named Perils

c) Consequential Loss

d) Agreed value

29. Fire Business is U/W on the basis of

a) Long tail liability

b) Loss Reserve

c) Profit Margin

d) Probable Maximum Loss

30. Percentage of obligatory cession to GIC is

a) 30

b) 20

c) 15

d) 10

31. CPM is

a) Coverage all risk policy with inclusion of breakdown

b) All risk policy with exclusion of breakdown

c) Self propelled machineries on public/Private Road

d) None of the above

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 32. FOES is an extension under:

a) CPM

b) CAR

c) DOS

d) MBO

33. DSU stands for

a) Delay in start up insurance

b) Derivatives stock units

c) Dead stock under insurance

d) Diluted stock undertaking

34. A machine worth Rs. 40,000/- insured for Rs. 30,000/- under Fire Policy. It was
damaged due to fire and the amount assessed in Rs. 16,000/- . The claim payable is:

a) Rs. 30,000/-

b) Rs. 12,000/-

c) Rs. 16,000/-

d) Rs. 40,000/-

35. Material damage proviso under the consequential loss (Fire Insurance) means:

a) Claims admissible under standard Fire and Special Perils Policy

b) Occurrence of the loss

c) Loss discovered during stock taking

d) Loss of goodwill

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 36. In an LOP policy, Auditor fees is

a) An Extension

b) A built in cover

c) A part of standing charges

d) Not to be covered

37. Fire at suppliers premises can be a part of

a) a Material Damage Fire policy

b) An LOP policy

c) Is a stand alone policy

d) Has no relevance

38. Common utilities outside the premises can be

a) Rated per se

b) Rated as per the main risk

c) Highest rate to apply

d) Insured separately

39. Storage of Hazardous chemical upto 5% of value at risk

a) Does not affect a claim

b) Renders a claim non-standard

c) Renders a claim as no claim

d) Can be covered after collection of extra premium

40. Cracks appearing in a building on account of subsidence of land below

a) Fire Policy will cover the loss without any extension

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b) Claim is payable on repair basis

c) Claim is not payable

d) Fire policy would have covered the claim had an extension been taken.

41. A dish antenna(Covered under fire policy) breaks as a monkey jumps on it

a) The claim is payable

b) The claim is not payable

c) The claim is payable as non standard

d) Some other insurance should have been taken

42. The adjustment of sum insured in EAR policy is not done in respect of

a) Freight and Handling charges

b) Custom duties

c) Cost of erection

d) Increase or decrease in cost of contractors plant and machinery

43. Standby machinery in MBD is

a) Not covered

b) Covered at a discount of 50% in rate

c) Discount of 75%

d) Only covered when it is put to use

44. Preliminary investigation of loss under Fire Policy includes

a) Whether the loss caused by an insured peril

b) Whether the damaged is covered under the policy

c) Whether adjacent property is damaged

d) All of the above

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 45. It is not the duty of the insured in the event of a claim under a fire policy to

a) Save as much as possible of the insured property

b) Take all reasonable steps to extinguish the fire

c) Shift the operations immediately

d) Diminish their loss

46. If the insured proposes to get add on cover for STFI during the middle of the
policy

a) The same cannot be covered

b) The same can be covered

c) Covered with a waiting period of 15 days

d) Covered with a waiting period of 30 days

47. Ultra sound machines can be covered under

a) Machinery Breakdown Policy

b) Electronic Equipment Policy

c) Any of (a) & (b)

d) None of (a) & (b)

48. Fire policy covers

a) 12 named perils

b) Unnamed peril policy

c) All risk policy

d) None of the above

49. Basis of settlement in Fire policy can be

a) Market value basis only

b) Reinstatement value basis only

c) Market value or reinstatement value basis

d) None of the above

50. For a RIV Policy the insured has to give his concurrence for settlement at

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 market value basis

a) On day of loss

b) Within 12 months from date of loss

c) Within 180 days from date of loss

d) Not at all

51. Sum Insured on Reinstatement value policy should show

a) Cost or rebuilding the subject matter on date of loss

b) Cost of reinstatement of subject matter at time of taking policy

c) Cost of rebuilding subject matter less depreciation on age on date of loss

d) None of the above

52. Indemnification for stocks in Fire policy is based on

a) Invoice value

b) Market value or cost whichever is less

c) Reinstatement value

d) Book value

53. The material damage proviso under FLOP policy states that

a) Loss under LOP is admitted only after there is a loss under the fire material damage
policy

