FIRE INSURANCE

 Fire insurance means a contract by which an insurer undertakes to indemnify the insured
against loss by fire to the property insured against.
 Its chief characteristic, unlike that of a contract of life insurance, is that it is a contract
of indemnity and indemnity only and the insured is not entitled to recover more than
such amount as will indemnify him against the actual loss or damage sustained according
to the real quantity and value of the goods at the time of the fire.

 Castellian v Preston: In this case a house which was insured against fire and which was
subsequently contracted to be sold for a certain price, was partly damaged by fire. The
company paid the loss and the buyer also paid the full agreed price without any reduction
for the damage. Thus the assured was doubly indemnified and in order to reduce it to
simple indemnity the court ruled that he should hand back the insurance money to the
company.

 Elcock v Thomson: A building was insured against loss or damage by fire. The agreed
value was £ 106,850. A fire took place. The premises were partially destroyed. The value
of the building before the fire was £ 18,000 and after the fire £ 12,600, i.e. a depreciation
of 30 per cent. The property was not reinstated. The insured made a claim under the
policy and a question arose as to how much was due under it. Held, by the King's Bench
Division, that the agreement as to value applied in the event of partial destruction, as well
as in the event of total destruction. Accordingly the insurers were liable for 30 per cent of
£ 106,850 i.e. £ 32,055.

INSURABLE INTEREST

 It is necessary to the validity of a fire policy, like all other insurance, that the insured
should have interest in the subject-matter of insurance. A person is said to have interest in
a property if he is liable to suffer a direct loss upon its destruction. A person who one way
or another is so connected with a property that he might suffer loss upon its destruction
may not be said to be interested in it.
 For example, the House of Lords, in Macaura v Northern Assurance Cos ruled that
neither a shareholder nor a simple creditor of a company has any insurable interest in any
 particular asset of the company, although, it is an obvious fact that both a shareholder and
a creditor may suffer loss upon destruction of their company's property.
Mortgage creditor or a mortgagee has sufficient interest in the mortgaged property to
insure it, because the property constitutes his security.  Dodson v Land

 Collingridge v Royal Exchange Assurance Corpn : A person who contracted to sell his
property continues to have insurable interest in it down to the time that the sale is
completed by a conveyance. Thus where a property insured against fire was notified for
acquisition and while the proceedings were going on and reached the stage where the
compensation to be paid was fixed, the property was destroyed by fire. The insured was
held entitled to recover the insurance money for he was still interested in the preservation
of his property (the insurable interest continues till the property belongs to the
insured.)

 Waters v Monarch Life Assurance Co : A person entrusted with goods can insure them
without orders from the owner, even without informing him that there is such policy.
(such goods are properly described in policy as “goods in trust”)

The case of Waters vs. Monarch Life Assurance Co. illustrates the application of
insurable interest in fire insurance. In this case, Waters had taken out an insurance policy
on certain goods that were entrusted to him. When a fire occurred, he sought
compensation for the loss.
Division of Insurance Money
Waters' Claim:
 Waters, having been entrusted with the goods, had an insurable interest due to his
responsibility for their care and his lien for unpaid charges (like storage fees).
Therefore, he could claim compensation for his own losses, which would typically
include the value of his lien on the goods.
 According to legal principles, Waters can claim an amount equivalent to his
financial interest in the goods. If the goods were destroyed, he would be
compensated for his loss up to the limit of his lien.

Owner's Claim:
  The actual owners of the goods also have an insurable interest but their claim is
separate from that of Waters. They would be entitled to compensation for their loss
based on their ownership of the goods.
 If they had their own insurance policy covering those goods, they would file a
claim under that policy. If not, they might rely on Waters to act as a trustee for any
surplus after he claims his lien amount from the insurance payout.

DESCRIPTION AND DUTY TO DISCLOSE

 The proposal form has to give a description of the property insured against. The
description submitted should correspond with facts, other- wise it will be a
misrepresentation which will vitiate the policy. But the insurer will be entitled to avoid
the policy only if the misdescription is material.

