LOSS OF PROFIT INSURANCE

EXECUTIVE SUMMARY

There are various important terms relating to loss of profit

insurance such as gross profit, insured value, sum insured, etc.
There are various provisions relating to claims in loss of profit
insurance.

Loss in it is relating to gross profit and additional costs.

There are various restrictions and specifications in loss of profit
insurance.

There are various kinds of loss of profit insurance polisies such as

machinery loss of profit insurance policy relating to machinery
breakdown, relating to boiler explosions.

These policies have various exceptions, conditions, rules and

regulations, terms and conditions, etc.

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INTRODUCTION

LOSS OF PROFITS INSURANCE

(following Machinery Breakdown)
&
LOSS OF PROFITS INSURANCE
(following Boiler Explosion)

THE TARIFF ADVISORY COMMITTEE (HEREINAFTER CALLED THE

COMMITTEE) HAS LAID DOWN RULES, REGULATIONS,
ADVANTAGES, TERMS AND CONDITIONS, AS CONTAINED HEREIN,
FOR TRANSACTION OF MACHINERY LOSS OF PROFITS INSURANCE
BUSINESS IN INDIA IN ACCORDANCE WITH THE PROVISIONS OF
PART II B OF THE INSURANCE ACT, 1938.
ANY BREACH OF TARIFF SHALL BE DEALT WITH AS PER THE
RELEVANT PROVISIONS OF THE INSURANCE ACT, 1938.

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IMPORTANT TERMS

Gross Profit
Gross Profit is defined as the sum of Sales Profit and variable wages
(including social expenses) during the Period of Calculation.
Sales Profit is the turnover less variable costs.
Materials and services used in the business shall be valued in accordance
with the market prices prevailing at their tune of use. This condition also
applies to interdepartmental deliveries and deliveries between companies
belonging to the same group.
Insured Value
The Insured Value is the insured value of Gross Profit and or additional
costs.
The Insured Value of additional costs is made up of costs as may occur in
the case of a loss during the Calculation Period.
Sum Insured
The Sum Insured is the amount of money separately specified in each item
of the policy (articles 4.2.1.1 and 4.2.1.2).
Salaries and wages, or part thereof and their direct social expenses
included in the Gross Profit, may form a separate Sum Insured under a
separate item
The conditions concerning the maximum limit of indemnity for each and
every loss occurring during the Insured Period are stated in article 7.3.

Under- and Over-Insurance

If the Sum Insured of any item is lower than the corresponding Insured
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Value, there is an Under-insurance in respect of this item.

If the Sum Insured of any item is higher than the corresponding Insured
Value, there is an Over-insurance in respect of this item.

Sales Profit is the turnover less the variable costs.

Loss of Profits shall mean a Financial Loss caused to the business

activity through the interruption of operations or through additional costs
incurred for the sole purpose of avoiding or minimizing such interruption.
Any loss of this type shall be defined and assessed in accordance with
these terms and conditions.

Indemnity Period is the maximum continuous period during which the

insurance company will indemnify a Loss of Profit. The Indemnity Period
shall commence at the occurrence of the property damage.

Period of Calculation is a time period, on which the calculation of the

Gross Profit and Insured value shall be based. The Period of Calculation is
normally one year. If the Indemnity Period exceeds one year, the Period of
Calculation is extended to include the following year. The Period of
Calculation shall begin upon the commencement of the Insured Period
indicated in the insurance contract. Where the period, during which the
business is affected in consequence of damage, extends beyond the
Period of Calculation defined above, the Period of Calculation shall be duly
amended to end at the cessation of the Loss of Profit, but in any event not
beyond the expiry of the Indemnity Period.

Excess is the agreed part of the loss for which the Insured shall be
responsible and will not be indemnified by insurer.Excess may be a time
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period, amount of money or a percentage of the claim amount.

Time excess shall be operative at the commencement of the Indemnity
Period.

Site of Insurance shall mean the situation of the risk to which this
insurance applies and shall be restricted to the premises defined in the
Insurance Policy Schedule to which property damage has to occur to make
insurance company liable for the consequential Loss of Profits.

CLAIMS PROVISIONS
Procedure
The Insured shall immediately notify Seesam of any loss or damage in
consequence of which a claim is or may be made under the Loss of Profits
insurance policy against Seesam. The Insured shall forthwith with due
diligence do and concur in doing and permit to be done all things which
may be reasonable practicable to minimize or check any interruptions of or
interference with the business to avoid or diminish the Loss of Profits. The
Insured will be indemnified for any expenses incurred in accordance with
the indemnification principles applied to additional costs.
The Insured shall follow company’s instructions in respect of loss
prevention or limitation.
The Insured shall assist company’s in investigating the claim amount and
furnish any documents that may provide information concerning the claim.