b) The loss of profit policy is independent from the fire material damage policy

c) The loss under Fire and LOP policies cannot exceed the S.I. under fire policy

d) None of the above

54. The basis rate under Fire LOP policy is based on

a) The average rate of the process blocks under the Fire policy

b) The average rate of all blocks under Fire policy

c) A separate rate for selected block as per FLOP tariff

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d) None of the above

55. The FLOP policy covers

a) Loss of profit due to reduction in turnover during indemnity period

b) Loss of profit during the financial year

c) Loss of turnover due to fire

d) None of the above

56. The gross profit insured under FLOP policy would cover

a) Net Profit

b) Standing Charges

c) Both the above

d) None of the above

57. For covering marine portion under an MCE policy you would require
information

a) S.I. for Inland transit

b) S.I. for overseas transit

c) Both the above

d) None of the above

58. Industrial All Risk policy allows under insurance up to

a) 15% of Sum Insured

b) 20% of Sum Insured

c) No allowance for under insurance

d) Underinsurance to be computed as per fire tariff

59. The advanced loss of profit policy covers

a) Loss of projected profit due to interruption of project by an insured peril

b) Loss of turnover after the commencement of project

c) Loss of projected profit due to non-completion of project

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d) Due to insolvency

60. Rating under Petrochemical tariff is based on

a) Material factor of the raw materials and hold up capacity

b) Pressure and temperatures

c) None of the above

d) Both 1 & 2 above

61. Facility of installment premium is available for project policies if the project
periods exceeds

a) 12 months

b) 15 months

c) 18 months

d) 24 months

62. Which one of the following could not be the basis of valuation of Fire insurance

a) Market value basis

b) RIV basis

c) Contract price basis

d) Original cost basis

63. Standard Fire Policy doesnt cover

a) Fire

b) Spontaneous combustion

c) Lighting

d) Aircraft damage

64. Fire policies can be issued for a period of more than 12 months in the following
case

a) Shops

b) Factory

c) Dwelling

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d) Godown

65. Issue of Fire declaration policy is not possible for

a) Raw material

b) Finished goods

c) Process stock

d) None of the above

66. The maximum possible refund under a fire declaration policy is

a) 60%

b) 50%

c) 40%

d) 30%

67. Under Std. Fire & special perils policy debris removal upto 1% of the SI can be
covered at an additional premium of

a) 15%

b) 10%

c) 5%

d) Nil

68. In a fire floater policy the minimum sum insured at one location should not be
less than

a) 50%

b) 25%

c) 10%

d) None of the above

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 69. In which of the following is not applicable in a RIV policy

a) Designation of property

b) Under insurance

c) Depreciation

d) Salvage value

70. In Fire LOP policies, indemnity period means

a) Specified policy period

b) Specified interruption period opted

c) Specified reinstatement period

d) None of the above

71. Unless specified, Fire insurance policy covers works of Art up to a limit of

a) Rs. 10,000

b) Rs. 15,000

c) Rs. 5000

d) None

72. Loss due to flood on account of Tsunami is covered only when

a) STF I cover is not deleted

b) Add on cover EQ is opted

c) RSMD is not deleted

d) a & b above

73. A fire policy on residence attracts an excess of

a) Rs. 10,000

b) Rs. 20,000

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c) Rs. 5,000

d) Nil

74. A CAR policy can be issued where civil work in a project is more than

a) 60%

b) 50%

c) 40%

d) 25%

75. Which one of the following is not underwritten in Engg. Dept.

a) CAR

b) EAR

c) IAR

d) CECR

76. Which policy is not issued for a period of more than 12 months

a) CAR

b) MCE

c) SCE

d) CPM

77. Which equipment cannot be covered under EEI policy

a) Personal Computer

b) Laptop

c) Sonography

d) MRI Scanner Equipments

78. Excess is not applicable is case of

a) EAR policy

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b) EEI policy

c) Boiler & Pressure plant policy

d) MBD policy

79. Which of the following is not an add on cover under a project policy

a) Surrounding property

b) Third party liability

c) Off site storage and fabrication

d) Debris of uninsured property

80. Terrorism pool is managed by

a) Head office of companies

b) Reinsurance committee

c) GIC

d) IRDA

81. In which of the following testing is an inbuilt cover

a) CAR

b) CECR

c) EAR

d) MBD

82. Maximum permissible escalation under an EAR policy is

a) 25%

b) 50%

c) 75%

d) None

83. Which of the following is not a standing charge for LOP/ ALOP

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8
a) Insurance premium

b) Advertisement & publicity

c) Rent and Tenants

d) Raw material cost

84. Time Excess under MLOP policy is

a) Three days

b) Seven days

c) Ten days

d) None

85. How many classified group of machineries available under CPM policy?

a) Seven

b) Five

c) Ten

d) Three

86. Mobile construction equipments can be covered under

a) Motor Policy

b) CAR Policy

c) CPM Policy

d) Both a & c

87. Fire Material damage policy does not cover

a) Furniture & Fixtures

b) Stock

c) Standing Charges

d) Stock in process

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 88. The word CONDITION OF AVERAGE is associated with

a) SUBROGATION

b) CONTRIBUTION

c) UNDER INSURANCE

d) REINSURANCE

89. PML means

a) Probable Maximum Loss

b) Probable Minimum Loss

c) Possible Minimum Loss

d) Probable Maximum Loss

90. F.E.A. means

a) Fire Eliminating Application

b) Fire Extinguishing Appliances

c) Fire Electrical Appliance

d) Fire Equipments Allowance

91. AOG peril does not include

a) Terrorism

b) Earthquake

c) Flood

d) Inundation

92. Fire Policy does not cover

a) RSDMD

b) Electrical/ Mechanical Breakdown

c) Terrorism

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d) AOG peril

93. In the event of a claim under FIRE Policy

a) Sum Insured is reduced by the amount of claim

b) Sum Insured is reduced by amount intimated

c) Sum Insured is not reduced at all

d) None

94. Under EAR policy Cold Testing means

a) Plant is situated at cold place

b) Checking of parts under cold condition

c) Testing of parts under No Load condition

d) Testing of parts under full load conditions

95. HOT Testing under EAR policy means

a) Plant is situated at hot place

b) Checking of parts under hot condition

c) Testing of parts under full or partial load

d) Testing of parts under full load conditions

96. Annual Gross profit means

a) Net profits plus standing charges

b) Turnover minus variable cost

c) None of the above

d) Both of a and b

97. The force which causes the current to flow through circuit is known as

a) Electro-magnetic Force (EMF)

