05 - Fire Insurance

PROFESSIONAL PRACTICE
LESSON PLAN
• INTRODUCTION
• FIRE INSURANCE
• ESSENTIALS OF FIRE INSURANCE
• PROPOSAL FORM
• COVER NOTE
• FIRE INSURANCE POLICY
• FOUNDATION CONDITION
• TERMINATION CLAUSE
• PROCEDURAL CONDITION FOR CLAIM
• ARCHITECT’S INVOLVEMENT
• VALUATION FIELD
AR. KANAK KASHYAP LECTURE 05

INTRODUCTION
• The chief aim of all insurances is to protect a person from risks.

• Out of several varieties of insurance contracts the architect is concerned with the fire
insurances and third party risk under the building contract.
• Professional advice of the architect is sought on insurable value of the property as well as
‘damage claim’ report due to fire.
• The business of insurance involves two parties
• The person who wants protection- the insured
• The person who undertakes the risk by giving necessary protection against the loss- the
insurer/ underwriter
• He charges an agreed consideration called the premium.
• The rights + liabilities+ terms+ conditions subject to which protection is afforded against the
loss due to fire is reduced to a written format – Fire Policy/ Fire Insurance Contract.

FIRE INSURANCE
• It’s a contract- one person undertakes in return for agreed consideration to indemnify
another person against loss or damage occasioned by fire and/ or incidental to fire upon the
agreed amount.
• Three essentials – it’s a contract, the premium and indemnification.
• The object of contract must be indemnification of the loss caused by damage.
• The insured is obligated to make good the property at his own expense for loss or damage
caused by fire.
• This is so, as indemnification means- to put the insured in the very position monetarily or
otherwise as if the fire had not occurred.
• At the same time it is not permissible for either parties to make profit out of the insurance
contract.

ESSENTIALS OF FORMING FIRE INSURANCE
• The proposal must be made by the insured to the corporation for which the corporation will
supply the printed form.
• Deposit receipt for the payment of premium called the Cover note.
• Rejection of the proposal – deposit paid as premium will be returned.
• Acceptance of proposal- Fire policy is issued.

PROPOSAL FORM
• For the formation of a Fire Insurance Contract it is essential to form a Proposal.

• This is a printed form which calls for a number of information from the insured like name,
address, description of property to be insured, value of the items, plans of the property, etc.
• The following particulars are of utmost importance;
• Whether manufacturing process or hazardous trade carried on in or around the
building.
• Details of previous proposals or previous policies
• Any previous insurances
• Whether any property insured previously was damaged or destroyed by fire
• Any other material facts which are within the knowledge of the proposer and which are
material to the proposal.
• All this information is mandatory as the insured signs a declaration at the end of the proposal
form that- answers given by the insured are to form the basis of the contract and if any of
them are untrue, the policy can be treated as null and void.

COVER NOTE
• The prospective party seeking insurance fills up a proposal form along with a payment of
necessary premium .
• The insurer needs to make certain inquiries and investigations before issuing a rejection or
acceptance of the proposal.
• If during the intervening period of payment of premium and issue of Fire Policy, a fire takes
place, for protection of the interest of the proposer, the insurer gives a deposit receipt for
the premium paid called the Cover Note.
• Its essential characteristics are:

• Fire takes place- between- date of receipt of cover note- and date of intimation by
company- of acceptance or refusal of policy- company will be responsible.
• It’s a protection- for interim period- and if specified- the protection is for that period
only
• This is also known as- Interim Protection Note
• It is a Contract of Insurance- NOT A POLICY OF INSURANCE.