CONDITIONS CONCERNING LOSS ASSESSMENT AND INDEMNITY

Loss in respect of Gross Prolit
The amount of loss is equal to the Gross Profit that would have been

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achieved during the Indemnity Period, had the loss not occurred, less
1) the Gross Profit produced by any residual trade operations still being
undertaken during the Indemnity Period and including any possible
increase in the Gross Profit after the Loss Period.
2) wages and any other costs included in the Gross Profit, which have been
saved as a consequence of the damage during the Indemnity Period.
3) any increase in the Gross Profit achieved during the Indemnity Period in
any other of the Insured’s operations as a consequence of the loss, and
4) Gross Profit included in the Indemnity under the property loss,
e.g. in indemnity for goods and own repair work.
When calculating the Gross Profit derived from the business operations,
and proportional increase in the expenses not included in the Gross Profit
(e.g. those for materials), will be taken into account as a decrease in the
Gross Profit, insofar as the Insured shows that these arc related to the Loss
of Profit.
The achieved Gross Profit shall be increased by the decrease in Gross
Profit due to part of the Indemnity Period being used for improvement,
extension or any other modification, which is not recoverable under the
property insurance policy (even when the modification is due to a decision
by an Authority).
The loss amount shall also include any additional expenditure necessarily
and reasonably incurred for the sole purpose of avoiding or diminishing the
decrease in the Gross Profit. The said expenditure must have been made
during the indemnity period in consequence of the damage and the amount
thereof may not exceed the reduction of indemnity thereby achieved. The
measures to be applied shall have been approved by Seesain.

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If the measures applied produce a benefit also after the end of the
indemnity period, only the proportionate amount of the additional expenses
attributable to the loss reduction during the indemnity period will be
indemnified.
Loss in respect of additional costs
The loss amount equals to the sum of additional costs incurred during the
Indemnity Period after the occurrence of loss or damage. These costs shall
be documented.
If the insured business activity is discontinued after a property loss, then
the amount of the loss is calculated for the period of time, which would
have been required to resume the business activity, but in any event limited
to the indemnity period. The Insured shall only be indemnified for that part
of the calculated amount of loss, which corresponds to the net profit, and
for actual additional costs if these are included in the Sum Insured.
The amount of Indemnity is the amount of loss less excess. In the case of
underi nsurance this will be taken into account before any payment is made
under the policy.
In case of under-insurance insurer will indemnify the Insured only for that
part of the loss amount, which corresponds to the proportion of Sum
Insured and Insured Value.
The indemnity payable by insurer in ease of over-insurance is limited to the
amount of actual loss or damage.
If any difference shall arise in respect of the indemnity to be paid under the
policy (liability being otherwise admitted) such difference shall be referred
to the arbitrators who are experienced in assessing the economic activities
concerned. Each party will appoint an arbitrator. If the arbitrators fail to
reach an agreement in respect of the assessment, they shall appoint a third
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arbitrator. If the third arbitrator is not appointed or agreement is not reached

concerning the appointment, all arbitrators shall be appointed by the court
of arbitration in accordance with the applicable Arbitration Act. I3oth parties
shall have the right to appeal against the decision of the arbitrators. Each
party will remunerate the arbitrator appointed by him. Any other costs and
expenses shall be borne by the

PURPOSE OF ISURANCE

The purpose of the insurance is to secure the result of the insured business
activity if and when a property damage causes a Loss of Profit, subject
however to the terms and conditions stipulated herein (TKO I), in the
general terms and conditions (UL) and in any special terms and conditions
stated in the policy.

RESTRICTIONS AND SPECI FICATIONS

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The purpose of this insurance is not to provide the Insured with any benefit
other than the indemnity for actual Loss of Profit as defined in the wording
of the Insurance Contract. Each item of the Insurance Contract shall be
interpretive in accordance with this principle.
The Insured shall be indemnified only for the economic loss and additional
costs specified in these insurance conditions and in the insurance contract.
Different amounts of indemnity either per each single loss or per Insured
Period may be applied in respect of the Gross Profit, wages, additional
costs etc.
The Sum Insured is insurance company’s maximum amount of liability.
This maximum amount applies to loss occurring within the Insured Period.
The Sum Insured will be decreased by the amount of the indemnity
disbursed. Insurance company will inform the Insured of the decrease in
the Sum Insured in the course of claim handling.
For the remaining part of the Insured Period insurance company shall have
the right to request the payment of additional premium to restore the
maximum Sum Insured, which corresponds to the indemnity disbursed, no
later than during the final claim settlement. If the maximum limit of
indemnity per single loss or the indemnity per any Period Insured has been
agreed upon, the additional premium shall be determined in proportion to
the indemnity and to the maximum limit of indemnity. Where both maximum
limits have been agreed, the additional premium shall be determined on the
basis of the maximum limit per Period Insured.

SCOPE OF COVER

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Insurance Company shall indemnify any Loss of Profit caused by property

damage occurring during the Insured Period and at the Site of Insurance,
subject however to the terms and conditions stated in the Policy.
The Insurance cover is limited to the Insured’s business activity as defined
in the Policy.
The Insured shall notify the insurance company of any buildings, machines
or other equipment to be acquired during the Insured Period, when these
have a material effect on the insured business or on the Insured Value.

