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FIRE INSURANCE

1 . 0 INTRODUCTION
Insurance sector is divided in two p a r t s a s under:
Insurance

Life insurance Non-life or

General insurance
In this module we will explain various insurance polices related to
non-life / gene ral i ns ura nc e . Non-life /general i ns ura nc e
m e a n s the insurance of various tangible or non-tangible a s s e t s
other t h a n h u m a n life. Even loss of h u m a n life or damage to
h u m a n body due to accidents are covered by general Insurance.
T h u s , h u m a n life relates to life insurance a n d the belongings
i.e. properties of h u m a n beings fall u n d e r t hi s category.
Though there are various general insurance policies b u t we
will di s c us s only the following i m port a nt policies:
1. Fire Insurance
2. Marine Insurance (Transit)
3. Vehicle Insurance
4. Personal Accident Insurance
5. Health Insurance
6. Rural Insurance Policies
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The above said policies are being sold only by general insurance
companies a n d cannot be sold by life insurance companies.
This restriction is imposed only in India b u t not in other p a r t s
of the world.
I n I n d i a also, prior to na t i onali zation, general i n s u r a n c e
b u s i n e s s was conducted by life insurance companies also b u t
after nationalization in 1 9 7 2 , consequent u p o n passing of the
General I n s u r a n c e B u s i n e s s N a t i ona l is a t ion Act (GIBNA)
General Insurance Corporation of India was formed a n d was
conferred the exclusive power to regulate a n d conduct the
b u s i n e s s of General Insuranc e in India.

Since 1 9 7 3 the GIC a n d its four subsidiary companies namely

New India Assurance Co. Ltd., National Insurance Co. Ltd.,
Oriental Insuranc e Co. Ltd., a n d United India Insurance Co.
Ltd. h a d been the sole players in the field until the passing of
the IRDA Act 1 9 9 9 which allowed the entry of private players.
Over the p a s t few years a few private players have entered the
a re na . The new players have entered the General Insurance
field b u t are playing cautiously. These are still early days b u t
the field is wide open, the future is bright a n d the customer is
t h e one who will b e benefited t h e m o s t by t h e growing
competition. We hope to see international level of service a n d
products in the country soon a n d a multiple choice to select
from.
At the end of t hi s lesson, you will be able to:
¾ Explain the meaning of fire insurance ¾
Buy the fire insurance
¾ Settle the claim u n d e r fire insurance
¾ Know the practice of fire insurance in India.
¾ Know w ha t is not covered u n d e r fire insurance

I n t h e following p a g e s , we s h a l l b e d i s c u s s i n g t h e Fire
Insurance.
1.1 HISTORY OF FIRE INSURANCE
The development of fire Insurance c a n be traced back to 1 6 0 1
A.D. when the Poor Relief Act was p a s s e d in England. Vide
this act, letters called “briefs” were read from the church asking
for collections from the public to help those who suffered losses
from fire. There was a great fire in London–a historical disaster–
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in which within s p a n of three days from 2 n d to 5 t h Sept.’1666,

80% of the city was destroyed which sowed the seeds of fire
Insurance a s we know it now.
First, only buildings were i ns ure d a n d the first fire office was
established by a builder Nicholas Barbon in 1 6 8 0 . In 1 7 0 8 ,
Charles Povey founded t he T ra ders Exchange for i n s u r i n g
movable goods, merchandise a n d stocks against loss or damage
a n d t h i s w a s the first to i n s u r e b o t h the building a n d its
contents.