 DOBSON vs SOTHEBY:

A barn (a large building on a farm in which crops or animals are kept) was insured
against fire and it was stated in the proposal that "no fire is kept and no hazardous goods
are deposited". The premises needed repair. A tar barrel was brought for the purpose and
fire was ignited to heat it. The tar boiled over setting the premises on fire. The insurer
refused to pay. But he was held liable. The description of the premises as a "barn" may
not have been very appropriate, but it gave the company substantial information of its
nature; there would be no difference in the risk and the insurance would have been at the
same rate whether the word "barn" or a more correct phrase had been used.
The statement in the policy that hazardous goods would not be brought was taken
to mean that such goods were not usually brought and not that they would never be
brought even when needed.
 Pimm vs Lewis: Where a fact is already known to the insurer, the formality of disclosure
is not necessary. Thus where an agent of the insurer lived in the neighbourhood of the
factory which was insured against fire and knew everything about the factory and also
visited it before the policy, it was held that the failure to disclose that the rice chaff was
also ground at the mill did not vitiate the policy. The court said that the mill had been
 used for years for the ginning of rice-chaff, and used publicly and openly, and the
company's officer resident in the neighbourhood well knew the mill.

 Condogianis v Guardian Assurance Co Ltd : The fact of a previous loss by fire on the
premises is a material fact and, therefore, ought to be disclosed.

Where the proposal form asked the question whether there had been earlier claims under
fire policies, the insured answered by saying "yes" and gave the name of the company.
Thus he disclosed one earlier claim when, in fact, he had made two earlier claims. There
was a statement in the policy that all the statements were warranted to be true. That being
not so the insurer was held not liable under the policy irrespective of the fact whether the
fact disclosed was material or not.

 The burden of proving that a statement is false or that the conditions of the
policy have not been satisfied is on the insurer. Where a policy on an aircraft
provided that no liability would arise if the pilot did not observe statutory
regulations relating to air navigation, it was held that the burden was on the insurer
to prove that the regulations were not observed.

MATERIALITY OF FACT NOT DISCLOSED

 Sometimes, certain matters personal to the life of the insured may reflect upon the degree
of risk which has been insured against.
 Woolcott v Sun Alliance & London Allianced Ltd: The person who insured his life in
this case had undergone convictions for offences like robbery. He was not asked any
question on the point. He maintained that if he had been required to do so he would have
truth- fully disclosed the record of his convictions. The house was lost in a fire. The
insurer was allowed to avoid the policy. The criminal record of the insured was a moral
hazard which the insurer would have been entitled to know for making his assessment of
the risk involved.
  Dawsons Ltd vs Bonnin: Where the proposal has been made the basis of the contract,
any mis- statement of a fact in it would avoid the policy whether such fact is material or
not. A lorry was insured against fire. The proposal form disclosed the place where it was
kept. The proposal was made the basis of the contract. The fact that the vehicle was
garaged at a farm on the outskirts of the city, and it was destroyed by fire. In a claim on
the policy, it was held by the House of Lords that the insurer had the right to repudiate
the policy because of the misstatement though it was not a material fact.

WARRANTIES:

 CTN Cash & Carry Ltd v General Accident Fire & Life Assurance Corpn :Where
the proposal has been made the basis of the contract, any mis- statement of a fact in it
would avoid the policy whether such fact is material or not. A lorry was insured against
fire. The proposal form disclosed the place where it was kept. The proposal was made the
basis of the contract. The fact that the vehicle was garaged at a farm on the outskirts of
the city, and it was destroyed by fire. In a claim on the policy, it was held by the House of
Lords that the insurer had the right to repudiate the policy because of the misstatement
though it was not a material fact.

PERILS ISSURED AGAINST AND PROXIMATE CAUSE

 In a fire policy it is necessary that fire must be the proximate cause of the loss.
 Marsden vs City & Country Assurance Co.: A shop was insured against loss from any
cause whatsoever except fire. A fire broke out on the adjoining premises and spread to
the rear of the plaintiff's shop but no further. While the plaintiff was shifting his stock to
safety, a mob attracted by the fire, tore down the shop shutters and broke the windows for
the purpose of plunder. It was held that the proximate cause of the damage was not fire,
but the lawless act of the mob.