Insurance company will not indemnify the Insured for any Loss of Profits,
the occurrence or extent of which arises directly or indirectly from or is
attributable to or is in any way connected to the following circumstances:
earthquake or other natural catastrophe, war, insurrection, rebellion,
revolution, occupation, terrorist act or nuclear accident or other such cause.

Insurance company will not indemnify any Loss of Profit occurring as a

consequence of any delay in the repair of damaged property or in the
resumption of operations or in the settlement of claims or in the payment of
indemnity, if such delay is due to any of the causes mentioned is the
previous paragraph, or if caused by
I) exceptional delay in
measure, control or
procedure by an authority:
2) strike, lockout or any similar event, if the Insured has not availed himself
of all possible means open to him to prevent such events from happening.

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MACHINERY LOSS OF PROFIT INSURANCE (MLOP) POLICY

(OUTPUT BASIS)

Whereas the Insured named in the Schedule hereto has made to the
………………… CO. Ltd. (hereinafter called ‘the Company’) a written
proposal by completing a Proposal cum Questionnaire, which together
with any other statements made in writing by the Insured for the purpose
of this Policy is deemed to be incorporated herein.

Now this Policy witnesses that in consideration of the Insured having

paid to the Company the premium mentioned in the Schedule and also
subject to the Terms, Exclusions, Provisions, Definitions and Conditions
contained herein or endorsed hereon.

The Company hereby agrees with the Insured that if at any time during
the period of insurance stated in the Schedule, the business carried on
by the Insured at the premises specified in the Schedule be interrupted
or interfered with in consequence of an Accident which shall mean
sudden and unforeseen physical damage, as defined in the Machinery
Insurance/Boiler and Pressure Plant Insurance Policy of any machinery
specified in the schedule of machinery then the Company shall in
respect of each item in the Schedule indemnify the Insured against the
amount of loss as hereinafter defined resulting from such interruption or
interference.

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PROVIDED THAT the liability of the Company during any one-year of

Insurance shall in no case exceed in the whole the total Sum Insured
hereby or such other sum or sums as may hereafter be substituted
therefore by endorsement signed by or on behalf of the Company.

PROVIDED ALSO that at the time of happening of an Accident there

shall be in force an insurance covering the machinery described in the
Schedule from any accidental cause indemnifiable under the Standard
Machinery Insurance Policy and or Boiler & Pressure Plant Insurance
Policy and in respect of which liability shall have been admitted or would
have been admitted but for the operation of any Excess there under.

PROVIDED ALWAYS that the due observance and fulfillment of the

terms of this Policy in so far as they relate to anything to be done or
complied with by the Insured and the truth of the statements and
answer(s) in the proposal shall be conditions precedent to any liability of
the Company.

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EXCLUSIONS

The Company shall not be liable for any loss resulting from interruption
of or interference with the business directly or indirectly attributable to
any of the following causes --
i) Willful act or willful neglect or gross negligence of the insured or
his responsible representatives.

ii) Loss or damage to machinery or other items which are not listed in
the list of machinery insured even if the consequence of material
damage to an item indicated in the list of machinery insured is
involved.

iii) Loss or damage caused by any faults or defects existing at the

time of commencement of this insurance within the knowledge of the
insured or his responsible representatives whether such faults or
defects were known to the Company or not.

iv) Shortage, destruction, deterioration and spoilage of or damage to

raw materials, semi finished or finished products or catalyst or
operating media (such as fuel, lubricating oil, refrigerant, heating
media and the like) even if the consequence of material damage to
an item indicated in the list of machinery insured is involved.

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v) Any restrictions on reconstruction or operation imposed by any

public authority.

vi) An extension of the normal repair period for more than 4 weeks on
account of -

a) the inability to secure or delays in securing replacement parts,

machines or technical services.

b) the inability to carry or delays in carrying out repairs.

c) the prohibition to operate the machinery due to import and/or

export customs & other restrictions or by statutory regulations.

d) transport of parts to and from the Insured’s premises.

vii) Alterations improvements or overhauls being made while repairs

or replacements of damaged or destroyed property are being carried
out.

viii)Loss damage and/or liability caused by or arising from or in

consequence
directly or indirectly of -

a) War, Invasion, Act of foreign enemy, hostilities or War like

operations (whether war be declared or not), Civil War, Rebellion,
Revolution, Insurrection, Mutiny, Riot, Strike, Lockout and
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Malicious Damage, Civil Commotion, Military or usurped power,

martial law, conspiracy, confiscation, commandeering a group of
malicious person or persons acting on behalf of or in connection
with any political organisation, requisition or destruction or damage
by order of any government de jure or de facto or by any public.
Municipal or Local Authority, an act of terrorism or the action of
any lawfully constituted authority in suppressing or attempting to
suppress or minimise the consequences thereof.

b) Nuclear reaction, nuclear radiation or radioactive contamination.

