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A contract of Insurance comes into being when a person seeking insurance shelter enters into a contract with the insurer to indemnify him versus loss of property by or incidental to fire and or lightening, explosion, etc. This is primarily a contract and consequently as is governed by the ordinary law of contract. However, it has sure special features as insurance transactions, such as utmost faith, insurable interest, indemnity, subrogation and contribution, etc. these principles are mutual in all insurance contracts and are governed by particular principles of law. FIRE INSURANCE: According to S. 2(6A), “fire insurance business” means the business of effecting, other than as supposed or expected than incidentally to galore other class of insurance business, contracts of insurance versus loss by or incidental to fire or other occurrence, customarily included among the risks insured versus in fire insurance business. According to Halsbury, it is a contract of insurance by which the insurer agrees for contemplation to indemnify the assured up to a sure extent and subject to sure terms and conditions versus loss or harm by fire, which may occur to the property of the assured for the duration of a specific period. In it is rigorous sense, a fire insurance contract is one: 1. Whose principle object is insurance versus loss or harm occasioned by fire. 2. The extent of insurer’s liability being fixed by the sum assured and not inevitably by the extent of loss or harm sustained by the insured: and 3. The insurer having no interest in the safety or destruction of the insured property detached from the liability undertaken beneath the contract. LAW GOVERNING FIRE INSURANCE There is no statutory enactment governing fire insurance, as in the case of marine insurance which is regulated by the Indian Marine Insurance Act, 1963. the Indian Insurance Act, 1938 primarily dealt with regulation of insurance business as such and not with any popular or special principles of the law relating fire of other insurance contracts. So likewise the General Insurance Business (Nationalization) Act, 1872. in the absence of any legislative enactment on the subject , the courts in India have in dealing with the topic of fire insurance have relied so far on judicial conclusions of Courts and views of English Jurists. In determining the value of property damaged or destroyed by fire for the intent of indemnity underneath a policy of fire insurance, it was the value of the property to the insured, which was to be measured. Prima facie that value was measured by reference of the market value of the property before and after the loss. However such method of assessment was not applicable in cases where the market value did not represent the real value of the property to the insured, as where the property was used by the insured as a home or, for carrying business. In such cases, the measure of indemnity was the cost of reinstatement. In the case of Lucas v. New Zealand Insurance Co. Ltd.[1] where the insured property was purchased and kept as an income-producing investment, and accordingly the court held that the proper measure of indemnity for harm to the property by fire was the cost of reinstatement. INSURABLE INTEREST A person who is so fascinated in a property as to have gain from it is existence and prejudice by it is destruction is said to have insurable interest in that property. Such a person may insure the property versus fire. The interest in the property must subsist both at the inception as well as at the time of loss. If it does not subsist at the commencement of the contract it cannot be the subject-matter of the insurance and if it does not subsist at the time of the loss, he suffers no loss and needs no indemnity. Thus, where he sells the insured property and it is damaged by fire thereafter, he suffers no loss. RISKS COVERED UNDER FIRE INSURANCE POLICY The date of conclusion of a contract of insurance is issuance of the policy is dissimilar from the acceptance or assumption of risk. Section 64-VB only lays down broadly that the insurer can not assume peril prior to the date of receipt of premium. Rule 58 of the Insurance Rules, 1939 speaks with regards to advance payment of premiums in view of sub section (!) of Section 64 VB which enables the insurer to assume the danger from the date onwards. If the proposer did not desire a queer date, it was possible for the proposer to negotiate with insurer in regards to that term. Precisely, accordingly the Apex Court has said that final acceptance is that of the assured or the insurer depends merely on the way in which negotiations for insurance have progressed. Though the following are risks which seem to have covered Fire Insurance Policy but are not completely covered under the Policy. Some of contentious areas are as follows: FIRE: Destruction or harm to the property insured by it is own fermentation, natural heating or spontaneous combustion or it is undergoing any heating or drying procedure can not be treated as harm due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of property insured by order of any Public Authority is excluded from the scope of cover. LIGHTNING : Lightning may result in fire harm or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a building due to a lightning strike. Both fire and other types of damages caused by lightning are covered by the policy. AIRCRAFT DAMAGE: The loss or harm to property (by fire or otherwise) directly caused by aircraft and other aerial widgets and/ or articles dropped there from is covered. However, destruction or harm resulting from pressure