FIRE INSURANCE POLICY
It is the contract- of fire insurance- reduced in writing- whereby- indemnification of one

person- by another- against loss or damage- due to fire/ incidental thereto- is to
become effective- subject to certain terms & conditions- specified therein- and
indemnified- accepting the amount paid- as premium- for such indemnification.
• The usual format of the fire insurance policy contains:

• Recital Clause- contains names of the parties- the company or corporation agreeing to
pay the amount of damage/ reinstate/ replace damaged property- effective time limit-
insurable value- premium- nature of risks covered- brief description of the property
insured.
• Insurable Value- Insurance policy does not cover- land, plinth, foundation and
compound pavement-this reduces building cost by 10%- to arrive at the insurable value.
• The terms and conditions of the contract.
• Terms & Conditions can be grouped as under:

(A) Foundation Conditions
(B) Termination Clause
(C) Procedural Conditions for Claims

FOUNDATION CONDITION
Good Faith: this condition provides that if there is material mis-description of the property in
question for estimating the risk, or non-disclosure of material facts; the company shall not be
liable upon the policy effected as the same forms breach of utmost good faith for true and full
disclosure
Warranties and disclosures :warranty is a condition which must be exactly and strictly compiled
with whether it is material to the risk or not; if not complied with the company can rescind the
contract.
Perils Insured : the insured exactly describes the perils which need to be insured in the proposal
form; based on the nature and scope of these perils the company will calculate the premium.
Only the perils specified will be insured and become entitled to the claim for damage.
Double Insurance : there is no objection for the insured to take more than one fire policy for his
property of different insurable values, provided the insured discloses to all the insurance
companies.
Average Clause : if the property- hereby insured- shall- at the breaking out of any fire- be
collectively- of greater value- than the sum insured- thereon- then the insured- shall be
considered- as being his own insurer- for the difference- and shall bear- a assessable
proportion- of loss- accordingly.

TERMINATION CLAUSE
• The insurance can be terminated by the company on notice to the insured.

• In this case the company is liable to repay a ratable proportion of the premium for the
unexpired period.
• If the insurance is terminated at the request of the insured, before the expiry date, the
company shall not repay the premium or any part thereof chargeable.
• The exception to this:
• Where the said insurance applies to stocks
• The insured ceases to have any insurable interest in the property insured.
• The ordinary fire insurance is terminated simultaneously; in this case the company will
retain the customary short period premium for the time till the insurance has been in force.

PROCEDURAL CONDITION FOR CLAIM
• Notice of fire forthwith and to file claim report within 15 days with all details or within
extended time limit.
• Forfeiture condition if the claim is found to be fraudulent (implied condition of good faith).
• Reinstatement clause; which gives the company the right to reinstate/ replace the property
damaged/ destroyed to the condition it was before the fire ensuring that the amount spent
will not be more than the sum insured.
• Right of entry and Salvage value; allows the company to enter the property post damage,
allows for treating the property as a part loss which can be salvaged and ensures that the
insured doesn’t create any obstruction while delivering the damaged property to the
company.
• Arbitration condition; in case the difference or dispute arises as to the quantum to be paid
under the policy

ARCHITECT’S INVOLVEMENT
The Architect is professionally connected with the subject of Fire insurance in the following
fields:
• Fair market value of property based on income capitalization technique, where insurance
premium forms an item of outgoings.
• Under the building contract
• To advise on the insurable value of the property
• To prepare the claim report in case of loss due to fire and to represent the claim before the
company

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PROFESSIONAL PRACTICE

AR. KANAK KASHYAP LECTURE 05

• The chief aim of all insurances is to protect a person from risks.

AR. KANAK KASHYAP LECTURE 05

AR. KANAK KASHYAP LECTURE 05

AR. KANAK KASHYAP LECTURE 05

• For the formation of a Fire Insurance Contract it is essential to form a Proposal.

AR. KANAK KASHYAP LECTURE 05

• Its essential characteristics are:

AR. KANAK KASHYAP LECTURE 05

It is the contract- of fire insurance- reduced in writing- whereby- indemnification of one

• The usual format of the fire insurance policy contains:

• Terms & Conditions can be grouped as under:

AR. KANAK KASHYAP LECTURE 05

AR. KANAK KASHYAP LECTURE 05

• The insurance can be terminated by the company on notice to the insured.

AR. KANAK KASHYAP LECTURE 05

AR. KANAK KASHYAP LECTURE 05

AR. KANAK KASHYAP LECTURE 05

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