1 . 2 MEANING OF FIRE INSURANCE

The term fire in a fire insurance is interpreted in the literal
a n d popular sense. There is fire when something b u r n s . In
other words fire m e a n s visible flames or a c t u a l ignition.
S i m m e r i n g / s m o l d e r i n g i s n o t c o n s i d e r e d fire i n Fire
Insurance. Fire produces he a t a n d light b u t either of t h e m
alone is n o t fire. Lightening is n o t a fire b u t if it ignites
something, the damage m a y be due to fire.
Under section 2(6A) Insurance Act 1 9 3 8 , the fire insurance
b u s i n e s s is defined a s follows: “Fire insurance bu s i n e s s m e a n s
the b u s i n e s s of effecting, otherwise t h a n independently to
some other class of b u s i n e s s , contracts of insurance against
loss by or incidental to fire or other occurrence customarily
included among the ri s ks i ns ure d against in fire insurance
policies”.
Example: The following are the items which c a n be b u r n t /
damaged t hrough fire:
‰ Buildings
‰ Electrical installation in buildings
‰ C o n t e n t s of b ui l d i ngs s u c h a s m a c hi n e r y , p l a n t a n d
equipments, accessories, etc.
‰ Goods (raw materials, in–process, semi–finished, finished,
packing materials, etc.) in factories, godowns etc..
‰ Goods in the open
‰ Furniture, fixture a n d fittings
‰ Pipelines (including contents) located inside or outside
the compound, etc.
The owner of abovementioned properties c a n insure against
fire d a m a g e t h r o u g h fire i n s u r a n c e policy which provides
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financial protection for property a ga i ns t loss or damage by

fire.

1 . 3 FEATURES OF FIRE INSURANCE:

(Dear learner, m o s t of t he features to be di s c u s s e d in t he
following p a r a g r a p h s of Fire Insurance you m u s t have studied
u n d e r Principles of General Insurance in other module)

1) Offer & Acceptance : It is a prerequisite to a ny contract.

Similarly, the property will be insured un d e r fire insurance
policy a f t e r t h e offer i s a c c e p t e d b y t h e i n s u r a n c e
company. Example: A proposal submitted to the insurance
c o m p a n y along wi th p r e m i u m o n 1 / 1 / 2 0 1 1 b u t t h e
insurance company accepted the proposal on 1 5 / 1 / 2 0 1 1 .
The risk is covered from 1 5 / 1 / 2 0 1 1 a n d a ny loss prior to
t hi s date will not be covered u n d e r fire insurance.
2) Payment of Premium: An owner m u s t ensure t h a t the
p r e m i u m is paid well in advance so t h a t the risk c a n be
covered. If the payment is m a d e t hrough cheque a n d it is
dishonored t h e n the coverage of risk will not exist. It is a s
per section 64VB of Insurance Act 1 9 3 8 . (Details u n d e r
insurance legislation Module).
3) Contract of Indemnity: Fire insurance is a contract of
indemnity a n d the insurance company is liable only to
the extent of actual loss suffered. If there is no loss, there is
no liability even if there is fire. Example: If the property is
i ns ure d for Rs 2 0 l a k h s u n d e r fire insurance a n d it is
damaged by fire to the extent of Rs. 1 0 l a k h s , t h e n the
insurance company will not pay more t h a n Rs. 1 0 l a k h s .
4) U t m o s t Good Faith: The property owner m u s t disclose
all the relevant information to the i ns ura nc e company
while i n s u r i n g their property. The fire policy s hal l be
voidable in the event of misrepresentation, mis-description or
non-disclosure of a ny material information. Example: The
u s e of building m u s t be disclosed i.e whether the
building is u s e d for residential u s e or m a nufa c t uri ng use,
a s in both the cases the p r e m i u m rate will vary.
5) Insurable Interest: The fire insurance will be valid only if
the person who is insuring the property is owner or having
insurable interest in t h a t property. Such interest m u s t
exist a t the time when loss occurs. It is well known t h a t
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insurable interest exists not only with the ownership b u t

also a s a t e n a n t or bailee or financier. B a n k s c a n also

have the insurable interest. Example: Mr. A is the owner of
the building. He i n s u r e d t h a t building a n d later on
sold the building to Mr. B a n d the fire took place in the
building. Mr. B will not get the compensation from the i n s u r a n c e
c o m p a n y b e c a u s e h e h a s n o t t a k e n t h e i n s u r a n c e policy being
a owner of t h e property. After selling to Mr. B, Mr. A h a s no
insurable interest in the property.

