FIRE INSURANCE

DEFINITION:
A Fire Insurance Policy is a form of Property Insurance which provides reimbursement for
damage to the insured assets because of fire and allied perils. A Fire Insurance Policy also
known as Standard Fire & Special Perils Insurance Policy (SFSP Policy). A Fire Insurance
Policy pays for the cost to replace or repair the damaged assets.
According to Section 2(6A) of The Insurance Act, 1938, "fire insurance business" refers to
the specific practice of creating contracts that provide insurance coverage against losses
caused directly by fire or by incidents typically covered under fire insurance policies.
This definition excludes instances where fire insurance is provided incidentally as part of
another type of insurance business.
CONDITIONS:
Now, it is essential to note that the term 'fire' in the fire insurance in India must meet two
specific conditions:
● There must be actual fire or ignition.
● The fire must be accidental.
For a property to be covered, it must be damaged or burned by fire. Damage caused solely
by heat or smoke, without ignition, does not fall under the definition of 'fire' for insurance
purposes. - Everett V/s London Assurance. Co. 1895
Why is Fire Insurance Necessary, and for Whom? What are the Perils covered under a Fire
Insurance Policy?
• Fire
• Riots, Strikes and Malicious Damage
• Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and
Inundation Explosion /Implosion
• Lighting
• Impact Damage
• Subsidence, Landslides and Rockslides
• Bursting and/or Overflowing of Water Tanks, Apparatus and Pipes
1. Principle of Insurable Interest
Insurable Interest means that a person benefits from the continued presence of the asset or
is prejudiced by the loss of the subject-matter. Principle of Insurable Interest in a Fire
Insurance Policy means that the Insured can insure only those assets which he benefits
from. Insurable
Interest must exist at the time of purchasing the fire insurance policy, during the currency of
the policy as well as at the time of loss.
2. Principle of Utmost Good Faith
Principle of Utmost Good Faith is another important principle of Fire Insurance and means
that all parties to an Insurance Contract must make a complete declaration of all facts that
are material for accepting or declining the Fire Insurance Proposal.
The Insured has a duty to disclose all material facts and not conceal, misrepresent, or
withhold any material facts which might change the decision of the insurance company to
accept or reject the risk proposal.
3. Principle of Proximate Cause
Proximate Cause needs to be identified when 2 or more causes are responsible for the loss.
In that case, the Proximate Cause or the dominant factor which has caused the loss needs to
be determined. If the Proximate Cause falls within the perils named in a Fire Insurance
Policy, the claim is payable. If the Proximate Cause does not falls within the perils named in
a Fire Insurance Policy or falls within the exclusions in a Fire Insurance Policy, the claim is
repudiated.
4. Principle of Indemnity
The Principle of Indemnity in a Fire Insurance Policy aims to place the Insured in the same
financial position after the loss as the Insured was in before the occurrence of the loss. As
per the Principle of Indemnity, the Insured is not allowed to make a profit from his
insurance policy.
Principle of Subrogation
The Principle of Subrogation allows an insurance company to step into the insured's position
to recover losses from a negligent third party after compensating the insured. The insurer
can pursue the insured's rights to recover losses but must first has to pay the claim. Any
excess amount that the insurance company receives should be remitted back to the Insured.
Add-On Covers.. Damages due to Earthquake, Damages due to Storm, Tempest, Flood,
Inundation, Hurricane, Cyclone, Typhoon and Tornado Damages due to Terrorism, Removal
Of Debris, Architects and Surveyors Fees, Spontaneous Combustion Cover, Start-Up
Expenses, Omission to Insure Additions, Alterations or Extensions, Escalation, Forest Fire.

HISTORY OF FIRE INSURANCE

● The development of fire Insurance can be traced back to 1601 A.D. when the Poor
Relief Act was passed 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– in which within span of three
days from 2nd to 5th September, 1666, 80% of the city was destroyed which sowed
the seeds of fire Insurance.
● First, only buildings were insured and the first fire office was established by a builder
Nicholas Barbon in 1680. In 1708, Charles Povey founded the Traders Exchange for
insuring movable goods, merchandise and stocks against loss or damage and this
was the first to insure both the building and its contents.
FEATURES OF FIRE INSURANCE
● Offer & Acceptance: It is a prerequisite to any contract. The property will be insured
under fire insurance policy after the offer is accepted by the insurance company.
Example: A proposal submitted to the insurance company along with premium on
1/1/2011 but the insurance company accepted the proposal on 15/1/2011. The risk
is covered from 15/1/2011 and any loss prior to this date will not be covered under
fire insurance.
● Payment of Premium: An owner must ensure that the premium is paid well in
advance so that the risk can be covered. If the payment is made through cheque and
it is dishonored then the coverage of risk will not exist.
● Deliberate Act: If a property is damaged or loss occurs due to fire because of
deliberate act of the owner, then that damage or loss will not be covered under the
policy
● Claims: To get the compensation under fire insurance the owner must inform the
insurance company immediately so that the insurance company can take necessary
steps to determine the loss.
The following items are included in fire insurance:
● Buildings
● Electrical installation in buildings
● Contents of buildings such as machinery, plant and equipments, accessories, etc.
In the following cases, the loss by fire is not considered:
● Loss of goods by excessive heat due to the closure of doors and ventilations.
● The damage of goods due to heavy humidity
● Change in state of products due to environmental factors
● Damage to articles as a result of smoke without flame.
● The loss or damage caused by electricity.
The losses by the following instances or losses subsidiary to fire are as follows:
● Damage which occurs as a result or smoke or of putting out the fire would be
covered by the fire risks
 ● Any loss resulting from apparently necessary and bona fide efforts to put out a fire,
whether it be by spoiling goods by water or throwing articles of furniture out of
window, are covered by the fire risks.
● Every loss directly or if not directly at least consequently resulting from the fire is
within the policy (In Stanley V/s Western Ins. Co., 1968)
● Loss of theft during a fire is covered as a fire risk
● Loss by fire caused by the insured’s negligence may be covered by the policy (IN
Harris V/s Poland, 1941).