b) Watt

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c) Horsepower

d) None of the above

98. Certain discount may be given in electric equipment policy if the same property
covered under Fire Policy

a) 5%

b) 10%

c) 25%

d) 50%

99. Selection of sum insured under Fire policy

a) Can be allowed

b) Can be allowed only after charging short period premium rate

c) Cannot be allowed

d) None of the above

100. Local Authorities clause under Fire policy is applicable under

a) Declaration policy

b) Standard Fire policy

c) Reinstatement value policy

d) Floater Declaration policy

101. Peril is

a) A cause of loss

b) A degree of loss

c) System to reduce the loss

d) None of the above

102. Without prejudice mean

a) Proof of admission of liability

b) Proof of non-admission of liability

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c) Both a & b above

d) None of the above

103. Ejusdem generics rule means

a) Of different kind

b) Of same kind

c) None of the above

d) Both of the above

104. Which of the following is operational phase policy and not construction phase
policy under engineering insurance

a) Contractors All Risk

b) Electronic Equipment

c) Erection All Risk

d) Marine-cum-Erection

105. Machinery Loss of Profits Policy (MLOP) does not provide indemnity against
which one of the following

a) Loss of net profit

b) Insured standing charges

c) Increased cost of working

d) Civil engineering works

106. Which of the following perils form part of the basic package of standard fire
and special perils policy

a) Earthquake

b) STFI

c) Spontaneous combustion

d) Leakage & Contamination

107. STFI peril can be deleted from Standard Fire Policy

a) At inception only

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b) After 3 months from the issuance of policy

c) Can be deleted any time during the currency of policy

d) Cannot be deleted at all

108. If a policy is cancelled at the option of insured

a) Premium adjustment is made on pro-rata basis

b) Premium cannot be refunded

c) Premium adjustment is made on short period basis

d) Policy cannot be cancelled by the insured

109. Which of the following peril is not wind related

a) Storm

b) Inundation

c) Cyclone

d) Hurricane

110. Rates for 5 months short period insurance

a) 40%

b) 50%

c) 60%

d) 70%

111. Cancellation at the option of insured the premium retained by one of the
following method

a) Short period scale

b) Pro-rata basis

c) 50% of premium should be retained

d) No refund of premium

112. Silent rates allowed for the one of the Fire Tariff Section

a) Section I

b) Section II

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c) Section IV

d) Section VIII

113. Fire declaration policy cannot be issued for the one of the following items

a) Stock

b) Stock in process

c) Raw materials

d) Finished goods

114. FEA discount can be granted by one of the following methods. Choose the
correct one

a) Mere installation of FEA

b) Inspection of company engineers/accredited engineers/ agencies by IRDA

c) Insurer can grant at their wishes

d) None of the above

115. The sum insured at any one location for issuing Mega risk policy is:

a) Rs. 5000 crores

b) Rs. 10000 crores

c) Rs. 12000 crores

d) None of the above amount

116.The Fire Policy covers the following perils except one on payment of additional
premium

a) Earthquake

b) Architects etc. feels

c) Debris removal

d) Forest fire

117. The one of the peril not covered under the basic fire policy

a) Damage by smoke and heat of the fire

b) Damage caused deliberately or accidentally by fire-brigades in the discharge of their

duties

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c) Damage to property removed from a burning building caused by exposure to weather

d) Destruction or damage to property insured by its own fermentation or spontaneous

combustion

118. Exgratia settlements are made by

a) Claim settlement authority

b) One step above

c) Regional claims committee

d) Board of Directors

119. Compulsory excess and A.O.G. excess are not applicable to fire policy issued to
following properties

a) Power Plant

b) Cloth Shop

c) Textile Factor

d) Dwellings

120. Excess in Fire policy is

a) Different amount of excess for fire peril & AOG peril

b) Same amount of excess for fire perils & AOG peril

c) The same percentage of excess for the peril & AOG peril

d) None of the above

121. Which of the following policy normally cover lift cranes, Material handling
plant and equipment in the construction and project sites

a) Contractor Plant & Machinery

b) Contractor All Risk

c) Marine cum erection policy

d) Erection All Risk

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 KEY MODEL QUESTIONS
1. A

2. C

3. A

4. D

5. A

6. B

7. D

8. A

9. B

10.B

11.D

12.B

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7
13.C

14.B

15.B

16.D

17.B

18.B

19.C

20.C

21.D

22.D

23.B

24.B

25.A

26.B

27.C

28.A

29.D

30.C

31.B

32.C

33.A

34.B

35.A

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8
36.A

37.B

38.A

39.A

40.C

41.A

42.D

43.B

44.D

45.C

46.C

47.B

48.A

49.C

50.B

51.A

52.B

53.A

54.A

55.A

56.C

57.C

58.A

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9
59.A

60.D

61.A

62.D

63.B

64.C

65.C

66.B

67.D

68.C

69.C

70.B

71.A

72.B

73.D

74.B

75.C

76.D

77.B

78.C

79.D

80.C

81.C

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0
0
82.B

83.D

84.B

85.B

86.D

87.C

88.C

89.A

90.B

91.A

92.B

93.A

94.C

95.D

96.A

97.A

98.A

99.C

100. C

101. A

102. D

103. B

104. B

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1
105. D

106. B

107. A

108. C

109. B

110. C

111. A

112. C

113. B

114. B

115. B

116. D

117. D

118. D

119. D

120. A
121. A

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2
CASE STUDY (1):
A fire claim was settled by the Competent Authority for Rs.80.00 lacs under
Agreed Bank Clause and loss voucher was ready but not issued. In the
meantime a third party who supplied some materials to the insured, was not
paid their dues, filed a suit in the High Court against the insured with a prayer
that their dues may be please be paid to them direct from the amount of
insurance claim and balance to be paid to the insured. The Honble High court
issued an injunction served to the insured baring the taking of claim amount
from insurance company before the dues paid to the supplier. This copy of
injunction under such case came to the Insurance Co. as well as concerned
Bank for their necessary action.

What would be your stand point?

CASE STUDY (2) :

A fire policy was issued to M/s. ABC & Co. covering stock for Rs. 10.00 lacs
which was gutted by fire. While assessing the loss, it was found that value at
risk was Rs.14.00 lacs and no salvage was realized. Claim was settled
accordingly.