waves caused by aircraft traveling at supersonic speed is excluded from the scope of the policy. RIOTS, STRIKES, MALICIOUS AND TERRORISM DAMAGES: The act of any person taking percentage along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, strike or a terrorist activity. Unlawful action would not be covered beneath the policy. STORM, CYCLONE, TYPHOON, TEMPEST, HURRICANE, TORNADO, FLOOD and INUNDATION: Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all respective types of violent natural disturbances that are accompanied by thunder or strong winds or heavy rainfall. Flood or Inundation occurs when the water rises to an unnatural level. Flood or inundation must not only be understood in the mutual sense of the terms, i.e., flood in river or lakes, but likewise accumulation of water due to choked drains would be deemed to be flood. IMPACT DAMAGE: Impact by any Rail/ Road vehicle or animal by direct contact with the insured property is covered. However, such vehicles or animals ought to not belong to or owned by the insured or any occupier of the premises or their workers while acting in the course of their employment. SUBSIDENCE AND LANDSLIDE INCULUDING ROCKSIDE: Destruction or harm caused by Subsidence of percentage of the website on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or building to a lower level, Landslide means sliding down of land commonly on a hill. However, normal cracking, settlement or bedding down of new structures; settlement or motion of made up ground; coastal or river erosion; wrong design or workmanship or use of defective materials; and demolition, construction, structural alterations or fix of any property or ground-works or excavations, are not covered. BURSTING AND/OR OVERFLOWING OF WATER TANKS, APPARATUS AND PIPES: Loss or harm to property by water or other than as supposed or expected on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered. MISSILE TESTING OPERATIONS: Destruction or damage, due to affect or other than as supposed or expected from trajectory/ projectiles in connection with missile testing operations by the Insured or anybody else, is covered. LEAKAGE FROM AUTOMATIC SPRINKLER INSTALLATIONS: Damage, caused by water without advance planning discharged or leaked out from automatic sprinkler installations in the insured’s premises, is covered. However, such destruction or harm caused by repairs or alterations to the buildings or premises; repairs remotion or extension of the sprinkler installation; and defects in construction known to the insured, are not covered. BUSH FIRE: This covers harm caused by burning, whether accidental or otherwise, of bush and jungles and the clearing of lands by fire, but excludes destruction or damage, caused by Forest Fire. RISKS NOT COVERED BY FIRE INSURANCE POLICY Claims not maintainable/ covered beneath this policy are as follows: o Theft for the duration of or after the occurrence of any insured risks o War or nuclear perils o Electrical breakdowns o Ordered burning by a public authority o Subterranean fire o Loss or harm to bullion, cherished stones, curios (value more than Rs.10000), plans, drawings, money, securities, cheque books, computer records except if they are categorically included. o Loss or harm to property moved to a dissimilar emplacement (except machinery and instrumentation for cleaning, repairs or renovation for more than 60 days). CHARACTERICTICS OF FIRE INSURANCE CONTRACT A fire insurance contract has the following characteristics namely: (a) Fire insurance is a personal contract A fire insurance contract does not see to it the safety of the insured property. Its intention is to see that the insured does not suffer loss by reason of his interest in the insured property. Hence, if his connection with the insured property ceases by being transposed to another person, the contract of insurance likewise comes to an end. It is not so connected with the subject matter of the insurance as to pass mechanically to the new proprietor to whom the subject is transferred. The contract of fire insurance is therefore a mere a personal contract amongst the insured and the insurer for the payment of money. It may be validly assigned to another only with the consent of the insurer. (b) It is entire and indivisible contract. Where the insurance is of a binding and it is contents of stock and machinery, the contract is expressly consorted to be divisible. Thus , where the insured is guilty of breach of responsibility towards the insurer in respect of one subject matters covered by the policy , the insurer may refrain from the contract as a whole and not only in respect of that peculiar subject mater , unless the right is restricted by the terms of the policy. (c) Cause of fire is immaterial In insuring versus fire, the insured wishes to protect him from any loss or detriment which he may suffer upon the occurrence of a fire, nonetheless it may be caused. So long as the loss is due to fire within the meaning of the policy, it is immaterial what the cause of fire is, generally. Thus , whether it was because the fire was lighted improperly or was lighted decently but negligently attended to thereafter or whether the fire was caused on account of the negligence of the insured or his servants or strangers is immaterial and the insurer is liable to indemnify the insured. In the absence of fraud, the proximate cause of the loss only is to be looked to. The cause of the fire notwithstanding becomes material to be investigated (1). Where the fire is occasioned not by the negligence of, but by the willful (2) Where the fire is due is to cause falling with the exception in the contract. LIMITATION