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CONDITIONS

a) This Policy and the Schedule(s) shall be read together as one

contract and any word or expression to which a specific meaning has
been attached in any part of this Policy or of the Schedule(s) shall
bear such meaning wherever it may appear.

b) This Policy shall be avoidable in the event of misrepresentation, mis-

description or nondisclosure in material particular.

c) This Policy shall be avoided if,

i) the business be wound up or carried on by a liquidator or
receiver or permanently discontinued OR
ii) the insured’s interest ceases otherwise than by death OR
iii) any alteration be made whereby the risk of an accident is
increased
OR
iv) the retention of standby or spare machinery or any other loss
minimising factors in existence when this insurance was effected
be reduced or discontinued unless its continuance is admitted by
an endorsement signed by or on behalf of the Company

d) The insured shall at his own expense take all reasonable precautions
and comply with all reasonable recommendations of the Company to

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prevent loss or damage and comply with statutory requirements and

manufacturers’ recommendations.

e) i) Representatives of the Company shall at any reasonable time have

the right to inspect and examine the risk and the Insured shall provide
the representatives of the Company with all details and information
necessary for the assessment of the risk.

ii) The Insured shall immediately notify the Company in writing of

any material change in the risk and cause at his own expense,
such additional precautions to be taken as circumstances may
require and the scope of cover and/or premium shall if necessary
be adjusted accordingly.

iii) Dismantling and reassembling in connection with any

examinations shall be carried out by the Insured on such date or
dates as the Company and the insured mutually agree upon for
the making of such examinations.

No material alteration shall be made or admitted by the insured

whereby the risk is increased, unless the continuance of the cover
provided under this Policy is confirmed in writing by the Company.

f) The Insured shall be obliged to keep complete records. All records

e.g. inventories, production and balance sheets for the three
preceding years shall be held in safe keeping or as a precaution

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against their being simultaneously destroyed the insured shall keep

separate sets of such records.

g) In the event of any occurrence, which gives rise to or is likely to give

rise to a claim under this Policy the Insured shall -

i) Forthwith give notice thereof to the Company

ii) do and concur in doing and permit to be done all such things as
may be reasonably practicable to minimize or establish the extent
of any interruption of or interference with the business or to avoid
or diminish the loss resulting therefrom.

iii) as far as may be reasonably practicable without causing any

increase in the period of interruption or interference take
precautions to preserve any things which might prove necessary
or useful by way of evidence in connection with any claim

iv) discontinue the use of any damaged machinery unless the

Company authorize otherwise and the Company shall not be liable
in respect of any further interruption or interference arising out of
the continued use of any damaged machinery without their having
given their consent to such use until said machinery has been
repaired to the satisfaction of the insurers

v) in the event of a claim being made under this Policy not later
than thirty days after the expiry of the indemnity period or within
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such further time as the Company may allow in writing at his own
expense deliver to the Company a written statement setting forth
particulars of his claim together with details of all other policies
covering the accident or any part of it or consequential loss of any
kind resulting therefrom and the insured shall at his own expense
also produce and furnish to the Company such books of accounts
and other business books e.g. invoices, balance sheets and other
documents, proofs, information, explanation and other evidence as
may reasonably be required by the Company for the purpose of
investigating or verifying the claim together with if required - a
statutory declaration of the truth of the claim and of any matters
connected therewith.

No claim under this Policy shall be payable unless the terms of this
condition have been complied with and in the event of non-
compliance therewith in any respect any payment already made
on account of the claims shall be repaid to the Company forthwith.

h) In the event of an accident to any insured machinery likely to give rise

to a claim under this Policy, the Company shall have the right to take
over and control all necessary repairs or replacements.

i) The Insured shall at the expense of the Company do and concur in

doing and permit to be done all such acts and things as may be
necessary or reasonably required by the Company for the purpose of
enforcing any rights or remedies or obtaining relief or indemnity from
other parties to which the Company shall be or would become entitled
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or subrogated upon its paying for or making good any loss or damage
under this Policy whether such acts and things are or become
necessary or required before or after his indemnification by the
Company

j) If the claim be in any respect fraudulent or if any false declaration be

made or used in support thereof or if any fraudulent means or devices
are used by the insured or any one acting on his behalf to obtain any
benefit under this policy or if the Accident be occasioned by the willful
act or with the connivance of the insured or if the claim be made and
rejected and an action or suit be not commenced within three months
after such rejection or in case of an arbitration taking place as
provided hereunder within three months of this policy after the
Arbitrator or Arbitrators or Umpire shall have made their award, all
benefit under this Policy shall be forfeited.

k) If at the time of any accident resulting in a loss under this Policy there
be any other insurance covering the same loss or damage, the
Company shall not be liable to pay more than its rateable proportion
of the loss.