Surveyor charged his professional fees on Rs.14.00 lacs.

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3
Survey fees would be paid on what amount ?

CASE STUDY (3):

A fire policy and fire LOP policy was issued to a Fertilizer Factory with add-on
cover of Start up expenses. This add-on cover was taken by the insured with
a view to be indemnified for the expenses incurred by them in consequent
upon a loss/damage to resume their normal production at the earliest.
While studying the fire LOP policy, the insured thought that this additional
expenses may be automatically covered under the head of the Increase in
cost of working under LOP which covers the additional expenditure which is
necessarily and reasonably incurred for the sole purpose of avoiding or
diminishing the reduction in output during the indemnity period in
consequence of damage. Therefore, Start-up cover is not required to be
taken separately under both the policy & premium outgo would be less.

Insured invited underwriter to discuss in the matter.

What would be your reply?

CASE STUDY(4):
A fire policy was issued to Textiles Mills for Rs.50.00 Crs. on R.V. Basis. On
intimation of a fire claim, the surveyor initially assessed the loss on R.V. basis
for Rs.40.00 lacs and recommended for on a/c payment of Rs.25.00 lacs
based on indemnity basis and paid accordingly. In the meantime the insured
informed to the underwriter that one of the machinery would not be available
(as per suppliers letter) and they would not wait for indefinite period and
request to settle the claim on Indemnity basis and claim was settled
accordingly & loss voucher for balance amount was forwarded to the insured.
Without discharging the voucher, the same was sent back to the underwriter
with a request to treat the earlier letter as cancelled and claim may please be
settled on R.V. basis as the machinery would be available as informed by the
supplier.
Is there any scope to settle this claim again on R.V. basis?

CASE STUDY (5):

Floater Declaration Policy of various specified jute godowns of JCI (150
locations). Period: 01.04.2005/31.03.2006. S.I.- Rs.110/- Crs. From time to
time S.I. is increased when jute is purchased from the farmers and stored in
the godowns at remote village. Purchase and storing of jute is informed to
JCIs Town Office by the village centre and from town office, Registered
Letter is issued to Insurance Co. with a copy to their City Office.
Jute purchased on 10.05.2005 and informed to Town Office on 11.05.2005.
Town Office issued regd. letter to Insc. Co. on same date which was received
by them on 20.05.2005 and premium was booked on the same date from their
C.D. A/c. with them.
There was a fire on 15.05.2005 & estimated loss was Rs.30.00 lacs. Whether
the claim is tenable or not?
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CASE STUDY (6):

Fire BMC Policy with Sum Insured of Rs. 80.00 Crs. and voluntary deductible
was 5% of Claim amount subject to minimum Rs. 20.00 lacs. under AOG
perils and Rs.10.00 lacs under other perils.

A flood loss was reported for amount of Rs.24.00 lacs and surveyor was
appointed and based on the claim form submitted by the insured, the loss was
assessed at Rs.18.00 lacs and as per norms of excess, claim was not paid.

Surveyor submitted his bill charging the professional fees on Rs. 18.00 lacs.

Whether survey fees would be paid on Rs.18.00 lacs or not?

TRADE QUESTIONS-

FIRE AND ENGINEERING

1) A factory is covered under Standard Fire and Allied Perils Policy covering Fire, Explosion,
flood group of perils & earthquake as add-on with deletion of RSMD. The insured
proposes to take Fire Loss of Profits Policy to the same factory. What perils do you cover
under Fire LOP Policy?
a) Fire, Explosion, RSMD Perils.
b) Fire, Explosion, RSMD, Terrorism perils.
c) Fire, Explosion, RSMD, Terrorism and Flood group of perils.
a) Fire, Explosion, Flood group of perils & Earthquake as add-on.
2) An Insured proposed to take Fire LOP Policy for his manufacturing unit for an indemnity
period of 24 months. As insurer you should -
a) Offer installment facility by offering 8 quarterly installments.
b) Collect the full premium in advance before risk commencement along with Fire MD
Premium.
c) Offer 7 quarterly installments with first installment being 5% more than other
installments.
d) None of the above.
3) Mega Risk means a risk having
a) PML of Rs.1,024/- crore and above.
b) PML of Rs.1,054/- crore and above.
c) PML of Rs.1,084/- crore and above.

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5
 d) PML of Rs.1,094/- crore and above.

4).Which one of the following is a mega risk.

a) A petroleum refinery with sum insured Rs 3000 crs
b) An organisation having 25 different location with overall SI of Rs 2500 crs
c) A power plant with sum insured Rs 2000 crs
d) A fertilizer plant with SI of Rs 600 crs

5) Silent risk under fire policy in manufacturing premises are treated as silent risk when -
a) The factory is closed for 1 week continuously
b) The factory is closed for 15 days continuously
c) The factory is closed for 30 days or more continuously
d) None of the above
6) Please indicate which of the following statements is true.
a) Fire declaration policy is not permissible on short period basis
b) Tsunami is a peril covered in Standard fire policy
c) Fire policies are agreed value policies
d) Stocks can be covered with replacement value clause

7) Which one of the considerations are not taken into account for processing fire claims
a) Condition of average
b) Breach of warranty
c) Confirmation of surveyor about verification of books of accounts
d) Distance from fire station

8) Which will be treated as Hazardous goods under Fire and special perils policy
a) Methylated spirits
b) Common salt
c) Sodium carbonate
d) Sugar

9).Long term Fire policy can be issued for dwellings

a)For minimum period of 2 years
b)For minimum period of 3 years
c)For minimum period of 5 years
d) None of the above

10) Following add on covers are not available in standard Fire Special Perils Policy:
a) Spontaneous combustion
b) Loss of rent clause
c) Start up expenses
e) None of the above

11) Which of the following losses is not covered under fire insurance policy?

a) Process losses
b) Impact Damage
c) Missile testing operations
d) Aircraft damage

12) In Consequential Loss (Fire) Insurance Policy, the sum insured is arrived at by
a) All standing charges plus net profit
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b) Specified standing charges plus net profit
c) Only net profit
d) None of the above

13) Automatic reinstatement clause deals with -

a) Insurance of stocks
b) Insurance of plant and machinery
c) Insurance of hazardous goods
d) Claim under fire policy

14) Which of the following is NOT an Add on cover under Standard Fire & Special Perils Policy:

a) Earthquake.
b) Loss of rent.
c) Spontaneous combustion.
d) STFI Group of perils.