HAZARDS INVOLVED:
Physical Hazards: in fire insurance are related to material aspects of the insured property,
such as buildings, shops, factories, or storage areas. These hazards can be evaluated
through the proposal form, taking into account specific features of the subject matter being
insured.
1. Construction of building: knowledge about the structure of the building is to be
estimated first. The materials used for construction of walls of the building its
terrace, floors, doors, the age of the building / house, its height, number of floors in
the building quality and use of woods in the building, etc. are to be verified. From
each of these factors, the physical hazards can be estimated.
2. Use of the building or premises: The fire insurance hazards of a building or its
premises depend on their usage, such as housing, shops, offices, or storing materials.
Certain uses, like storing explosives or inflammable materials, increase the fire risk,
while others may reduce it.
3. Location of the building or premises: influences the occurrence of fire insurance
hazards. The use of the house may not increase the hazards, but the location of the
building can increase the same. For example, explosives shop near to a cloth shop.
There is very rare chance of fire from the cloth shop. but its nearness to an explosive
shop increases the chances of fire.
4. Electrification: The method of electrification or its nature can increase or decrease
the fire insurance hazards.
5. Interior Decoration: At the present time of modern style of living, interior,
decoration of the house/ building is a usual matter. The interior decoration is done
with the materials like wood, cloth, paper, and paper board, synthetic insulating
materials etc. All these materials increase the chances or fire hazards.
Moral Hazards
Moral hazards are the outcome of nature, behaviour and attitude of people. Carelessness,
dishonesty, negligence, insanity, lock of proper education, social and economic structure of
the society etc. are the causes of moral hazards. The various causes of moral hazards are –
1. Dishonesty: This is done to claim higher amount for less costing property. In many
occasions such people make efforts in charging claim for higher amount.
 2. Negligence: In many occasions, due to negligence of the insured or his employees;
the fire takes place in the building or the goods. By hiding the truth, the claim is
received from the insurer.
3. Un-cordial Industrial Relations: In many occasions, due to un-cordial relations
between the employer and employees, the insured property is set on fire.
4. It is the duty of the insured to take necessary steps to reduce the effects of fire,
when a fire is broken in the premises/ building. But many insured's never take any
suitable step to reduce the risk.
5. Damage Reputation: Sometimes the insured keeps mean mentality towards the
insurer, and in order to exploit the reputation of the insurer claims are made for
such losses also
6. Non- taste for reducing risks: It is the duty of the insured to take necessary steps to
reduce the effects of fire, when a fire is broken in the premises/ building. But many
insured's never take any suitable step to reduce the risk.

• According to Section 2(6A) of The Insurance Act, 1938, "fire insurance business"
refers to the specific practice of creating contracts that provide insurance coverage
against losses caused directly by fire or by incidents typically covered under fire
insurance policies.

• Heating unaccompanied by ignition is not fire. “Loss or damage” occasioned by fire

means loss or damage either by ignition of the articles consumed or by damage
either by ignition of the articles caused or by ignition of that part of the premises,
where the article is.

Procedure of Effecting Fire Insurance

• Selecting the Insurer • Filling of proposal form • Inspection of the property • Payment of
premium • Issue of Cover note/ Policy document in lieu of acceptance of the proposal •
Settling of Claim

1. Selection of insurer: The insured is required to select a suitable company for this
purpose amongst a large number of companies engaged in this business. The
proposer can select any of these companies according to his convenience,
rationality, goodwill of the company, its financial soundness, premium rates, policies
and services provided etc. Eg. Oriental Fire Insurance, SBI General Fire Insurance
Fire insurance premiums - what factors influence these costs?
Property Value: Higher-value properties require higher premiums.
Location: Properties in high-risk areas have higher premiums.
 Construction Materials: Fire-resistant materials can lower premiums.
Covered Perils: Comprehensive coverage increases premiums.
Fire Prevention Measures: Safety features like alarms and sprinklers reduce premiums.
Usage of Property: Industrial and commercial properties generally have higher premiums.
2. Filing of Proposal Form:

Description of the property. This would include:

 Construction of external walls and roof, number of storeys.