l) This insurance may be terminated at the request of the insured in

which case the Company will retain the customary short period rate
for the time the policy has been in force. This insurance may also at
any time be terminated at the option of the Company on 7 days notice
to that effect being given to the insured, in which case the Company
shall be liable to repay on demand a rateable proportion of the
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premium for the unexpired term from the date of cancellation less any
reasonable inspection charges the Company may have incurred.

m) Midterm increase in Sum Insured -

‘If the sum insured is increased during the currency of the policy -
i) Short period scale of rate shall apply to the increased amount.
ii) If the policy is renewed thereafter for twelve months, for an
amount not less than the increased total sum insured, the
difference of premium between the short period scale of rates and
pro-rata rate, may be refunded, or a new policy for the full
increased sum insured, may be issued, at the tariff rate (annual or
short period, as required) canceling the old insurance and allowing
a pro-rata refund for the unexpired period of the cancelled policy’.

n) Departmental Clause - Applicable when business has separate

sections or departments, each earning a different rate of gross profit.
If the business be conducted in departments, the independent trading
results of which are ascertainable, the provision of clauses (a) & (b)
of item 1 of the specification shall apply separately to each
department affected by the damage; provided that if the sum insured
by the said item be less than the aggregate of the sum produced by
applying the rate of gross profit provided for each department of the
business (whether affected by the accident or not) to the relative
annual output thereof, the amount payable shall be proportionately
reduced.

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o) If any dispute or difference shall arise as to the quantum to be paid

under this policy, (liability being otherwise admitted) such difference
shall independently of all other questions be referred to the decision
of a sole Arbitrator, to be appointed in writing by the parties to or, if
they cannot agree upon a single arbitrator within 30 days of any party
invoking Arbitration, the same shall be referred to a panel of three
Arbitrators comprising of two Arbitrators-one to be appointed by each
of the parties to the dispute / difference, and the third Arbitrator to be
appointed by such two Arbitrators and arbitration shall be conducted
under and in accordance with the provisions of the Arbitration and
Conciliation Act 1996.
It is clearly agreed and understood that no difference or dispute shall
be referable to arbitration as herein before provided, if the Company
has disputed or not accepted liability under or in respect of this policy.
It is hereby expressly stipulated and declared that it shall be condition
precedent to any right of action or suit upon this policy that the award
by such Arbitrator/ Arbitrators of the amount of the loss or damage
shall be first obtained.
p) In no case whatever shall the Company be liable in respect of any
claim under this Policy after the expiry of -
i) One year from the end of the indemnity period or if later
ii) Three months from the date on which payment shall have been
made or liability admitted by the Company covering the Accident
giving rise to the said claim unless the claim is the subject of
pending action or Arbitration
q) Every notice and other communication required by these conditions
must be written or printed.
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MACHINERY LOSS OF PROFITS INSURANCE

GENERAL REGULATIONS:-

1. The Insurers should not quote a rate lower than Rs.1.40 even
provisionally when they underwrite new proposals in respect of
Fertilizer risks.

2. Policies are normally issued on turnover basis.The policies can be

issued on `output' basis for loss of profits cover following machinery
breakdown and/or boiler explosion only to manufacturers having
single end products. For manufacturers having multiple end products
individual proposals must be submitted to Tariff Advisory Committee
for approval before granting LOP cover on `output' basis.

3. Insurers can extend MLOP Cover on DG Sets subject to adequate re-

insurance support .

4. With regard to the issuance of MB (LOP) policies in the first year of

operation such proposals will be considered by the Committee on
case to case basis and the rates will be decided by the Committee.

5. RULES FOR CANCELLATION

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For cancellation of insurance during the currency either wholly or in part

a) At the option of the Insurer, a pro-rata refund of premium may be

allowed for the unexpired term on demand.

b) At the Insured’s request, refund of premium may be allowed after

charging premium for the time insurance was in force on short period
scale as defined in the All India Fire Tariff subject to the retention of
minimum premium by the Insurer.
However, if, policy is replaced by new annual one, covering identical
equipment/machines for Sum Insured not less than the respective Sums
Insured under the cancelled policy, refund of premium may be allowed
on pro-rata basis subject to retention of minimum premium.
If the risk is insured under short period scale, refund may be calculated
at pro-rata of the short period scale premium provided such cancellation
is followed by an annual policy for Sum Insured not less than the Sum
Insured under cancelled policy. Otherwise, retention of premium shall be
on short period scale.
For the Sum Insured not replaced in the renewed policy after
cancellation, refund must be calculated after charging premium on such
sum for the time insurance was in force on short period scale subject to
retention of minimum premium by the Insurer.
For the policy issued or renewed for periods shorter than 12 months, the
premium rate shall be charged as per the short period scales prescribed
under CPM Tariff. The short period scale of rates under CPM Tariff shall
also be followed in respect of cancellation of policies during the currency
of the policy by the Insured.
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c) In case of revision of Tariff rates/excess, it is not permissible to

cancel the policy and allow a refund of premium whereby an Insured
pays lower premium for an insurance than is payable at the rates
applicable at the commencement of the policy.