15) The basis of fixing Sum-insured under a Fire Policy for building, Plant & Machinery and
Furniture, Fixtures & Fittings is:
a) Reinstatement value or Book value.
b) Book value or Market value.
c) Market value or Reinstatement value.
d) Reinstatement value or Written Down Value.

16) Under a Fire Floater Declaration Policy minimum premium to be retained after expiry of the
policy is:
a) 35% of the Provisional Premium Charged.
b) 50% of the Provisional Premium Charged.
c) 80% of the Provisional Premium Charged.
d) None of the above.

17) Cold Storage Stock Damage cover due to Failure of Public Electricity Supply

a) Is an add-on cover under fire Policy

b) Is not an add-on cover under Fire policy
c) Both are incorrect
d) Both are correct

18) Who can take the extension cover of Loss of Rent under Fire Policy

a) Tenant
b) b Owner of the Building
c) Both
d) Cover not available to anyone

19) Material Damage proviso of the Business Interruption policy states

a) There should be in existence a material damage policy covering the physical damage to the
property for issuance of a business interruption policy
b) The basic policy should cover loss or damage to raw materials
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c) The policy can be issued only for industrial and manufacturing risks
d) A claim for loss or damage to the property should be admissible under the material damage
policy for a claim to be admissible under a business interruption policy.
1) Statements a and b are correct
2) Statements a and c are correct
3) Statements band d are correct
4) Statements a and d are correct

20) The excess under Standard Fire and Special perils policy is -
a) 5% of the Claim amount for perils other than Act of God perils
b) 5% of the claim amount subject to a minimum of Rs.10000/- for claims of Act of God Perils
c) 5% of the claim amount subject to a maximum of Rs.10000/-for claims other than Act Of
God Perils.
d) Rs.10000/- in respect of Act of God Perils

21) An insured takes a fire insurance for building and contents and a machinery breakdown
insurance policy for machineries. A short circuit in one of the switch boards results in a spark in
the air conditioner which results in a fire damaging furniture in the room apart from the air
conditioner. There is a valid claim under -
a) Fire policy only
b) Machinery breakdown policy only
c) Both the policies
d) None of the policies

22) Which of the following is not required to be followed while canceling a fire policy by the
insurer -
a) Notice Period to be given
b) Pro rata premium to be refunded
c) Reason of canceling the policy
d) Formal communication to be sent to the insured
23) Breach of condition precedent to insurance and the claim occurs. It is -
a. Payable
a) Not Payable
b) Partially payable
c) Non of the above
24) Breach of condition subsequent to insurance, Policy from 19.12.06 to 18.12.07. Breach of
condition on 6.05.07, claim on 16.06.07. Claim is -
a) Payable
b) Not-payable
c) Only a is correct
d) Only b is correct
25) Property belonging to the company is insured by one of its director in his name. In case of a
claim will it be -
Payable
Partially payable depending on the number of directors
Not Payable
None of the above
26) A has purchased a house but the possession and payment is deferred for some time. Will
you insure this house under fire policy ?
No
Yes
Can be in the name of original owner
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None of the above
27) The principle of indemnity is applied in practice through -
Extra premium
Excess clause deduction
Franchise clause deduction
Deduction for depreciation
28) Which of the following statements is true?
Statement A:
As per IRDA Regulations, there is a legal obligation on the part of insurers to issue a renewal
notice to the insured
Statement B:
Issue of a renewal notice means that the policy is automatically renewed, if the premium is paid.

Neither of the statements

Only Statement A
Only Statement B
Both Statements

29) The duty of disclosure of material facts arises

Only during the proposal stage
Only during the policy period if there is a change of risk
Only at the time of renewal
All of the above

30) Loss or Damage due to Tsunami is

a) Under Flood, Storm, Tempest and Hurricane Perils
b) Payable only under Earthquake Extension
c) Payable even without Flood
d) None of the above.

31) Risk covered under IAR policy is -

Fire material damage, Business interruption
Business interruption for Fire MD & MI/BPP/EEI items, Burglary
Machinery breakdown & MLOP
All the above

32) Sum Insured under C L (Fire) Policy is -

a) Turnover basis
b) Average of earlier 3 years T.O.
c) Gross Profit
d) Current Financial years Turnover

33) Gross Profit means-

i) Net profit plus variable expenses
ii) Net Profit plus Standing Charges
iii) Sales less variable cost
iv) Sales plus standing expenses
a) (i)
b) (iv)
c) (i) and ( ii)
d) (ii) and (iii)
34) Annual turnover under Fire (C L) policy is
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Last financial years turnover
Average three years T.O.
T.O. from the date of interruption to twelve months of the preceding year
Current years T.O.

35) Which of the following is taken into consideration for arriving at the adequacy of sum
insured under Fire Consequential loss insurance policy :
Gross profit of the current policy
Previous financial year Turnover
Standard Turnover
Annual Turnover

36) Which of the following statement(s) is/are not relevant to Industrial all risk Policy

I IAR policy can be issued for a petrochemical risk having sum insured more than Rs.100 crores
II No depreciation applied on partial and total losses arising out of Machinery Breakdown claims
III Selection of machinery is permitted under Machinery breakdown sum Insured
IV Fire Loss of profit cover is compulsory and Machinery Loss of profit cover is Optional
(i) and (iii)
only (ii)
(ii) and (iv)
only (i).