 Occupation of each portion of the building.
 Presence of hazardous goods.
 Process of manufacture.
 The sums proposed for insurance.
 The period of insurance.
 History of previous losses.
 Insurance history - whether previously other insurers had declined the risk, etc
Inspection of the property: In case of property of any business organization, whether
manufacturing or other type of organization, a risk inspection report is submitted by the
insurer’s engineers. The engineers submit in their report the nature of risk involved in the
factory/ manufacturing unit.
Payment of premium: The insurance company will provide premium rates to the property
owner based on the proposal form and engineers' inspection report. If the rates are
acceptable, the property owner must pay the full premium amount in advance, as required
by Section 64VB of the Insurance Act, 1938.
Issue of Cover note/ Policy document: A cover note is issued after receiving a completed
proposal form or inspection report. Temporary insurance coverage provided until the policy
document is prepared. The policy document includes a detailed schedule with contract
specifics. If there are changes to the property or sum insured after the policy is issued,
endorsements can be added to record adjustments like alterations in risk or changes in
coverage.
Claim to be made known within the period of 12 months from the happening of the loss or
damage - NATIONAL INSURANCE CO. LTD. Vs: SUJIR GANESH NAYAK & CO. & ANR:
21/03/1997
THE FIRE INSURANCE DOES NOT COVER THE FOLLOWING RISKS KNOWN AS GENERAL
EXCLUSIONS
• Loss, destruction or damage caused by war, and kindred perils.
• Loss, destruction or damage directly or indirectly caused to the insured property by
nuclear peril.
• Loss, destruction or damage caused to the insured property by pollution or contamination.
• Loss, destruction or damage to any electrical and / or electronic machine, apparatus,
fixture or fitting arising from or occasioned by over-running, excessive pressure, short
circuiting, arcing, self-heating or leakage of electricity, from whatever cause (lightning
included)
• Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or
damage of any kind or disruption whatsoever
Costs incurred in Preparing a Claim for damages due to Fire
Damage to stock in cold storage due to change in temperature.
Unoccupied premise after Loss for 12 months. Theft after/during fire
• Claim to be made known within the period of 12 months from the happening of the loss or
damage - NATIONAL INSURANCE CO. LTD. Vs: SUJIR GANESH NAYAK & CO. & ANR:
21/03/1997
PROCEDURE TO SETTLE THE FIRE INSURANCE CLAIM
If a policyholder experiences damage or loss due to fire, they must promptly inform the
insurance company in writing, including an estimate of the loss.
For losses up to ₹20,000, the insurer may assign an officer to survey and settle the claim
based on the officer’s report and the claim form.
For larger losses, a licensed surveyor, mandated by IRDAI, must be appointed to assess and
settle the claim. Surveyors are licensed intermediaries responsible for investigating,
managing, and quantifying losses and assessing property damage.
The survey report would generally deal with the following matters:
1. Cause of loss.
2. Extent of loss.
3. Details and value of salvage, and how it has been disposed of or proposed to be
disposed of.
4. Details of expenses (e.g. fire brigade expenses).
5. Compliance with policy conditions and warranties.
6. Details of other insurance policies on the same property, and the apportionment of
the loss and expenses among co-insurers
CLAIM FORM
The policy holder will submit the claim form with the following information:
● Name and address of the Insured.
 ● Date of loss, time and place from where the fire started.
● Cause of fire.
● Details of the property damaged such as description, etc.
● Value at the time of fire, value of salvage and the amount of loss.
● Details of other policies on the same property giving the name of the insurer, policy
number and sum insured.
● Fire Brigade report.
● F.I.R. at the nearest police station regarding third party liability, if any.
BURDEN OF PROOF: It is the responsibility of the insured to show that loss was caused by fire.
This makes out a prima facie case on his part.
The insurer may then show in defense that the fire was caused by the insured himself or that
it was due to his connivance.
 In Slattery v. Mance (1962), the court addressed whether, in a fire insurance claim,
the plaintiff must prove that the fire was not caused by their own actions. It was
established that the policy covers losses from fire, including deliberate acts by others
without the plaintiff's involvement. However, the plaintiff cannot recover damages if
they intentionally caused the fire or were complicit in it.
● Once the insured had shown that the loss was caused by fire, he had made out a
prima facie case and the onus shifts on the insurer to show on a balance of
probability that the fire was connived by the assured. - Murari Woolen Mills Ltd. v.
United India Insurance Co. Ltd. (2005) 3 CPJ 118 National Commission
● In Marsden v. City and County Assurance (1865), a shop was insured against all
causes except fire. A nearby fire caused the plaintiff to relocate his stock, attracting a
mob that damaged the shop through plundering. The court held that fire was not the
proximate cause of the damage; instead, it was the mob's lawless actions.
Consequently, the claim was rejected as the policy did not cover such damages.
REASONABLE CARE:
Insurance policies include a duty for the insured to take reasonable care to prevent loss,
ensuring the policy does not encourage negligence.
R. Birds clarified that courts interpret "reasonable care" leniently, rejecting claims only when
there is proven recklessness or a clear disregard for ordinary standards, rather than for
mere negligence. This avoids defeating the purpose of insurance.
Fraser v. B.N. Furman (Productions) Ltd. (1967) - failure to take precautions was done
recklessly.
The term "reasonable" in insurance does not imply what is reasonable between the employer
and employee but rather between the insured and insurer, considering the contract's
commercial purpose—primarily to indemnify against personal negligence. Negligence alone
does not void a claim; the policyholder's omission must reach the level of recklessness.

SIGNIFICANCE OF FIRE INSURANCE

1. As a source for minimizing losses: Fire can destroy property in goods and fixed assets
of crores of rupees or can create damages to the business property. Fire Insurance
indemnifies losses or damages due to fire and resources the mental worries of
businessmen.
2. Decreases in probabilities of fire losses: The increasing uses of energy like petrol,
electricity, gas and other such items have increased the probability of losses or
damages to goods and property. In order to minimize this calamity, various type of
fire extinguishing devices has been discovered throughout the world. Moreover, the
fire insurance is another device to indemnity the losses thus removes mental worries
by extending financial support. Fire brigades are set up by the government and local
bodies in every city and town to extinguish fire to prevent loss of property.
3. Decrease in social loss of fire: Social awareness has been created in the country to
put out fire and to reduce the effect of fire. The social organizations provide training
to the people in the use of the fire extinguishing devices and caution them in the use
of such items which causes or produces fire

4. Asset valuation: Assets are valued for obtaining a fire insurance policy. It requires the
insured to be more cautious in protecting his property or goods.

5. Helpful in business progress: Due to the facilities provide by the fire insurance
companies, the business enterprises undertake large scale production and invests in
business and marketing activities without any botheration. This leads to continuous
progress in industrial and commercial activities, lead to economic growth.

6. Beneficial for new industries: The new industrial units usually face complex problems
of production, finance, competition and sales etc. In such a situation, they cannot
afford the losses/damages due to fire. The fire insurance relieves such entrepreneurs
from worries by indemnifying the loss/damages, if any, from the occurrence fire

7. Credit facility: Where the assets are secured by fire insurance, it becomes easier for
such enterprises to get credit from banks and other financial institutions. This will
increase the credit worthiness of the enterprises.

8. Distribution of risks: Fire insurance is an effective device to distribute the risks in a

group, enabling the individual or the institution to maintain its efficiency
TYPES:
1. VALUED POLICY: A valued policy is an insurance type where the item's value is
predetermined and fixed at the time of the policy. In the event of damage, the
insured receives this agreed amount, regardless of the actual loss. It departs from the
principle of indemnity as the insured can recover a fixed amount agreed to at the
time the policy is taken. Primarily used for items like paintings, crafts, and articles
with fluctuating market values.