OF TIME Indemnity insurance was an agreement by the insurer to confer on the insured a contractual right, which prima facie, came into existence without delay when the loss was suffered by the happening of an event insured against, to be put by the insurer into the same position in which the accused would have had the event not occurred but in no better position. There was a indispensable liability, i.e. to indemnify, and a secondary liability i.e. to put the insured in his pre-loss position, either by paying him a specifying amount or it might be in numerous other manner. But the fact that the insurer had an option as to the way in which he would put the insured into pre-loss position did not mean that he was not liable to indemnify him in one way or another, without delay the loss occurred. The indispensable liability arises on the happening of the event insured against. So, the time ran from the date of the loss and not from the date on which the policy was warded off and any suit filed after that time limit would be barred by limitation.[2] WHO MAY INSURE AGAINST FIRE? Only those who have insurable interest in a property may take fire insurance thereon. The following are amidst the class of persons who have been held to possess insurable interest in, property and may insure such property: 1. Owners of property, whether sole, or joint owner, or collaborator in the firm owning the property. It is not necessary that they must possession also. Thus a lesser and a lessee may both insure it jointly or severely. 2. The marketer and purchaser have both rights to insure. The vendor’s interest proceeds until the conveyance is finished and even thereafter, if he has an unpaid vendor’s lien over it. 3. The mortgagor and mortgagee have both distinct interests in the mortgaged property and may insure, per Lord Esher M.R.”The mortgagee does not assert his interest through the mortgagor , but by virtue of the mortgage which has given him an interest distinct from that of the mortgagor”[3] 4. Trustees are legal owners and beneficiaries the beneficial owners of trust property and each may insure it. 5. Bailees such as carriers, pawnbrokers or warehouse men are responsible for there safety of the property entrusted to them and so may insure it. PERSON NOT ENTITLED TO INSURE One who has no insurable interest in a property cannot insure it. For example: 1. An unsecured creditor can not insure his debtor’s property, because his right is only versus the debtor personally. He can, however, insure the debtor’s life. 2. A share holder in a company can not insure the property of the company as he has no insurable interest in any asset of the company even if he is the sole shareholder. As was the case of Macaura v. Northen Assurance Co.[4] Macaura. Because neither as a simple creditor nor as a stockholder had he any insurable interest in it. CONCEPT OF UTMOST FAITH As all contracts of insurance are contracts of utmost good faith, the proposer for fire insurance is likewise beneath a positive responsibility to make a full disclosure of all material facts and not to make any misrepresentations or misdescreptions thereof for the duration of the negotiations for obtaining the policy. This responsibility of utmost good faith applies evenly to the insurer and the insured. There will have to be finish good faith on the part of the assured. This obligation to detect utmost good faith is ensured b calling for the proposer to announce that the affirmations in the proposal form are true, that they shall be the basis of the contract and that any defective or untrue statement therein shall keep away from the policy. The insurer may then rely on them to evaluate the danger and to fix suitable premium and receive the risk or decline it. The questions in the proposal form for a fire policy are so framed as to get all selective information which is material to the insurer to recognise in order to valuate the peril and fix the premium, that is, all material facts. Thus the proposer is required too give selective information relating to: o The proposer’s name and address and occupation o The description of the subject matter to be insured sufficient for the aim of identifying it including, o A description of the locality where it is situated o How the property is being used, whether for any constructing intent or highrisk trade.etc o Whether it has already been insured o And also ant personal insurance history including the claims if any made buy the proposer, etc. Apart from questions in the proposal form, the proposer will have to disclose whether questioned or not- 1. Any selective information which would indicate the peril of fire to be above normal; 2. Any fact which would indicate that the insurer’s liability may be more than normal may be expected such as existence of valuable manuscripts or documents, etc, and 3. Any selective information bearing upon the more; hazard involved. The proposer is not obliged to disclose- 1. Information which the insurer may be presumed to know in the standard course of his business as an insurer; 2. Facts which tend to show that the peril is lesser than otherwise; 3. Facts as to which data is waived by the insurer; and 4. Facts which need not disclosed in view of a policy condition. Thus, assured is under a solemn obligation to make full disclosure of material facts which may be applicable for the insurer to take into account while resolving whether the proposal ought to be accepted or not. While making a disclosure of the applicable facts, the DOCTRINE OF PROXIMATE CAUSE Where more perils than one act simultaneously or successively, it will be difficult to valuate the relative