37) Which of the following statement is incorrect in case of Reinstatement value policies.
Reinstatement of the affected property should be completed with in 12 month from the date of
loss
In case reinstatement not effected, then the claim can be settled on Market value policy basis
Value at the risk at the time loss will be taken to arrive the adequacy of sum insured
It permits to settle the Claim on market value basis.

38) Under Standard Fire consequential loss insurance the Time Excess applicable is
5% of the claim amount or first 3 days of gross profit which ever is higher
5% of the claim amount or first 7 days of gross profit which ever is less
As applicable Material Damage policy
Nil

39) The sequence to be followed in the fire claim settlement is-

Assessed loss less Depreciation, pro-rata average, salvage and
Excess
Assessed loss less salvage, depreciation, pro-rata average and excess
Assessed loss less depreciation, salvage, pro-rata average and excess
Assessed loss less pro-rate average, depreciation and excess

40) An Insured has taken Standard Fire and Special Perils Policy covering his fixed assets and
stocks. He has opted for Rs.5,00,000 as voluntary deductible for other than AOG perils. His
property got damaged due to Fire. While settling this fire claim the excess applicable is --
Rs. 10,000/- as compulsory Excess
5% of claim amount or subject to minimum of Rs 10,000/-
Rs.5,00,000/- only
Both compulsory excess of Rs.10,000/- and Voluntary excess of Rs 10,00,000/-.

41) An insured has taken fire policy covering plant and machinery under Standard Fire and
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special peril policy. Due to direct impact of Lightning strike on out door Transformer No.1 and
got exploded and got fire. Due to this the out door transformer No 2 and other surrounding
properties are also got damaged. The liability under the fire policy is --
Entire claim is payable
Entire claim is not payable
Only Transformer No. 1 is payable
Other than transformer No.1 is payable

42) The identification. Analysis and Economic control which can threaten the assets and earning
capacity of an enterprise is a definition for
Risk Management
Cost Control Management
Financial Crisis management
Public Relation Management

43) The three ways in which an insured can control exposure to risk
Eliminate, maximize or retention
Eliminate, minimize or transfer
Eliminate, minimize or investment
None of the above

44) Negligence, nuisance and defamation are the subject matter under
Public Liability
Tort Liability
Employers Liability
All the above

45) Which of the following is not so important in Property insurance ?

Risk Inspection
Cover Note
Consideration
Insurance Policy

46) Statement A: An aggrieved claimant whose petition is pending before The State Consumer
redressal Commission can also approach The Insurance Ombudsman for speedy redressal of his
grievance.

Statement B: A citizen of India whose claim for Rs.15 Lacs was denied by a Insurer can
approach either Insurance Ombudsman or State Consumer Grievance Redressal Commission for
remedy.
Only statement A is correct
Only statement B is correct
Both A and B are correct
Both A and B are incorrect

47) Following is not true of an Arbitrator appointed under Arbitration Act 1996:
Quantum disputes are referred to him
Admissibility disputes are referred to him
Act provides for appointment of sole Arbitrator
None of the above

48) In dealing with any major fire claim in respect of machineries one of the following is not
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unimportant.

Fire brigade report. .

Attendance register of the worker.
Metrological report.
d. Acknowledged copy of the audited financial statement filed before IT department.

49) In Consequential Loss (Fire) insurance Gross profit is defined as:

A stated percentage of sales/turnover
Net profit plus insured standing charges
Gross trading profit minus all standing charges
Trading profit exclusive of all capital receipts

50) M/s. Khaitan Machine Mfg Co. has taken Consequential Loss fire policy for a period of 12
months with an indemnity period of 18 months. The average clause with standard turnover
wording of the fire (CL) policy will read as provided that if the S.I. by this item is less than the
sum produced-
By applying the rate of gross profit to the annual turnover
By applying the rate of gross profit to the standard turnover
By applying the rate of gross profit to 1.5 times the standard turnover.
By applying the rate of gross profit to 1.5 times the annual turnover

51) M/s. John & Co. takes Business Interruption Insurance (Fire)) policy with an Indemnity
period of 9 months. The S.I. of the policy will be:
A.G.P.
50% of A.G.P.
2 times of A.G.P.
75% of A.G.P.
52) In dealing with any major fire claim in respect of machineries one of the following is not
unimportant.
Fire brigade report. .
Attendance register of the worker.
Metrological report.
Acknowledged copy of the audited financial statement filed before IT department.
53) What is the difference between 1 & 4 in the Richter scale?
3;
100;
9990;
9900
54) What is the maximum value per location may be covered under Terrorism Cover under Fire
Policy?
200 crores;
500 crores;
600 crores;
750 crores.

55) The rate for terrorism cover for non-industrial risk when the value is within Rs.500 Crores
Re. 0.13 %o
Re. 0.22%o
Re. 0.25%o
Re. O.23%o
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56) Rate for terrorism cover for the balance portion over Rs. 500 Crores up to Rs.2000Crores for
Industrial risk is
Re. 0.17 %o
Re. 0.22%o
Re. 0.13%o
Re. O.7%o
57) Rate for terrorism cover for dwelling for any value is
Re. 0.08 %o
Re. 0.23%o
Re. 0.25%o
Re. O.17%o
58) Preliminary investigation of loss under Fire Policy includes
a) whether the loss caused by an insured peril
b) whether the damage property is in fact covered under the policy
c) whether adjacent property is damaged
d) All of the above
59)It is not the duty of the insured in the event of a claim under a fire policy to
a) Save as much as possible of the insured property
b) Take all reasonable steps to extinguish the fire
c) shift the operations immediately
d) diminish their loss
60) A fire policy taken for one year is extended for one month by charging
a) Short period note for one month
b) Pro rata premium for one month
c) 50% of the short period note
d) 50% of the pro rata taken for one month
61) If the insured proposes to cover his building for fire and earthquake from division 1 of the
insurance company and his machinery for fire from division 2 of the same insurance company he
will be
Permitted to insure as per his request
Will not be permitted
Permitted by owing him to have both the policy in division 1
Permitted by owing him to have both the policy in division 2

