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Property - Fire Insurance

Standard Fire & Special Perils Policy

Need For Fire Insurance

Fire and allied perils like Earthquake, Terrorism, Storm, Tempest, Flood, Inundation can destroy almost everything that man has created. Hence any property whether movable or immovable having pecuniary value needs fire and allied perils insurance protection. This will include buildings, plant and machinery, stock and all types of fixed assets.

Since Fire Policy is applicable for industrial risks, its provisions are explained overleaf briefly.

Scope Of Cover

The Fire Policy covers loss or damage due to:-

  1. Fire
  2. Lightning.
  3. Explosion/Implosion but excluding Steam generation equipments and explosion by Centrifugal forces.
  4. Riot, Strike, Malicious Damage .
  5. Impact Damage by any Rail / Road vehicles.
  6. Aircraft/Aerial or Space devices and Articles dropped there from.
  7. Storm,Cyclone,Typhoon, Flood & Inundation.
  8. Subsidence and landslide including Rockslide.
  9. Bursting and overflowing of Water Tanks, Apparatus and Pipes.
  10. Missile Testing Operations.
  11. Bush Fire.
  12. Leakage from Automatic Sprinkler Installation .

NOTE: It is permissible to exclude Riot, Strike, Malicious damage and Terrorism cover and Storm, Flood & Inundation Cover. If the Insured opts for exclusion of the above perils the premium rate will be reduced.

Exclusions

The Fire Policy does not cover:-

  1. The first 5% of each and every claim subject to a minimum of Rs.10,000 in respect of each and every loss arising out of “Act of God perils” such as Lightning, STFI, Subsidence, Landslide and Rock slide covered under the policy The first Rs.10,000 for each and every loss arising out of other perils in respect of which the Insured is indemnified by this policy .
  2. Nuclear perils, War, Mutiny, Civil Commotion etc.
  3. Loss or damage to any electrical and electronic machine, apparatus arising from or occasioned by overrunning, short-circuiting, arcing, self-heating However, the spread of fire to other equipment are covered.
  4. Unless specifically stated work of art and any curious exceeding Rs.10,000/- is not covered.
  5. Loss of earnings, loss by delay, loss of market or other consequential or indirect loss.
Additional Covers (Extension)
  1. Earthquake (Fire & Shock).
  2. Omission to insure addition, alterations or extensions.
  3. Spontaneous combustion.
  4. Forest Fire.
  5. Debris Removal.
  6. Architects, Surveyors and Consulting Engineer’s Fees (in excess of 3% of Claim amount).
  7. Impact Damage due to Insured’s own Rail/Road Vehicles, Fork lifts, Cranes, Stackers and the like and articles dropped there from.
  8. Terrorism
Sum Insured

The sum insured represents the following:

  1. The declared sum is the maximum liability of the insurer in the event of total loss of property.
  2. Premium is charged on this sum.
  3. The sum insured declared for insurance must represent the actual value of the property. At the time of loss, if the sum insured declared is found to be less than the actual value of the damaged property, the claim will be reduced proportionately by applying underinsurance clause. Therefore, utmost care should be taken to arrive at the correct value of the properties.

The Policy can be taken either on Market Value basis or Reinstatement value basis or the combination of the two. A study of the types of valuation would help to choose the right one:

  1. Book Value:
    Book value is a theoretical value employed for accounting purpose. It is arrived by reducing fixed depreciation for wear and tear for every year on original capitalized cost. This does not represent the true market value which is always higher. Therefore, book value is not relevant for insurance.
  2. Market Value Insurance:
    Market value is the value at which the property can be bought or disposed off in the market. This is arrived at by deducting depreciation for usage from the current value of the brand new property of similar type. Alternatively, it is known as depreciated value. This depreciation is arrived at considering the residual life of the property and its present condition, which is different from the depreciation used to arrive at book value.

    If insurance is taken on this basis, actual monetary value of the property (lost) just before the loss will be indemnified. However, this compensation will not be adequate to replace the damaged property by new one, because cost of new property will be higher due to inflation, escalation, depreciation applied etc., Solutions is to insure on REINSTATEMENT VALUE BASIS.
Reinstatement Value Insurance

In Reinstatement Value Policy the sum insured must represent the current Replacement value of similar type of property in BRAND NEW condition. The premium rate is same as that applicable to Market Value Insurance.

If insurance is arranged on Reinstatement Value basis, insured is guaranteed of compensation adequate to reinstate the damaged property by new (similar type) at the prevailing market price. In other words, insured get brand new property in place of old in the event of an admissible claim and no depreciation is deducted. If the reinstatement value declared for insurance is found to be less than the actual value, the compensation payable will be reduced proportionately. Hence replacement value must be estimated very carefully.

Reinstatement Value Insurance is granted only for fixed assets like Building, Machinery, Furniture and Fittings. Stocks cannot be insured on Reinstatement value basis.

The Reinstatement Value Policy is subject to some special conditions as stated below:

  1. Works on Reinstatement must be carried out within 12 months from the date of loss. This may be relaxed in special circumstances.
  2. Reinstatement can be carried out at the same site or elsewhere, subject to insurers liability is not increased.
  3. If unable or unwilling to reinstate, the claim will be settled on Market Value Basis.
  4. Settlement on Reinstatement Value will be effected only after expenditure is incurred by insured and on production of final bills.
  5. Loss of earnings, loss by delay, loss of market or other consequential or indirect loss.

If replacement is done by an improved model, suitable monetary allowances for improvement will be deducted from the replacement cost payable under the policy.

PoSP