2. AVERAGE POLICY: The average clause in fire insurance applies when the insured sum
is less than the actual value of the property, converting a standard policy into an
Average Policy. It aims to penalize under-insurance by transferring part of the loss to
the policyholder. For example, if a property worth ₹10,00,000 is insured for
₹5,00,000 and suffers damage worth ₹6,00,000, the insurer will apply an Average
clause to decide the reimbursement amount.
The insurance recovery is calculated as : [(Insured Value)/ (Actual Value) ] * Loss
= [5,00,000 / 10,00,000 ] * 6,00,000 = ₹3,00,000. Thus, your insurance company will only pay
₹3,00,000 and not ₹6,00,000. You have to pay the rest of the amount out of your pocket as
a penalty for under insurance.
3. COMPREHENSIVE POLICY: as the name suggests, is a fire insurance policy that offers
comprehensive coverage for a variety of perils alongside fire accidents. Fire, theft
and Burglary Insurance, third party risks are a good example of a comprehensive fire
insurance policy.

4. FLOATING POLICY: covers property belonging to the same person located at multiple
locations under a single sum insured and one premium. For example, instead of
buying separate policies for four shops at different locations, a single floating policy
can insure all properties collectively.

5. REPLACEMENT POLICY: A reinstatement policy includes a clause allowing the insurer

to either replace or reinstate the property damaged by fire instead of paying cash.
Once the insurer chooses an option, they cannot switch. The cost of the property is
calculated based on its current market value minus depreciation.
BHARAT SOOKSHMA UDYAM SURAKSHA – B.S.U.S
The Bharat Sookshma Udyam Suraksha Policy is a government-backed insurance scheme for
small and medium level shopkeepers in India. It provides financial protection against risks
faced in daily business operations, ensuring their interests are safeguarded.
ELIGIBILTY CRITERIA:
● The value of your business assets shall not exceed ₹5 crore at the time of policy
purchase
● If you are the owner of the place being used for commercial purposes
● If you are a tenant or a lessee who is using the place for commercial purposes
● If, during the policy tenure, the value of assets exceeds ₹5 crore, your policy will be
replaced with a policy providing the appropriate coverage for your assets post the
expiry period
Coverage And Exclusions Of The Policy
1. Damage due to fire combustion or explosion
2. Damage due to landslides/rockslide
3. Damage due to impact from a vehicle
4. Damage due to riots
 Damage caused to the working of the equipment
 Damage caused due to alterations, excavation or renovation done around the
property
 Damage caused due to a vehicle owned or belonging to the insured
 Damage caused due to illegal activities being conducted on the property
BHARAT LAGHU UDYAM SURAKSHA POLICY – B.L.U.S
1. This policy covers the property if total assets value ranges above Rs 5 crore upto
Rs 50 crore at policy commencement date.
2. It covers loss due to unexpected events which result to physical loss, damage or
destruction of building and structures, plant and machinery, stock and other
assets relating to your business.
3. Underinsurance is waived off up to 15 %.
4. It provides inbuilt covers for: Additions, alterations or extensions, temporary
removal of stocks, start-up expenses
WARRANTIES:
A warranty in an insurance contract requires strict compliance by the insured. If any breach
happens, regardless of necessity, it will automatically discharge the insurer's liability.
Pre-contractual statements can become warranties through "basis clauses," which
incorporate the insured's representations into the policy. Any inaccuracy in these
representations constitutes a breach of warranty, releasing the insurer from liability.
Although terms are often labelled warranties, a true warranty is a term by which the insured:
● undertakes that some particular thing shall or shall not be done
 ● undertakes that some condition shall be fulfilled
● affirms or negatives the existence of a particular state of facts
In insurance contracts, the contents of the proposal form are explicitly included in the policy
as a warranty. A warranty is a promise or guarantee by the insured, where they agree that
certain actions will or will not be taken, or that specific conditions will be met. It also
involves affirming or denying the existence of particular facts or circumstances.
Warranties which are mentioned in the policy are called express warranties and those
warranties which are not mentioned in the policy are called implied warranties. Non-
compliance with a warranty prior to the current term and period between renewal of a
policy is not a bar to a claim.
IMPLIED WARRANTIES:
The first implied warranty requires that the property's structure be of adequate quality and
not using inferior materials like thatched roofs or bamboo.
The second warranty mandates the installation of fire extinguishing appliances, with annual
maintenance. Additionally, there should be no silent risks, such as unreported new
constructions or additions. Special articles exposed to fire must be equipped with safety
sensors and alarms.
The subject-matter of insurance must exist at the time the contract is made and be
identifiable in the event of a loss, based on details like locality and description.
Once a warranty applies, it remains in effect throughout the policy's duration.
Noncompliance with any warranty, regardless of risk increase, will prevent any claim related
to the insured property.

SECTION 135- ASSIGNMENT OF RIGHTS UNDER POLICY OF INSURANCE AGAINST FIRE.

1. An assignment of a fire insurance policy involves the transfer of rights, title, and
interest under the policy from the original policyholder (assignor) to another party
(assignee)
2. Insurer's Consent: Most fire insurance policies contain a clause that prohibits
assignment without the insurer’s prior written approval. The insurer may refuse to
consent if they deem the new policyholder to pose a higher risk.
3. Effect of Assignment: Once the assignment is made and accepted by the insurer, the
assignee steps into the shoes of the assignor and assumes their rights and
obligations under the policy.

4. Contractual Clause: Fire insurance contracts often have clauses explicitly addressing
the assignment of the policy. Courts usually uphold such clauses, especially when
they require the insurer’s approval.
 5. Under common law, a fire insurance policy is considered a personal contract, which
binds the original parties, making assignment without consent typically invalid unless
otherwise agreed.
6. In some situations, equity may allow the assignment of policies in cases where strict
adherence to the contract terms would be unjust.
7. When property is sold, the fire insurance policy often needs to be assigned to the
buyer. This process requires insurer consent to ensure the risk has not significantly
changed.