effect of each risk or pick out one of these as the actual cause of the loss. In such cases, the doctrine of proximate cause helps to determine the actual cause of the loss. PROXIMATE CAUSE OF DAMAGE A fire policy covers risks where harm is caused by way of fire. The fire may be caused by lightening, by explosion or implosion. It may be result of riot, strike or on account of any, malicious act. However these constituents will have to ultimately lead to a fire and the fire ought to be the proximate cause of damage. Therefore, a loss caused by theft of property by militants would not be covered by the fire policy. The view that the loss was covered underneath the malicious act clause and hence .the insurer was liable to meet the assert is untenable, because unless and until fire is the proximate cause f damage, no assert beneath a fire policy would be maintainable.[6] PROCEDURE FOR TAKING A FIRE INSURANCE POLICY The steps involved for taking a fire insurance policy are noted below: 1. Selection of the Insurance Company: There are a great deal of companies that offer fire insurance versus unforeseen events. The person or the company ought to take care in the selection of an insurance company. The judgment must rest on constituents like goodwill, and long term standing in the market. The insurance companies may either be neared directly or through agents, some of them who are appointed by the company itself. 2. Submission of the Proposal Form: The person or the business owner must submit a finished prescribed proposal form with the necessary details to the insurance company for proper thoughtfulness and subsequent approval. The info in the Proposal Form must be given in good faith and must be accompanied by documents that verify the actual worth of the property or goods that are to be insured. Most of the companies have their own individualized Proposal Forms wherein the precise selective information has to be provided. 3. Survey of the Property/ Consideration: Once the duly filled Proposal Form is submitted to the insurance company, it makes an “on the spot” survey of the property or the goods that are the subject matter of the insurance. This is normally done by the investigators, or the surveyors, who are appointed by the company and they need to report back to them after a exhaustive exploration and survey. This is of the utmost importance to evaluate the risk involved and calculate the rate of premium. 4. Acceptance of the Proposal: Once the elaborated and comprehensive report is submitted to the insurance company by the surveyors and related officers, the former makes a indepth perusal of the Proposal Form and the report. If the company is satisfied that their is no lacuna or foul play or fraud involved, it formally “accepts” the Proposal Form and directs the insured to compensate the original premium to the company. It is to be cited that the insurance policy commences after the payment and the acceptance of the premium by the insured and the company, respectively. The Insurance Company issues a Cover Note after the acceptance of the original premium. PROCEDURE ON RECEIPT OF NOTICE OF LOSS On receipt of the observe of loss, the insurer requires the insured to furnish details pertaining to the loss in a assert from relating to the following information- 1. Circumstances and cause of the fire; 2. Occupancy and circumstance of the premises in which the fire occurred; 3. Insured’s interest in the insured property; that is capacity in which the insured claims and whether any others are mesmerized in the property; 4. Other insurances on the property; 5. Value of each item of the property at the time of loss together with proofs thereof , and value of the salvage ,if any; and 6. Amount claimed Furnishing such selective information relating to the assert is likewise a condition precedent to the liability of the insurer. The above data will enable the insurer to verify whether- (1) The policy is in force; (2) The peril causing the loss is an insured peril; (3) The property damaged or lost is the insured property. Rules for calculation of value of property The value of the insured property is- 1) Its value at the time of loss, and 2) At the place of loss, and 3) Its real or intrinsic value without any regard for it is sentimental vale. Loss of potential net income or other consequential loss is not to be taken into account. FILING OF CLAIMS How a assert arises? After a contract of fire insurance has come into existence, a assert may arise by the operation of one or more insured perils on an unsecured property. There may in addition one or more uninsured perils also operating simultaneously or in succession of the property. In order that the assert will have to be valid the following conditions will have to be fulfilled: 1. The occurrence will have to take place due to the operation of an insured risk or where both insured and other perils operated , the dominant or effective cause of the loss ought to have been an insured peril; 2. The operation of the danger ought to not come within the scope of the policy exceptions; 3. The event will have to have caused loss or harm of the insured property; 4. The occurrence must be for the duration of the currency of the policy; 5. The insured ought to have fulfilled all the policy conditions and must likewise comply with requisites to be fulfilled after the assert had arisen. MATERIAL FACTS IN FIRE INSURANCE: PREVIOUS CONVICTION OF THE ACCUSED The criminal record of an assured could affect the moral hazard, which insurers had to assess, and the non-disclosure of a severe criminal offence like robbery by the plaintiff would a material non-disclosure. INSURED’S DUTY ON OUTBREAK OF FIRE, IMPLIED DUTY On the outbreak of a fire the insured is under an implied obligation to detect good faith towards the insurers and the in pursuance of it the insured will have to do his best to avert or denigrate the loss. For this intention he must (1) take all reasonable measures to put out the fire or prevent it is spread, and (2) help the fire brigade and others in their attempts to do so at any rate not come in their way. If the insured fails in his obligation willfully and thereby increments the burden of the insurer, the insured will be deprived of his right to revive any indemnity underneath the policy.