 Everett vs London Assurance : Fire means actual ignition and not merely generation of
heat. Certain property was insured against fire. A quantity of gunpowder belonging to a
person at some distance from the plaintiff's property exploded, the shock of which
shattered the windows and damaged the plaintiff's property. It was held that as the
proximate cause of the damage was a concussion of air, and not fire, the plaintiff could
not recover.
  Stanley vs Western Insurance Co: Any loss resulting from an apparently necessary and
bone fide effort to put out a fire, whether it be by spoiling the goods by water, or
throwing the articles of furniture out of a window, or even the destroying of a
neighbouring house by an explosion for the purpose of checking the progress of the
flames, in a word, every loss that clearly and proximately results, whether directly or
indirectly from the fire, is within the policy.

EXCEPTED PERILS

 Fire policies often provide that there would be no liability for loss caused by gas,
explosion, riot, civil commotion or war. Such risks constitute the excepted perils.
Sometimes an explosion leads to a fire or a fire to an explosion. The court has to
determine whether the loss was due to fire or due to an excepted peril.
 Ahmedbhoy Habibbhoy v Bombay Fire and Marine Insurance Co Ltd: Where the
insurance company took possession of the premises in order to minimise the damage by
salvaging operations but instead aggravated it by allowing water to remain on the
premises for a longer time than was necessary for putting out the fire, the company was
held liable for the increased damage.

PROCEDURE AND BURDEN OF PROOF

 The insured has only to show that the loss was caused by fire. This makes out a prima
facie case on his part. The insurer may then show in defence that the fire was caused by
the insured himself or that it was due to his connivance.

REQUIREMENT OF NOTICE OF LOSS

 Diab v Regent Insurance Co Ltd: A policy carried a condition precedent of mandatory

nature requiring the owner of the commercial premises to give a written notice of loss
within 15 days of fire damage. The question was whether this condition had become
waived by the conduct of the insurer. The court found that the managing director of the
insurer only tried to persuade the insured not to pursue the claim under the policy. He
said nothing on the point that if the insured decided to pursue the claim, he would not be
 bound by the requirement of notice. The claim under the policy was dismissed because
the requisite mandatory notice had not been given.
(A policy carried a clause of mandatory nature to give a written notice of loss within 15
days of fire damage. The claim was rejected for violation of the clause.)

REJECTION OF CLAIM ON SURVEYOR'S REPORT

 Jang Bahadur Singh vs UOI: A claim was rejected only on the basis of the surveyor's
report. That was held to be improper. The insurance company should take assistance from
the surveyor. It should not be under his dictation. It has to apply its independent mind.
Anything adverse to the beneficiary of the policy in the surveyor's report should be
disclosed to him before repudiating his claim.

 Shree Ram Swara Centre v State of Bihar: Stock-in-trade of the shopkeeper was
insured. Cash and fertilisers were looted. The surveyor's finding was that the loss in
question was not attributable to anything done by the insured. It was a third party act
beyond his control. But he proposed rejection of the claim because the loss was due to
the dispute between the landlord and tenant. Repudiation of the claim on this basis was
held to be not proper. Surveyor has to report only about the facts. It is not his business to
advise anything about legal options. The insurance cannot delegate the function of
decision making to the surveyor. The insurer was directed to reconsider its judgment.

ENHANCEMENT OF INSURED SUM

 Weston Tubes (P) Ltd v National Insurance Co Ltd : The letter proposing
enhancement was sent by the insured on 1 May and was received and accepted by the
insurer on 2 May. Earlier a meagre sum was paid which was accepted under protest. This
fact was held as not disentitling the insured from claiming enhanced sum. Fire had
broken out in the factory in the intervening night between 1 and 2 May. In the absence of
any specific time for commencement mentioned in the policy, commencement was taken
to be from midnight of 1 May. The insurer became liable to pay the enhanced sum.
CANCELLATION OF CONTRACT

 General Assurance Society Ltd v Chandmul Jain: It was held that the contract here
gave equal rights to the parties to cancel the policy at any time and the assurer could
therefore invoke the condition to cancel the policy. The reason of the rule appears to be
that where parties agree upon certain terms which are to regulate their relationship, it is
not for the court to make a new contract, however reasonable, if the parties have not
made it for themselves. However, cancellation is reasonably possible before the liability
under the policy has commenced or has become inevitable and it is a question of fact in
each case whether the cancellation is legitimate or illegitimate.
In the present case the clause in question is intended to cancel the risk but not to avoid
liability for loss which has taken place or to avoid risk which is already turning loss.