62) If the insured proposes to get add on are cover for STFI during the middle of the policy
The same can not be covered
The same can be covered
Covered with a waiting period of 15 days
Covered with a waiting period of 30 days

63) If computers are covered under a fire policy and in case breakdown of the computers due to
short circuit
a) The claim is payable in full
b) The claim is payable as not standard
c) The claim is not payable
d) The claim is payable at value of the computers at 40% depreciation p.a.

64) If a building is occupied in the ground floor as an Engineering workshop and first floor as a
dwelling by different owners
a) First floor are rated at the higher rate for the two
b) Rated at lower rate for the two
c) rated per se
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d) Engineering Workshop is rated at the rate of dwindling

65) Which of the following is true under a Reinstalment value policies

a) The replacement / Reinstalment need not be carried out
b) The replacement / Reinstalment shall be completed within 12 months
c) The insured need not intimate his intension to do the replacement / Reinstalment
d) All the above

66) Can fire policies be issued for more than 12 months

a) Yes can be issued to all types of premiums
b) Can be issued only for dwellings
c) Can be issued for godown covering non-hazardous goods
d) Can be issued only for godown covering hazardous goods

67) Valued policies can be issued for

a) Properties of a VIP
b) Properties exceeding value of 5 years
c) Properties whose market value can not be ascertained
d) None of the above

68) Which of the following is not applicable for Mid-term cover?

Insurers must receive specific advice from the insured accompanied by payment of the required
additional prem. in cash or draft. This additional premium can not be adjusted against existing
case deposit or debited bank guarantee
Mid-term cover shall be granted for the entire property at one complex / compound / location
covering the entire interest of the insured under one or more policies insured. Shall not have any
option for selection
Cover shall commence 15 days after receipt of the premium
The premium shall be charged on pro-rata basis

69) A silent risk denotes

a) Factories where no manufacturing / storage activities are carried out continuously for 30
days or more
b) Factories in which machine do not make a noise
c) Factories where trade unions does not exist
d) None of the above

70) Average clause becomes applicable when

a) Sum insured is lower than the value of risk at the time of loss
b) Properties insured situated at more than one location
c) Insured is a partnership firm and they prefer to accept claim in the proportion of value of
amount invested by each one of them
d) None of the above

71) .Flood claim on account of operation of an earthquake

a) is payable under a SFSPI policy where the flood perils are deleted.
b) is payable under a SFSPI policy having flood perils covered
c) is payable under a SFSPI policy without the special perils discount and an extension for EQ
d) is not payable at all
72) Value of foundation and plinth if not included in Sum Insured will render a building claim due
to fire
a) payable in full
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b) payable after application of average
c) payable in full after collection of extra premium
d) payable as non-standard

73)In an LOP policy, Auditor fees is

a) an extension
b) a built-in cover
c) a part of Standing charges
d) not to be covered
74) Fire at Suppliers Premises can be a part of
a) A Material Damage Fire Policy
b) An LOP policy
c) Is a stand alone policy
d) Has no relevance
75) Common utilities outside the premises can be
a) Rated per se
b) Rated as per the main risk
c) Highest rate to apply
d) insured separately
76) Storage of hazardous chemical upto 5% of value at risk
a) does not affect a claim
b) renders a claim non-standard
c) renders a claim as no claim
d) can be covered after collection of extra premium

77) Cracks appearing in a building on account of subsidence of land below

a) Fire policy will cover the loss without any extension
b) Claim is payable on repair basis
c) Claim is not payable
d) Fire policy would have covered the claim had an extension been taken.

78) A dish antenna (covered under fire policy) breaks as a monkey jumps on it
a) The claim is payable
b) The claim is not payable
c) The claim is payable as non standard
d) Some other insurance should have been taken

79) The adjustment of sum insured in EAR policy is not done in respect of
freight and handling charges
custom duties
cost of erection
increase or decrease in cost of plant and machinery

80) Standby machinery or Spare Parts of any machine under MI is -

not covered
covered at a discount of 50% in rate
discount of 75%
only covered when it is put to use

Trade Test Questions Engg.

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1. Following Peril is not covered under Machinery Breakdown Insurance policy

a) Loss or Damage due to Electrical Short Circuit

b) Loss or Damage due to Defective Lubricant or Coolant
c) Loss or Damage due to Terrorism Act
d) Loss or Damage due to Human Error

2. Under Engineering Project Insurance, the maximum percentage of escalation that can be

chosen by the insured is

a) 25% of the Sum insured

b) 25% of the reinstatement value
c) 50% of the replacement value
d) 50% of the sum insured

3. Material Damage proviso of the Business Interruption policy states

a) There should be in existence a material damage policy covering the physical damage to the
property for issuance of a business interruption policy
b) The basic policy should cover loss or damage to raw materials
c) The policy can be issued only for industrial and manufacturing risks
d) A claim for loss or damage to the property should be admissible under the material damage

policy for a claim to be admissible under a business interruption policy.