6. INCREASE IN SUM INSURED -

If the Sum Insured is increased during the currency of the policy.
i) Short period scale of rates shall apply to increased amounts.
ii) If the policy is renewed thereafter for 12 months for an amount not
less than the increased Sum Insured, the difference of premium
between short period scale of rates and pro-rata rate may be
refunded.

7. Minimum Time Exclusion under LOP Policies -

i) 14 days for Power Plants (both captive and public), Fertilizer
Plants, Petroleum Refineries, Petrochemical Plants, Explosive
Mfg. Plant.
Insurers may accept 7 days ‘Time Excess’ for all MLOP proposals
for Fertilizer Risks with adequate Reinsurance support.
ii) 7 days for all other industries.
Note - The Time Exclusion for Boiler will follow the industry in which it
is installed.

8. RATING
Rates under this tariff will be decided at Insurers discretion.

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9. ROUNDING OFF RATES:

Premium rates shall not be rounded off in case of MLOP policies.

10. MLOP INSURANCE COVER FOR DG SETS

Insurers can extend MLOP cover on DG Sets subject to adequate
Reinsurance Support.

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SCHEDULE
(MACHINERY LOSS OF PROFITS INSURANCE)

POLICY No. ISSUED AT DATE

Name & address of Insured

The Business

The Premises

INVENTORY OF THE PROPERTY INSURED AGAINST

Loss of profits following Machinery Breakdown

Item Number Description of Machinery Relative

Importance in
%

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Note: Relative importance means the percentage effect which a

breakdown of the particular machine will have on the total gross
profit disregarding any loss minimisation measures.

Type of Concurrent Policy Policy No. Period Insurer

Machinery Insurance Policy

Boiler Insurance Policy

TOTAL SUM INSURED HEREBY Rs.

Period of Insurance From ………………

To…………….

Indemnity Period Time Exclusion

First Premium Renewal Premium Due

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LOSS OF PROFIT INSURANCE

IN WITNESS WHEREOF the undersigned being duly authorised by the

Direcors of the Company and on behalf of the Company has/have
hereunto set his/their hand on this ………….. day of ………… 200..

Examined …………..
For……………..Company Ltd.

Entered ……………. Duly

Constituted Attorney

SPECIFICATION A – INSURANCE ON GROSS PROFIT ON OUTPUT

BASIS

Item No. Sum Insured

On Gross Profit Rs. ……………..

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The cover provided under this Policy shall be limited to loss of gross profit
due to (a) reduction in output and (b) increase in cost of working and the
amount payable as indemnity thereunder shall be

a) In respect of Reduction in output the sum produced by applying the rate

of gross profit to the amount by which the output during the indemnity
period shall in consequence of the damage fall short of the standard
output.
b) In respect of Increase in Cost of Working ; the additional expenditure
(subject to provision of memos) necessarily and reasonably incurred for
the sole purpose of avoiding or diminishing the reduction in output
which but for that expenditure would have taken place during the
indemnity period in consequence of the damage, but not exceeding the
sum produced by applying the rate of gross profit to the amount of the
reduction thereby avoided.
Less any sum saved during the indemnity period in respect of such of the
Insured standing charges as may cease or be reduced in consequence of
the damage.

Provided that if the sum insured by this item be less than the sum produced
by applying the date of gross profit to the annual output, the amount
payable shall be proportionately reduced.

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DEFINITIONS

1. GROSS PROFIT -
The sum produced by adding to the Net Profit the amount of the Insured
standing charges or if there be no Net Profit, the amount of the Insured
Standing Charges less such a proportion of any net trading loss as the
amount of the Insured Standing Charges bears to all the Standing
Charges of the business.

2. NET PROFIT -
The Net Trading Profit (exclusive of all capital receipts and accretions
and all outlay properly chargeable to capital) resulting from the business
of the Insured at the Premises after due provision has been made for all
Standing and Other Charges including depreciation but before the
deduction of any taxation chargeable on profits.

3. OUTPUT -
The quantity of___ produced at the premises, measured in units of ___

4. INDEMNITY PERIOD AND TIME EXCESS -

The Period not exceeding the indemnity period limit stated in the list of
machinery and plant insured commencing with the occurrence of the
accident during which the results of the business are affected in
consequence of such accident provided always that the insurers are not
liable for the amount equivalent to the rate of gross profit applied to the
standard output during the period of time excess (in terms of __ days)
stated in the policy.
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5. RATE OF GROSS OUTPUT –

a) Rate of Gross Profit: To which such adjustments

Rate of Gross Profit per unit shall be made as may be
earned necessary to provide for the
on the output during the trend of business and for
financial variations in or special business
year immediately before the circumstances affecting the
date business either before or after
of damage. the damage or which would
have affected the business had
b) Standard Output:
damage not occurred so that
Output during that period in
the figures thus adjusted shall
12
represent as nearly as may be
months immediately before
reasonably practicable. The
the
results which but for the
date of damage which
damage would have been
correspond
obtained during the relative
to indemnity period.
period after the accident.

c) Annual Output:
The output during 12 months
immediately before the date
of
damage.