6) Contribution: If a person i ns ure d his property with two

insurance companies, t h e n in case of fire loss both the
i n s u r a n c e c o m p a n i e s will p a y t h e loss to t h e owner
proportionately. Example: A property worth Rs. 5 0 l a k h s
was i ns ure d with two Insurance companies A a n d B. In
case of loss, both insura nce companies will contribute
equally.

7) Period of fire Insurance: The period of insurance is to be

defined in the policy. Generally the period of fire insurance
will not exceed by one year. The period c a n be less t h a n
one year b u t n o t more t h a n one year except for t h e
residential hous e s which c a n be i ns ure d for the period
exceeding one year also.

8) Deliberate Act: If a property is da maged or loss occurs

due to fire because of deliberate act of the owner, t h e n
t h a t damage or loss will not be covered u n d e r the policy.

9) Claims: To get the compensation u n d e r fire ins urance

the owner m u s t inform the i n s u r a n c e company
immediately so t h a t t he i n s u r a n c e c ompany c a n t a ke
necessary st eps to determine the loss.

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1 . 4 PROCEDURE TO INSURE THE PROPERTY UNDER

FIRE INSURANCE:

For insuring a ny property u n d e r the fire insurance policy,

the following is the procedure:
1) Filling of proposal form
2) Inspection of the property
3) Payment of p r e m i u m

4) I s s u e of Cover n o t e / Policy d o c u m e n t i n l i e u of
acceptance of the proposal.
I) Filling of Proposal Form
The fire proposal includes the following information :
Description of t h e property. This would include:
I) (i) Construction of external walls a n d roof, n u m b e r of
storeys.
(ii) Occupation of each portion of the building.
(iii) Presence of h a z a r d o u s goods.
(iv) Process of m a n u f a c t u r e .
(v) The s u m s proposed for insurance.
(vi) The period of insurance.
(vii) History of previous losses.
(viii) Insurance history - whether previously other i ns ure rs
h a d declined the risk, etc.
II) I n s p e c ti on of t h e property: In case of property of a ny
b u s i n e s s organization, whether m a nufa c t uri ng or other
type of organization, a risk inspection report is s ubm i t t e d
by the insurer’s engineers. The engineers s u b m i t in their
r e p o r t t h e n a t u r e of r i s k involved i n t h e f a c t o r y /
m a nufa c t uri ng uni t .
III) Payment of Premium: Based on the proposal form a n d
t h e inspection report of t h e engineers, t h e i n s u r a n c e
company will s u b m i t the p r e m i u m rates to the property
owner a n d if these rates are acceptable to h i m t h e n he
s houl d pay the a m o u n t to the insurance company. It is
also a legal requirement u n d e r section 64VB of Insurance
Fire Insurance

Act 1 9 3 8 t h a t the p r e m i u m is paid in advance in full to

the insurance company.

IV) Issue of Cover n o t e / Policy document: On receipt of a

completed proposal form a n d / or inspection report, the
cover note is issued, pending preparation of the policy document.
The cover note is a n u n s t a m p e d document
issued to provide evidence of cover till the time the policy is
i s s u e d . The cover note provides i n s u r a n c e a g a i n s t
specified perils on the u s u a l t e rm s a n d conditions of the
company’s policy.

The printed policy form provides for a schedule in which the

individual details of t he contract are typed. The items are
similar to those in t he Cover Note b u t with more detailed
information.

After issuing the policy document, it is likely t h a t there m a y

be some changes in the n a t u r e of property or s u m i ns ur e d
ma y increase or decrease. In t hi s case, these changes c a n be
incorporated by way of e ndors e m e nt s which are i s s u e d to
record changes s u c h a s alteration in risk, increase or decrease of
s u m insured, etc.