REINSTATEMENT:
The principle of reinstatement in fire insurance allows the insurer to restore the damaged
property to its original condition instead of paying monetary compensation for the loss. The
insurer can either pay for repairs or rebuild the property, or physically carry out the
reinstatement themselves.
This option is commonly used in fire insurance policies for properties that can be repaired or
rebuilt after fire damage.
In most fire insurance policies, the option to reinstate lies with the insurer. The insurer may
decide whether to:
1. Pay the insured a cash sum equivalent to the loss or damage, or
2. Reinstate or repair the damaged property.
Insured's Interest: The insured has an interest in ensuring that the reinstatement restores
the property to a condition that matches or is equivalent to the one it was in before the loss
happened. This ensures that the insured does not suffer a downgrade in the property’s
condition after the insurance claim is settled.
This can be applied to buildings, machinery, furniture, fixtures, and fittings, provided the
policy includes a specific memorandum. In the event of damage or destruction, the insurance
payout will be based on the cost to replace or reinstate the property to its original
condition, either on the same site or another, with similar property—not superior or more
extensive than the insured property at the time of loss.
Replacement or reinstatement work must be completed within 12 months of the damage or
destruction, or within an extended period approved by the insurer.
If not, the insurer will only pay the amount that would have been payable without the
reinstatement clause. Until the insured incurs costs for replacing or reinstating the property,
the insurer is not liable to pay more than the amount specified in the policy without the
reinstatement provision.
LIMITATIONS OF REINSTATEMENT
• Value Limits: The reinstatement must not exceed the sum insured. This means that if the
cost of rebuilding or repairing exceeds the coverage limit, the insurer is only liable for the
amount covered.
• Time Limit : The insured must replace the damaged asset within a specified time limit,
usually 12 months.
• Proportionality Clause: In some policies, a proportionality clause might apply, where the
insurer is only required to restore the property to the extent covered by the policy (e.g., if
the insured is underinsured, the insurer might only reinstate part of the damage).
• Extent of Damage: Reinstatement is more practical when the damage to the property is
partial. In cases of total destruction, the insurer may prefer a cash payout as reinstatement
might be impractical.
ROLES AND FUNCTIONS
I. Financial Protection: Fire insurance serves as a vital financial shield against
unexpected property damage or destruction caused by fires. This coverage ensures
the policyholder doesn't face overwhelming financial losses if a fire strikes.

II. Reconstruction and Replacement: Should damage occur, the insurance payout
enables the policyholder to repair or rebuild the property swiftly. This facilitates a
faster recovery process and minimises business downtime or homeowners'
disruptions.

III. Business Continuity: Fire insurance helps minimise downtime and lost income for
businesses. The coverage for lost inventory, business interruption, and temporary
workspace expenses allows businesses to get back on track faster after a fire.

IV. Peace of Mind: The biggest benefit of fire insurance is simply peace of mind.
Knowing you're financially protected allows you to focus on what matters most – the
safety and well-being of yourself and your loved ones – during a difficult time.

V. Legal Compliance: Many lenders and landlords mandate fire insurance coverage for
individuals and businesses as a prerequisite for loans or leases. Having fire insurance
ensures compliance with legal and contractual obligations, providing security for
both parties involved.

VI. Documentation and Verification: The insured must give the insurance company all
the paperwork needed to support their claim, such as receipts, invoices, photos, and
other proof of the fire-related loss or damage. The insurance company will check if
the documents are genuine and might investigate more if needed.
VII. Damage Assessment: Once notified of a loss, the insurance company will dispatch a
surveyor to evaluate the damage to the insured property. The surveyor will assess
the extent of damage and calculate the repair or replacement costs. The insurance
company will use the surveyor's report to decide on the compensation amount for
the insured.

VIII. Business Continuity Support: Fire can be particularly disruptive for businesses,
causing property damage and significant revenue loss due to interrupted operations.
Fire insurance for businesses can cover lost income, damaged inventory, and even
the cost of relocating to a temporary workspace. This financial support helps
businesses get back on their feet and minimise downtime after a fire event.

IX. Third-party Liability Protection: In some instances, a fire originating in your property
might cause damage to neighbouring buildings or injure others. Fire insurance can
offer liability protection, covering legal costs and settlements arising from such
situations. This ensures you are not burdened with additional financial woes on top
of the fire damage.
MARINE INSURANCE:
Marine insurance safeguards against the loss or damage of ships, cargo, and transport-
related assets during transit. It encompasses cargo insurance (a sub-branch) and also covers
onshore and offshore properties like ports, terminals, oil platforms, and pipelines.
Additionally, it includes Hull insurance (for ships), Marine Casualty, and Marine Liability
coverage.
A charter-party is a maritime contract between a shipowner and a "charterer" for the hire of
either a ship for the carriage of passengers or cargo, or a yacht for leisure.

HISTORY:
1. Marine insurance dates back to 1347, with the earliest records linked to a
Mediterranean voyage.
2. In the year 1400, a book was written by a merchant of Florence which indicates
premium rates charged for the shipments by sea from London to Pisa.
3. Originating in Italy, marine insurance spread across European trade routes.
4. In 1563, Antwerp insured three ships on a voyage from Hawaii to Central America.
5. Early travellers faced risks of piracy, while during the Mughal era (Akbar to
Aurangzeb), insurance was reportedly common, though details of its nature and
coverage remain unclear.
6. Marine insurance was one of the earliest forms of insurance and actually evolved
from Greek and Roman marine loans to hedge risks in medieval times.
7. Separate marine insurance contracts emerged in 14th-century Genoa, spreading to
northern Europe, with premiums reflecting seasonal and piracy risks. Modern marine
 insurance law developed under Lex mercatoria, with England establishing a
dedicated assurance chamber in 1601.
8. By the late 17th century, London's trade prominence increased marine insurance
demand. Edward Lloyd’s coffee house, opened in the 1680s, became a hub for
shipowners, merchants, and captains to exchange shipping news and arrange
insurance. This informal network grew into Lloyd's of London, a foundational marine
insurance market.
DEFINITION OF MARINE INSURANCE
The marine insurance has been defined in section 3 of the Marine Insurance Act, 1963:
“A contract of marine insurance is an agreement whereby the insurer undertakes to
indemnify the assured, in the manner and to the extent thereby agreed, against marine
losses, that is to say, the losses incidental to marine adventure”
“Marine Insurance Business” as defined in sanction 2 (13-A) of the Insurance Act, 1938
Marine insurance involves contracts to insure vessels, cargo, freight, and related interests
during transit by land, water, or both. It also covers goods, merchandise, and property,
including warehouse or incidental risks linked to the transit. Additionally, it includes other
risks typically covered in marine insurance policies.
The ‘Marine adventure’ has been defined in Section 2(d) of the Marine Insurance Act,
1963 as under:
1. Any insurable property is exposed to maritime peril;
2. The earning or acquisition of any freight, passage money, commission profit or other
pecuniary benefit, or the security for any adventure, loans or disbursements is endangered
by the exposure of insurable property to maritime perils;
3. Any liability to a third party may be insured by the owner of or other person interested in,
or responsible for, insurable property by reason of maritime peril.