REINSTATEMENT FIRE POLICY

 In an insurance policy with the reinstatement clause, the insurer is bound to pay the cost
of the insured property as on the date of the destruction or loss, and it matters very little
if the amount so paid by the insurance company is invested for purchasing the destroyed
asset or for any other purpose.

 Vania Silk Mills (P) Ltd. vs CIT: In the present case, the insurance was on
reinstatement basis which meant that the property was to be restored to the condition in
which it was, before the fire. The insurance company paid the amount for the restoration
of the machinery which had to be on the basis of its value at the time of the fire. The
machinery in question was purchased in the year 1957 and the fire broke out on 11
August 1966. Although nothing had come on record on the point, taking into
consideration the ordinary course of events, it was legitimate to presume that the cost of
machinery had gone up during the intervening period, and the assured, therefore, was,
entitled to recover on the basis of the increased value of the machinery.
 BURGLARY INSURANCE

Duty to Disclose Material Facts

 All material facts must be disclosed and if not than the policy is voidable.
 Joel v Law Union and Crown Insurance Co. the duty to disclose the facts which the
insured knows. And not the facts which the insured does not know.
“The duty is a duty to disclose, and you cannot disclose what you don't know. The
obligation to disclose, therefore, necessarily depends on the knowledge you possess.”

RISKS COVERED UNDER BURGLARY POLICY

 Loss by theft, house-breaking or larceny must take place from the property described in
the policy. A claim cannot be made for such losses taking place from other properties.
 Such policies usually prescribe the requirement of immediate notice after the incident or
within a specified number of days and also provide that any failure to give the requisite
notice would render the claim not entertainable. The requirement of notice thus becomes
a condition precedent to liability. Once notice is given within time, actual proceedings
may be lodged within the ordinary applicable period of limitation. The requirement of
notice "immediately" would mean notice with all reasonable speed considering the
circumstances of the case.

INTERPRETATION OF “REASONABLE CARE” PROVISIONS

 Provisions as to the duty of the insured to take reasonable care of the thing insured came
into policies obviously because no underwriter wished that his policy should become a
licence for laxity.
 The questions arose as to what meaning is to be given to the words "reasonable care". If
they are taken to mean simple negligence, the very purpose of taking out an insurance
policy would be defeated. A situation of theft without negligence would require the state
of robbery.
 The courts have been of the view that simple negligence should not be taken as ousting
the insurer's liability. There must at least be a state of recklessness.
 Devco Holder Ltd v Legal and General Assurance Society Ltd: The driver of the
insured car left it, with keys in the ignition and unlocked, in a car park at a Station while
he went to his office across the road. He was somewhat delayed and the car was stolen.
The natural defence raised by the insurer was that leaving the keys in the ignition and the
car unlocked was deliberate. The claim denied.

 Sofi vs Prudential Insurance Co Ltd: A family set out for a car trip to France with five
packed suitcases and a leather pouch containing jewellery, insured for some £40,000.
They were locked in the glove compartment. They decided to visit a castle on the way,
and parked the car at a small park which was meant for staff. The jewellery was allowed
to remain in the locked car. On coming back they found the jewellery bag stolen by
smashing a window.

The question was whether reasonable care had been exercised. The trial judge held that
the plaintiff did act within the bounds of reasonable prudence and there was not a degree
of recklessness which would justify the exclusion of liability. The Court of Appeal was of
the view that the same test would apply to property cases as much as it applies to liability
cases. Thus the universal test of recklessness was to apply throughout and by reference to
it, the defence of the insurer failed.