1 . 5 PROCEDURE TO SETTLE THE FIRE INSURANCE

CLAIM:
A) If there are a ny damage or loss arising due to fire t h e n
t h e policy h o l d e r s h o u l d i m m e d i a t e l y i n f o r m the
insurance company in writing a n d with estimated a m o u n t
of loss.
B) Survey Report: If the a m o u n t of loss is small (i.e. u p to
Rs. 2 0 , 0 0 0 / - ) , the i ns ura nc e company m a y depute a n
officer to survey the loss a n d decide on the settlement of
the loss on the b a s i s of the claim form a n d the officer’s
report. However, in large losses, a n independent surveyor
duly licensed by the Government is appointed to give a
report on the loss.
The survey report would generally deal with the following
matters:
(i) Cause of loss.
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(ii) Extent of loss.
(iii) Under-Insurance, if any.
(iv) Details a n d value of salvage, a n d how it h a s been
disposed of or proposed to be disposed of.
(v) Details of expenses (e.g. fire brigade expenses).
(vi) Compliance with policy conditions a n d warranties.

(vii) Details of o t h e r i n s u r a n c e policies o n t h e s a m e

property, a n d t h e a p p o r t i o n m e n t of t h e loss a n d
expenses among co-insurers.
C) Claim form: The policy holder will s u b m i t the claim form
with the following information :
(i) Name a n d a d d r e s s of the Insured.
(ii) Date of loss, time a n d place from where t h e fire
started.
(iii) Cause of fire.
(iv) Details of the property damaged s u c h a s description,
etc.
(v) Value a t the time of fire, value of salvage a n d the
a m o u n t of loss.
(vi) Details of other policies on the s a m e property giving
the n a m e of t he i n s u r e r , policy n u m b e r a n d s u m
insured.
(vii) Fire Brigade report details.
(viii)F.I.R. a t the nearest police st ation regarding t h i r d
party liability, if any.
D) S e t t l e m e n t of claim: On the b a s i s of the claim form a n d
the survey report, decision is t a k e n a b o u t the settlement or
otherwise of the loss.
1 . 6 PRACTICE OF FIRE INSURANCE IN INDIA
In India, u n d e r fire insurance policy, in addition to fire, other
perils are also included a n d the policy is known a s “Standard
Fire and Allied Perils Policy”.
The perils specified in the fire policy are:
A. Fire: It h a s been explained a s above.
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B. Lightning: Any lightning due to cloud b u r s t m a y damage
the property a n d the s a m e will be covered u n d e r the fire
policy.
C. E x p l o s i o n / I m p l o s i o n : S u d d e n c h a n g e i n t h e te mpera ture
in a n y p l a n t & machinery or exposure to atmospheric pressure
m a y result into loss a n d the s a m e will be covered u n d e r fire policy.
D. Aircraft Damage: Any damage to the property due to a ny
droppings by aircraft or by itself will also be covered u n d e r
the fire policy.
E. Riot, Strike and Malicious Damage (RSMD): Any damage to
the property due to public or strike by employees or
malicious da m a ge (intentional damage) by a n y person
will be covered u n d e r t hi s policy.
F. Storm, C y c l o n e , Typhoon, T e m p e s t , Hurricane,
Tornado, Flood and Inundation (STFI): The property
damage due to a ny of these s t o r m s a n d flood will also be
covered u n d e r t hi s policy. The meaning of these perils
lies in different intensity of the s t orm s . Flood not only
m e a n s t h e l ea kage of w a t e r t h r o u g h river b u t a l s o
accumulation of water due to heavy r a i n s in the premises.
G. Impact Damage: Damage to the property du e to impact by
a ny Rail / Road vehicle or a ni m a l by direct contact, b u t
not belonging to or owned by t he I n s u r e d or a n y
occupier of the premises or their employees while acting in
the course of their employment.
H. Subsidence and Landslide including Rock Slide
Destruction or damage caused by Subsidence of p a r t of
the site on which the property s t a n d s or L a n d slide /
Rock slide.
I. Bursting and/or overflowing of Water Tanks, Apparatus
and Pipes: If due to burs t i ng or overflowing of water from
t h e w a t e r t a n k s i n s t a l l e d i n t h e p r e m i s e s of t h e
policyholder a ny damage or loss to the property of the
policyholder is caused, it will be covered u n d e r this policy.