In section 2(e) of the Act, “Maritime perils”

means the perils consequent on, or incidental to, the navigation of the sea, that is to say
perils of the seas fire, war perils, pirates, rovers, thieves captures, seizures, restrains and
barratry and any other perils which are either of the like kind or may be designated by the
policy
INSURABLE INTEREST:
Avoidance of Wagering contract [Section 6]: –
1. Every contract of marine insurance by way of wagering is void;
2. A contract of marine insurance is deemed to be a wagering contract;
 Where the assured has not an insurable interest, and the contract is entered in to
with no expectation of acquiring such an interest; or
  An "interest or no interest" policy means the insured can claim compensation
without proving ownership or financial interest in the insured item, even if there's no
salvage recovery.

Insurable Interest defined [Section 7]

1. Subject to the provisions of this Act, every person has an insurable interest who is
interested in marine adventure.
2. A person has an insurable interest in a marine adventure if they have a legal or
financial stake in it, meaning they could gain from the safe arrival of the property or
suffer a loss, damage, or liability if it is harmed or lost.
CLASSIFICATION OF MARINE INSURANCE:
1. Hull Insurance - Hull insurance covers the ship's body, machinery, and equipment. It applies
to various types of vessels, like sea-going or sailing ships. Can also cover risks while the ship
is still under construction. These policies usually last for one year.

2. Cargo Insurance- Cargo insurance protects goods transported by ship. It can be a time
policy (covering a specific or definite time period) or a voyage policy (covering a specific trip
without a time limit). Some policies combine both types.

3. Freight Insurance - Freight is the payment for transporting cargo, usually received by the
shipowner. It can be paid upfront or upon delivery. Marine law states that freight is due only
if the cargo safely reaches its destination. If cargo is lost during the voyage and payment was
to be made on delivery, the freight is also lost. To cover this risk, freight insurance is taken
(Section 14 of the Marine Insurance Act, 1963).

ESSENTIALS UNDER MARINE INSURANCE:

1. INSURABLE INTEREST - The assured must have an insurable interest. If there is no
such interest, the policy would be a wagering contract and thus it will be void. Any
person is said to have an insurable interest if he is interested in a marine journey or
who can get affected due to the losses and damages caused in such journey.

2. PROPOSAL AND ACCEPTANCE - A contract of insurance becomes concluded when

there is a proposal to the assured and as insurer accepts the contract, irrespective of
issue of policy. The policy must specify:
 Name of the Insurer
 Name of the assured or of some person who effects the insurance on his behalf
 Subject matter insured and the risk insured against
 Voyage or term of policy or both agreed by the parties
 Sum assured
 3. CONSIDERATION - Here the premium is called Consideration which is captured in the
contract and is computed on the basis of assessment of proposal form and is paid at
the time of executing the contract.
Factors affecting premium rates: Type of goods, type of coverage, shipping routes, loss
history, vessel characteristics, other important factors.
4. Issuance of Policy - Policy when prepared, stamped and signed and finally issued to
the assured party can be considered as effective legal evidence in a court of law. The
policy once issued can also be rectified by the order of court to express the intention
of parties stated in the contract.
5. Utmost Good faith

WARRANTIES: A warranty means that assured shall abide by and fulfill certain condition as
covered in contract. If in case any of the warranty is breached, contract shall stand
terminated.
1. Express warranty in marine insurance –
Express conditions and warranties in marine insurance are the statements and promises
that the insured makes. This type of warranty is clearly stated in the policy document or the
deed. Some features of express warranty are:
a. Suitability of the ship to the journey that is intended.
b. Adherence of the insured party towards good safety and operational measures.
c. The insured declares all of the information that is relevant.
d. The legality associated with the voyage and consignment.
e. An accurate and true description of the cargo according to the laws and rules
applicable.
Express Conditions:
a. Notification requirements: The insured must notify the insurer of any incidents
that may lead to a claim, such as damage to the vessel or loss of cargo.
b. Maintenance requirements: The insured must maintain the vessel in a certain
condition like carry out regular inspections and repairs.
c. Navigation limits: The insured must adhere to certain navigation limits, such as
not venturing into certain dangerous routes.
d. Voyage Warranties: Specifications regarding the route or voyage the insured
vessel is permitted to undertake. Deviating from the agreed-upon route may
result in a breach of warranty.
e. Cargo Description Warranties: Details about the nature and description of the
cargo being insured. Any deviation from the provided cargo description could
lead to a breach of warranty.
 f. Compliance with Regulations Warranties: Assurances that the insured will
comply with relevant laws, regulations, and safety standards during the course of
the insured voyage.
g. Usage and Purpose: Warranties may also describe the reason for the vessel's
insurance as well as its intended use. Any deviation from the stated purpose
without taking approval could result in breach.
h. Qualifications of the Crew: Policies may include certain warranties mentioning
the crew's qualifications and competency. It is critical to ensure that the staff
meets certain levels of training and expertise in order to fulfil this warranty.

2. Seaworthiness of Ship –
Ship should be seaworthy at the time when the journey begins, or in case the voyage takes
place in stages, during the beginning of each stage. Seaworthiness is not calculated on the
basis of physical condition of ship, but on many other important aspects which includes the
suitability and adequacy of the parts of the ship, experience and quality of the officers and
crew.
At the commencement of the journey, the ship must be able to take the ordinary strain and
stress of the sea on which factors the seaworthiness is calculated and looked upon.