1) Statements a and b are correct

2) Statements a and c are correct
3) Statements band d are correct
4) Statements a and d are correct

4. An insured takes a fire insurance for building and contents and a machinery breakdown
insurance policy for machineries. A short circuit in one of the switch boards results in a spark in
the air conditioner which results in a fire damaging furniture in the room apart from the air
conditioner. There is a valid claim under

a) Fire policy only

b) Machinery breakdown policy only
c) Both the policies
d) None of the policies

5.Machinery Insurance Policy provides insurance protection of against mechanical & electrical
breakdown and also human errors & negligence

a) Electrical & Electrical Machines while at work

b) All machines & tools except electronic machines while at work
c) All machines except electrical machines while not at work

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 d) All rotating and static equipment while at work or at rest including human error and

negligence

6.Insurance period for Storage cum Erection policy is

a) 1 Year
b) 6 months prior to the final erection
c) 1 month prior to the final erection
d) Period of contract

7.Which of the following is excluded under Electronic Equipment policy?

a) Theft
b) Consequential Loss
c) Riots
d) Fire

8.Sum insured of Contractors All Risk policy is complete estimated erected value inclusive of
a) Custom duties
b) Wages
c) Freight
d) All of the above

9. Which insurance policy protects contractors, projects, bridges etc

a) Engineering
b) Fire
c) Liability
d) Marine

10. Machinery used for handling materials or constructions are covered under

a) Fire Policy
b) Contractors all Risk Policy
c) CPM Policy
d) Machinery Breakdown Policy

11. Under Electronic equipment policy there is no coverage available for

a) System software
b) Application software
c) Punched tapes
d) Increased cost of working

12. An Advanced Loss of Profit policy indemnifies the Principal or the project owner for

a) The loss of revenue arising out of delay in the completion of the project due to other
contractors delay which is not in the scope of the policy holder.
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 b) The loss of revenue arising out of delay in receipt of project consignment due to
accident during transit period
c) The loss of revenue arising out of delay in completion of project due to operation of
an insured peril covered under SCE/CAR policies
d) The loss of revenue arising out of delay in completion of project due to Speculative or
trade risks which relates to political, social or economic reasons or shortcomings in
the management

13. Mark the most unlikely answer below.

a) In Contractor All Risk Policy fragile items are not covered automatically
b) Contractor All Risk Policies are issued where the scope of project is only Civil
construction
c) Storage Cum erection policies are issued for erection and commissioning of Electro
Mechanical machineries.
d) Storage Cum erection policies are issued where the scope of project involves civil
construction, testing and commissioning of Electro- Mechanical machineries.

14. Which of the statement given below is most relevant in case of engineering operational
policies and Business Interruption policies.

a) In case mid term increase in sum insured, the premium chargeable is on pro-rata
basis for the un expired policy period.
b) In case mid term increase in sum insured, the premium chargeable is on short period
basis for the un expired policy period
c) In case mid term increase in sum insured and renewed with the same or enhanced
sum insured with same insured then refund on premium arising out of difference
between short period and pro-rata premium is made.
d) In case mid term increase in sum insured and renewed with the same insurer then
refund on premium arising out of difference between short period and pro-rata
premium is made

15. In Erection All Risk insurance liability of the insurers commence from

a) The time of loading the machinery at the port of loading

b) The time of unloading the machinery at the port of discharge
c) The time after unloading the machinery at the site of erection
d) The time of machinery leaves the warehouse of the supplier

16. Sum Insured under Erection All risk policy can adjusted on completion of project either by
collection or refund of premium except

a) Freight & handling Charges of plant and Machinery

b) Prime cost of Machinery
c) Cost of erection of plant & machinery
d) Customs dues

17. M/s. John & Co. takes Business Interruption Insurance (Fire)) policy with an Indemnity
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 period of 24 months. Normally premium is collected

a) In 6 equal installments
b) In installments, first installment should be more than 5%, next of the installments
and last installment to be paid six months prior to 24 months period.
c) In full at the inception of the policy
d) In 12 equal instalments

18. In a EAR policy an indigenous made compressor covered under the policy got damaged while
being shifted from storage yard to site of erection within the campus. New value of the
compressor is Rs.1crore. Repair/replacement cost of parts Rs 50 Lacs. Salvage value of
damaged parts Rs 2 lacs. Policy excess Rs 1 lac during storage erection. Rs 5 lacs during testing.
Rs 10 lacs for act of god perils. No under insurance. Insurance company will settle the loss for

a) Rs 48 Lacs
b) Rs 47 Lacs
c) Rs 45 lacs
d) Rs 43 Lacs

19. Which of the following is not an exclusion under Contractors All Risk Insurance Policy

a) The first amount of the loss arising out of each and every occurrence shown as
Excess the Schedule;
b) Loss/damage during erection of plant and machinery;
c) Normal wear and tear, gradual deterioration due to atmospheric conditions or lack of
use or obsolescence or otherwise, rust, scratching of painted or polished surfaces or
breakage of glass;
d) Loss or damage due to faulty design;

20. M/s. Rahul & Co has taken EAR policy and Advance Loss of Profits policy. EAR policy period
is from 1/8/2006 to 30/6/2007. ALOP indemnity period is for 12 months. Erection and testing
could not be completed on 30/6/2007 because late arrival of machinery. Insurer will be liable for
ALOP claim on account any accident on 1/7/2007

a) If EAR policy alone is extended for further period beyond 30/6/2007

b) If ALOP policy alone is extended for further period beyond 30/6/2007
c) If both EAR & ALOP are extended for further period beyond 30/6/2007
d) As the EAR policy is for 11 months and ALOP indemnity is for 12 months no need to
extend any policy as ALOP indemnity commences from 1/7/2007 which is on 12th
month from commencement of EAR policy

21.ALOP can be issued in the name of

a) Principal, contractors, subcontractors and third parties
b) Principal, contractors and subcontractors
c) Principal & contractors
d) Principal only

22. Which of the policies cannot be issued for a project under construction
a) Contractors all risk policy
b) Marine -cum-erection policy
c) Machinery breakdown policy
d) Election all risk policy
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