[7] INSURER’S RIGHTS ON THE OUTBREAK OF FIRE (A) Implied Rights Corresponding to the insured’s duties the insurers have rights by the law, in view of the liability they have undertaken to indemnify the insured. Thus the insurers have a right to- o Take reasonable measures to extinguish the fire and to minimize the loss to property, and o For that purpose, to enter upon and take possession of the property. The insurers will be liable to make good all the harm the property may sustain for the duration of the steps taken to put out the fire and as long as it in their possession, because all that is considered the natural and direct consequence of the fire; it has accordingly been kept in the case of Ahmedbhoy Habibhoy v. Bombay Fire Marine Ins. Co [8] that the extent of the harm flowing from the insured danger will have to be assessed when the insurer gives back and not as at the time when the peril ceased. (B) Loss caused by steps taken to avert the risk Damage sustained due to action taken to refrain from an insured risk was not a consequence of that peril and was not recoverable unless the insured peril had started out to operate. In the case of Liverpool and London and Globe Insurance Co. Ltd v. Canadian General Electric Co. Ltd., [9] the Canadian Supreme Court kept that “the loss was caused by the fire fighters’ mistaken faith that their action was necessary to avert an explosion , and the loss was not recoverable underneath the insurance policy, which covered only harm caused by fire explosion., and the loss was not recoverable beneath the insurance policy, which covered only harm caused by fire or explosion.” (C) Express rights Condition 5- in order to protect their rights well insurers have prescribed for better rights expressly in this condition according to which on the happening of any destruction or harm the insurer and each person authorized by the insurer may enter, take or keep possession of the building or premises where the harm has happened or require it to be delivered to them and deal with it for all reasonable intents like examining, arranging, removing or trade or dispose off the same for the account of whom it may concern. When and how a assert is made? In the event of a fire loss covered underneath the fire insurance policy, the Insured shall without delay give detect thereof to the insurance company. Within 15 days of the occurrence of such loss, the Insured will have to submit a assert in writing, giving the details of damages and their approximated values. Details of other insurances on the same property will have to also be declared. The Insured must procure and produce, at his own expense, any document like plans, account books, investigation reports etc. on demand by the insurance company. HOW INSURANCE MAY CEASE? Insurance beneath a fire policy may discontinue in any of the following circumstances, namely: (1) Insurer avoiding the policy by reason of the insured making misrepresentation, misdescription or non-disclosure of any material particular; (2) If there is a fall or displacement of any insured building range or structure or portion thereof , then on the expiry of seven days wherefrom, except where the fall or displacement was due to the action of any insured peril; nonetheless this, the insurance may be revived on revised terms if express detect is given to the company as soon as the occurrence takes place; (3) The insurance may be terminated at any tie at the request of the insured and at the option of the company on 15 days observe to the insured CONCLUSION Tangible property is exposed to numerous risks like fire, floods, explosions, earthquake, riot and war, etc. and insurance shelter may be had versus most of these risks severally or in combination. The form in which the cover is conveyed is a lot of and varied. Fire insurance in it is rigorous sense is concerned with giving shelter versus fire and fire only. So while granting a fire insurance policy all the requisites need be fulfilled. The insured are beneath a moral and legal obligation to be at utmost good faith and ought to be telling true facts and not just phony grounds only with the greed to recover money. Further all insurance policies aid in the development of a Developing nation. Hence insurance companies have a burden to aid the insured when the insured are in trouble. REFERENCE: 1. (1983) VR 698 (Supreme Court of Vienna) 2. Callaghan v. Dominion Insurance Co. Ltd. (1997) 2 Lloyd’s Rep. 541 (QBD) 3. Small v. U.K Marine Insurance Association (1897) 2 QB 311 5. (1907) Case. 6. National Insurance Company v. Ashok Kumar Barariio 7. Devlin v. Queen Insurance Co, (1882) 46 UCR 611. 8. (1912) 40 IA 10 PC 9. (1981) 123 DLR (3d) 513 (Supreme Court of Canada) Books Referred: 1. The Economics of Fire Protection by Ganapathy Ramachandran 2. Modern Insurance Law, by John Birds 3. The Handbook of Insurance Regulatory and Development Authority Act and Regulations with Allied Laws ,by Nagar |
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