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PROVISIONS

1. MEMO 1 - BENEFITS FROM OTHER PREMISES –

If during the indemnity period goods are sold or services are rendered
elsewhere than at the premises for the benefit of the business either by
the Insured or by others acting on his behalf, the money paid or payable
in respect of such sales or services shall be taken into account in
arriving at the turnover during the indemnity period.

2. MEMO 2 - RELATIVE IMPORTANCE –

The term relative importance referred to in the list of machinery and
plant insured shall be the percentage effect which a breakdown of a
particular machine will have on the total gross profit, disregarding any
loss minimizing measures.
If in the event of an accident affecting an insured item of machinery, the
percentage of relative importance stated in the list of machinery and
plant insured for this item is lower than the actual percentage of relative
importance subsequently arrived at for the period of interruption, the
Company shall only be liable to indemnify the proportion which the
percentage of relative importance stated in the list of machinery and
plant insured bears to the actual percentage.

3. MEMO 3 - RETURNS OF PREMIUM –

If the Insured declares at the latest twelve months after the expiry of any
Policy year that the gross profit earned during the accounting period of
twelve months most nearly concurrent with any period of Insurance as
certified by the Insured’s auditors was less than the sum insured
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thereon, a pro-rata return of premium not exceeding one half of the

premium paid on such sum insured for such period of Insurance shall be
made in respect of the difference.
If any accident has occurred giving rise to a claim under this Policy, the
amount of such claim shall be added to the revised Gross Profit as
certified by the insured’s auditors before calculating the proportion of
return of premium.

4. MEMO 4 - OVERHAULS –
In calculating the loss, due allowance shall be made for the time spent
on any overhauls, inspections or modifications carried out during any
period of interruption.

5. MEMO 5 – REINSTATEMENT OF SUM INSURED –

For the period following the occurrence of an accident up to the end of
the Policy period, the sum insured shall be reinstated by payment of an
additional premium on a pro-rata basis. Such additional premium shall
be adjusted against the net claim amount payable and such premium
shall be calculated for that part of the sum insured, which corresponds to
the indemnity, paid. The agreed sum insured shall remain unaltered.

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PROPOSAL FOR LOSS OF PROFITS INSURANCE

(Following Machinery Breakdown and/or Boiler Explosion)

a) Name and Address of Proposer _______________________

_______

b) Business Premises _______________________

_______

c) Nature of Trade or Business _______________________

_______

1. Do you wish to cover the risk of

Loss of Profits arising from -
Breakdown of Machinery in
a) your premises
Yes No
If so, please complete schedule
‘A’
b) Explosion of Boiler and
Pressure Plant in your
premises Yes No

If so, please complete schedule

‘B’

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2. Is the plant and Machinery

specified in Schedule A & B
insured against material Yes No
damage risk ie breakdown
and/or explosion?
If yes, please state -
a) Name of the Insurer _____________________
___________
b) Title of the Policy _____________________
___________
c) Policy Nos. _____________________
___________
d) Period(s) of Insurance From __________ To
_____________
3. a) Are the lists of the Machinery in
Schedule A and B representing
the whole or only a part of the Whol Part
Machinery in the premises? e

b) Are all your Machineries

subject to periodical Yes No
inspection?
If yes, state by whom and at
what intervals inspections are
carried out. Supply details of _____________________
your maintenance Schedule. ____________

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4. Give description of the

manufacturing process and _____________________
utility supplies such as power, _____________________
steam, air ,water etc. required _____________________
for production. _____________________
Please attach a process flow _____________________
diagram showing connected _____________________
machinery and indicate __________
bottlenecks or buffer stocks if
any
Please attach separate line
diagram for utility supplies such
as power, steam, air and water
showing interconnected
machinery.
5. In the event of stoppage of any
of the machines proposed for
insurance -

a) Can machines, which remain in

operation, carry the load Yes No
originally borne by the
machine, which has failed?
b) Are there any alternative
means of maintaining
production by -

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i) the work being done at

other premises ?
Yes No
If yes, to what extent? _____________________
____________

ii) hiring temporarily suitable

replace- ment machine Yes No

iii) by any other means Yes No

6. Are any of the machines

described in the schedule A & Yes No
B de-rated?

If yes please give details _____________________

____________

7. State repair facilities available

in regard to machinery
specified in Schedule A & B
a) In your own premises _____________________
____________
b) Any other nearest place _____________________
_____________

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8. Which machines proposed

under this insurance are the _____________________
machines for which the spare ____________
parts would need to be
imported?