3. Legality of venture –
This warranty states that the journey that is insured shall be legal and the matter shall be
carried out in a lawful manner of the country. Violation of foreign laws does not necessarily
involve breach of the warranty.

IMPLIED CONDITION AS TO COMMENCEMENT OF RISK [SECTION 44]:

In marine insurance, a voyage policy that covers a journey "at and from" or "from" a
specific place means that the ship is insured for the voyage starting from that place.
However, this doesn’t require the ship to be physically at that location when the insurance
contract is made.
Despite this, there is an implied condition (a condition that is understood without being
directly stated) that the journey should start within a reasonable time from the conclusion
of the contract. If the ship doesn't begin the voyage within this reasonable time frame, the
insurer has the right to cancel the policy, because the risk associated with the voyage might
change if it’s delayed for too long.
● Alternation of part of departure – Where the place of departure is specified by the
policy, and the ship, instead of scaling for that destination, sails for any other
destination, the risk does not attach. [Section 45’]
 ● Sailing for different destination – Where the destination is specified in the policy,
and the ship, instead of sailing for that destination, sails for any other destination,
the risk does not attach. [Section 46]
● Change of voyage (Section 47) - Where, after the commencement of the risk, the
destination of the ship is voluntarily changed from the destination contemplated by
the policy, there is said to be a change of voyage. Unless the policy otherwise
provides, where there is a change of the voyage, the insurer is discharged from
liability as from the time of change.
● Deviation [Section 48]: If a ship deviates from the planned voyage without a valid
reason, the insured is no longer liable from the moment of deviation, even if the ship
later returns to its original route before any loss happens.
A deviation occurs when:
(a) The ship strays from a specifically designated course mentioned in the policy, or
(b) The ship departs from the usual and customary course of the voyage, even if the
policy doesn't specify the route.
The intention to deviate is immaterial there must be a deviation in fact to discharge the
insurer from his liability under the contract.
● Excuse for deviation or delay [Section 51] - Deviation or delay in the voyage is
excused in the following cases:
(a) If the policy specifically allows it.
(b) If it's caused by circumstances beyond the control of the ship's master and employer.
(c) If it's necessary to fulfill a warranty (either express or implied).
(d) If it's needed for the safety of the ship or the insured cargo.
(e) If it's for saving human life or helping a ship in distress.
(f) If it's needed to get medical aid for someone on board.
(g) If it's caused by the master's or crew's wrongful conduct (barratry), provided barratry is
covered as a risk in the policy.
In the case of New India Assurance Co. Ltd. v Syed Mohammed [AIR 1991 Ker 368 DB], a
fishing boat went missing during heavy rains. The insurance policy had a warranty clause
stating that when the boat was not in use, it should be securely anchored, moored, or
properly watched over. At the time of the incident, there was no proper watch over the
boat, and it was found that the warranty clause was not complied with. As a result, the
court ruled that the boat owner was not entitled to compensation from the insurance
company. The argument that someone was sleeping in a shed on the seashore was not
considered sufficient to meet the warranty requirements.
 ● No Concealment or Misrepresentation: The insured implicitly promises not to
conceal any material information or misrepresent any facts that could affect the risk.
Full disclosure of relevant information is expected
● Warranty of Good Faith: This is an implied warranty that both the insurer and the
insured will operate in good faith throughout the insurance arrangement. This
includes submitting accurate information right through the underwriting process as
well as committing to the policy's terms.
● Warranty of Insurable Interest: The insured is often assumed to have an insurable
interest in the subject matter of the insurance. In marine insurance, this indicates
that if the insured subject is damaged or lost, the insured will incur a financial loss.
IMPORTANCE OF WARRANTIES
Conditions and warranties play a crucial role in in marine insurance in defining the rights and
obligations of both the insured and the insurer. These contractual elements are particularly
important in the Indian context due to the unique challenges and risks associated with
maritime trade and transportation.
• Risk Mitigation: Conditions are the fundamental terms that both parties agree to adhere
to. For example, conditions may outline the insured's obligation to maintain the
seaworthiness of the vessel or the necessity to notify the insurer promptly in the event of a
loss. Adhering to these conditions helps mitigate risks and ensures a safer maritime
environment
• Legal Framework: Conditions and warranties create a legal framework for the marine
insurance contract. They establish the terms upon which the insurer agrees to provide
coverage and the insured agrees to fulfil certain obligations. This legal clarity is essential in
the event of a dispute or a claim.
• Utmost Good Faith: Marine insurance is based on the principle of utmost good faith. Both
parties are expected to act honestly and transparently. Conditions and warranties ensure
that the insured provides accurate information and complies with agreed-upon terms,
fostering trust and fair dealing in the insurance relationship.
• Compliance with Regulations: Conditions and warranties may include obligations related
to compliance with national and international regulations governing maritime activities. This
is particularly important in the Indian context, where adherence to maritime laws and safety
standards is crucial for the protection of lives, property, and the marine environment.
• Claim Settlement: Adherence to conditions and warranties is vital during the claims
settlement process. Failure to fulfill these contractual obligations could lead to disputes or
denial of claims. Clear and unambiguous conditions and warranties help streamline the
claims process and provide a basis for determining coverage.

1. How does an express warranty differ from an implied warranty within the context of
marine insurance?
An express warranty is a written guarantee clearly defined in the insurance policy, while an
implied warranty is an unwritten, understood condition based on the nature of the
contract. Breaching an express warranty makes the policy void, whereas breaching an
implied warranty only relieves the insurer from liability for losses caused by the breach.
2. Can Marine Insurance Coverage be Suspended while a Warranty is being Breached
and be Resumed Thereafter?
● The insurer is discharged from liability as from the date of the breach of warranty.
Where a warranty is broken, the assured cannot avail himself of the defence that the
breach has been remedied.
● In GE Frankona Reinsurance Limited v. CMM Trust 1440 [2006], the High Court of
England and Wales (in Admiralty) allowed breaches of warranty to not affect the
insured’s indemnification if the breach was corrected before the loss occurred and if
the loss was unrelated to the breach.