9. State the estimated period of

interruption affecting _____________________
resumption of normal _____________________
production, on account of _____________________
spoilage of materials in process _____________________
following a breakdown or __________________
failure of utility supplies.
10 a) What are your normal working a) _____ hrs. per day
hours?
b) __________ days per
week.
c) ___________ days per
year.

b) Can extra shifts be worked to

make up production loss? Yes No
11 a) Have you ever suffered Loss of
Profit following Machinery
Breakdown and/or Boiler Yes No
Explosion?

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b) If so give details of the cause, _____________________

duration and loss suffered in _____________________
each stoppage, during the last _____________________
three years. _____
12 If the business is ‘Seasonal’
indicate the period of high and
low output or turnover and _____________________
indicate the degree of _____________________
fluctuation. State if there is a _____________________
tendency of fluctuations due to _____
demands.
13 State what terms are required
for Loss of Profits insurance
with regard to -
a) Indemnity period (max.12
months) _____________________
_____________

Note - The Indemnity period

should be selected based
on an estimate of the
Maximum time, which would
be required to resume
normal production after a
serious accident.
Different periods can be
selected for different items.

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b) Time Exclusion (Min.7 working

days) 7 1
days 4 days

28 days
14 INSURED STANDING
CHARGES - Please indicate
charges to be insured - delete
or supplement as appropriate -

a) Interest on Debentures Motor

Upkeep and Licenses:

b) Mortgages, Loans and Lighting,

Heating Power and Bank
Overdrafts:
c) Water Charges
d) Directors' Fees and Office
Expenses:
e) Remuneration
f) Rents and Rates
g) Salaries including State
Insurance Contribution
h) Taxes other than those
chargeable on Profits
i) Insurance Premiums
j) Contributions to Pension Fund
k) Telephone Rentals

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l) Miscellaneous Charges (not

travelling expenses) exceeding
5% of the total amount of the
aforesaid Standing Charges.
m Traveling Expenses
n) Advertising Cost
o) Auditors’ and Legal Fees
p) Trade and Charitable
Subscriptions
q) Repairs and renewals
chargeable to revenue account
r) Depreciations of Buildings/
Machinery Plant and Motor
Vehicles
15 State the Sum Insured on –
a) Gross Profit under the Loss of
profits Policy (The Gross Profit Sum Insured Indemnity
for the current financial year to – period -
be computed from the last Rs. ____ _____
annual balance sheet being the months
Sum of net profit and Standing
Charges with adjustment for
upward or downward trend of
business for the period of
Insurance.)
b) On Wages (Alternative forms of
cover available)
i) _____ weeks wages to
the extent of _____ % of the
total wage roll. OR Rs. ____

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ii) Wages to the extent of

____ % of the total wages
for roll. Rs. ____
OR

iii) Total wages for the first

____ weeks followed by Rs. ____
_____ % for the remainder
of the Indemnity Period
c) On Auditors/Accountants Fees
- (cost incurred in the
preparation of claims.) Rs. ____
16 Are your books regularly
audited? Yes No
a) If so, give name and address of
your Auditors.
b) When does your financial year
end?
c) Date of commencement of
Insurance? From ______ To _______
17 Are you insured or have you
made a proposal in respect of
loss of Profit following Yes No
Machinery Breakdown and/or
Boiler Explosion?

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If so, give name of the

Company concerned and state _____________________
if renewal has been (a) _____________
declined (b) subjected to
increased rates or special
conditions

18 Are you insured against Loss of

profit following Fire?
Yes No
If so, please state -
a) Name of the Insurer
b) Sum Insured

c) Policy No.

I/WE HEREBY DECLARE AND WARRANT that the above statements

are true and complete and that I/We have withheld no information
whatsoever which is material for the acceptance of this proposal.

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I/We agree that this declaration and the answers given above shall be
the basis of the contract between me/us and the Company shall be
deemed to be incorporated in such contract. And that if any untrue
statement be contained therein the said contract shall be absolutely null
and void. I/We undertake to exercise all reasonable and ordinary
precaution for the safety of the machinery and I/We agree to accept the
policy in the form issued by the Company subject to the terms
exceptions and conditions prescribed therein or endorsed on the policy.

Place ________________

Date________________
Sig
nature

Notes –

If the space above is insufficient for any answer please continue on

separate sheet and attach hereto.

ENDORSEMENTS

Time Excess Clause –

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‘It is hereby declared and agreed that the Insured shall bear the
amount of loss as computed hereunder, of each and every admissible
claim under the policy -

i) In respect of a policy insuring reduction in turnover, the amount

equivalent to the rates of Gross Profit applied to the Standard
Turnover for _______ days (insert no. of days excess opted).

ii) In respect of a policy insuring reduction in output, the amount

equivalent to the rate of Gross Profit applied to the Standard
Output for ______ days (insert no. of days excess opted).

First of all loss amount should be calculated and from this

assessment of indemnity, monetary value of the loss for the no. of
days excess opted should be deducted’.

BIBLIOGRAPHY

 Oriental insurance
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 www.wikepedia.com

 www.seesam.ee

 www.smallbusiness.theage.com

 multifund.com

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