VOYAGE DEVIATION
In marine insurance, when a ship sets out on a journey, it is expected to stick to a specific
agreed route. If the ship intentionally changes this route i.e., cause a deviation, it can have
serious consequences for the insurance contract. This is because the insurance is based on
the assumption that the journey will follow a certain plan, and any deviation might
introduce unexpected risks.
Lord Atkin's stated in Hain SS Co. V. Tate & Lyle (1936), that even a small change in the
agreed route is considered a serious violation of the contract between the ship owner and
the other party (like the cargo owner). The other party has the right to treat the entire
agreement as broken and may not be bound to its terms anymore, including the insurance
coverage.
● If the shift from the original route is seen as unnecessary or unreasonable, the ship
owner or operator might be held responsible for resulting damages. To avoid
problems, the ship owner or operator should inform the insurer before making any
planned changes. The insurer will evaluate the risks and may adjust the policy to
cover the extra dangers.
THE SITUATIONS WHERE IT IS ALLOWED:
● Weather conditions: Avoid storms or seek safe refuge during bad weather.
● Mechanical problems: Needing to divert to a port for repairs.
● Cargo requirements: Responding to unforeseen circumstances with the cargo, like
picking up additional cargo or assisting a distressed vessel.
● Market opportunities: Taking advantage of a price change or new destination for the
cargo.
EFFECT OF VOYAGE DEVIATION IN MARINE INSURANCE:
1. Breach of Contract: Deviating from the agreed-upon voyage may constitute a breach
of contract with the cargo owner or charterer leading to legal action and potential
liability for damages. Additional costs may also be incurred.
2. Increased Insurance Premiums: Frequent or unauthorised deviations can result in
higher insurance premiums due to increased risk.
3. Damage or Loss of Cargo: Increased exposure to unforeseen risks by deviating from
the planned route can lead to damage or loss of cargo. The cargo owner may have
limited recourse for claims when such unauthorized deviation happens.
4. Delays and Cost Overruns: Deviation can cause delays in delivery, disrupting supply
chain and additional costs such as storage fees and missed deadlines.
5. Legal Disputes: If the ship takes a different route because of disagreements between
the shipowner and charterer, the cargo owner might suffer losses. In such cases, the
cargo owner may need to take legal action to recover their financial losses.
6. General Average Contribution: Sometimes, a ship might intentionally deviate from its
route to protect everyone’s safety (like avoiding a storm). If this happens, all cargo
owners might be asked to share the extra costs caused by the deviation. This is called
a "general average contribution."
7. Subrogation Rights: If the deviation happened because the shipowner or charterer
was careless, the insurance company (after paying claims to the cargo owner) can
take legal action against the responsible party to recover the money they paid out.
An unjustified deviation would result in the carriage contract being suspended: Bailey v Joly,
Victoria Co.

EXEMPTIONS:
1. Force Majeure Events: Ships might need to change their route if they encounter
dangerous weather like storms or hurricanes. Also, the ship might avoid areas with
piracy, armed robbery, or political instability to keep the crew and cargo safe.

2. Engine Failure or Technical Issues: If the ship's engine or other parts break down, it
might need to go to the nearest port for repairs to ensure safety.

3. Helping in Emergencies: A ship may change its route to help another ship in danger or
respond to distress calls. It might also go off course to get medical help for a crew
member who is very sick or injured.
 4. Port Closures or Restrictions: If the planned destination port is suddenly closed or has

5. restrictions (like quarantine rules), the ship may need to go to a different port.

PREVENTION:
1. Negotiation and Compromise: Sometimes, the insurer and the insured can talk openly
and find a middle ground that works for both sides, even if there's a tricky situation.
2. Thorough Voyage Planning: Planning a ship’s journey carefully, including checking the
weather, identifying risks, and following rules, can help avoid unexpected changes
during the trip.
3. Clear Communication and Procedures: Setting up clear communication between the
crew, shipowner, and insurer ensures everyone knows what’s going on. This helps
them work together to make safe and smart decisions.
4. Real-time Monitoring and Analysis: Using technology like weather forecasts and tools
to plan better routes in real time can help avoid big problems and reduce the need for
sudden changes in the ship’s path.
5. Adherence to Regulations and Authorities: Following maritime laws and obeying port
authority rules prevents unintentional problems, such as being forced to change the
route due to non-compliance.
JUSTIFIED AND UNJUSTIFIED DEVIATION
1. Deviation for Safety:
The ship's captain has a responsibility to take reasonable steps to ensure the voyage is safe
and successful. This includes protecting the ship and cargo from avoidable risks. In some
cases, the shipowner might even be required to deviate to safeguard the cargo.
2. Saving Lives vs. Saving Property:
It’s always acceptable for a ship to change course to save human lives. However, deviating
to save property is not allowed unless it’s specifically mentioned in the contract
(charterparty).
3. The Leduc v. Ward Case:
In this case, the shipping contract allowed the ship to stop at any port along the route.
However, the ship, instead of going directly from Fiume to Dunkirk, took a long detour
through Glasgow, adding 1,000 miles to the journey.
The court decided this deviation was not justified. Lord Esher explained that the phrase
“liberty to call at any port” didn’t mean the ship could go anywhere it wanted. It only
allowed stops at ports that were reasonably along the planned route. Glasgow was far off
the planned path, so the deviation was unacceptable.
Mount v. Larkins established key principles in marine insurance and charterparty law. An
unreasonable and unjustifiable delay in starting a voyage is considered a deviation, which
releases the insurer from their obligations. If the ship is not in a proper condition to carry
cargo and the time needed to fix the ship causes major delays, the charterer (the person or
company hiring the ship) has the right to cancel the agreement (charterparty). This protects
the charterer from losses or disruptions caused by delays that make the contract no longer
commercially practical or useful.
However, if the shipowner resolves the defect promptly without causing a delay that spoils
the voyage's purpose, the charterer cannot reject the ship.
In such cases, the charterer may only claim compensation for any loss incurred due to the
delay. Additionally, when a vessel is chartered for a specific time, the charterer is not bound
to accept the ship if the delay in making it fit for service undermines the commercial intent
of the charterparty.
This highlights the importance of timely performance in maritime contracts.