PARA 13.2|IC 57, Fire Insurance|ONE LINER|CHAPTER 1

PARA 13.2|IC 57, Fire Insurance|ONE LINER|CHAPTER 1

Insurance exams offered by the Insurance Institute of India (III), consist of various papers either in Life or Non Life or Combined. Here we are providing ONE LINER for IC 57, Fire Insurance para 13.2 and III exam . These questions will be very helpful for upcoming promotional exam in 2020.

IC 57 / Fire Insurance is a very important topic in insurance promotional exam. This IC 57 / Fire Insurance paper comes in all GIPSA exams which makes it very important.

♦Basic Principles and The Fire Policy

  1. Fire insurance business has been defined in Section 2 of the Insurance Act, 1938.
  2. The subject matter of fire insurance may be any kind of moveable and immovable property having pecuniary value, i.e., financial value of building, furniture, fixtures and fittings, household contents, plant, equipment and machinery, stocks and merchandise in premises or in the open.
  3. Risks are classified as
  • social perils, e.g. riot, strike, etc.,
  •  natural perils e.g. storm, flood, etc., and
  •  miscellaneous types of perils, e.g. aircraft damage, impact damage by road / rail vehicle, etc.
  1. Material damage caused by fire or these allied perils is covered under fire insurance.
  2. In addition to material damage, there may be consequential losses, e.g., loss of production resulting in loss of profits, etc. These losses are covered under a separate insurance Policy known as Consequential Loss (Fire) policy.
  3. Fire Insurance contracts are governed by the general law of contract as embodied in the Indian Contract Act, 1872

7.Fire insurance was enforceable at law

  • Offer and acceptance
  • Consideration
  • Agreement between the parties
  • Legal competence of the parties to the contract and
  • Legality of the contract
  1. Utmost good faith-In insurance contracts, the legal doctrine of utmost good faith applies. Disclose all material facts, the contract void or voidable depending upon the nature of the breach.
  2. Insurable interest-The requirement of insurable interest gives legal validity to insurance contracts and distinguishes them from mere wagers
  3. A bank or a financial institution which has advanced money on the security of property possesses insurable interest in the property, to the extent of the amount of loan and interest outstanding
  4. Insurance is granted in the joint names of the owner and the bank subject to the Agreed Bank Clause incorporated in the policy.
  5. Fire insurance policies are personal contracts.
  6. The principle of indemnity means insured is indemnified only to the extent of his loss; no profit or undue benefit is allowed.

14.Market value-The term “market value” or “actual cash value” means, for insurance purposes, the present cost of construction of similar building, after deducting from the cost, depreciation based on age, usage, maintenance.

15.Book Value-It is arrived at by applying depreciation on the original cost of the property.

  1. Reinstatement value-The value at which the damaged property can be reinstated or replaced by new property of the same kind, without deducting depreciation.
  2. Agreed value-This method is resorted to in the case of obsolete machinery or heritage buildings where depreciation is not a material factor and availability of similar type of property is not possible.
  3. Properties whose market value cannot be ascertained e.g. works of Art, manuscripts, obsolete machinery, heritage buildings etc.
  4. Sum Insured is always to be fixed by the insured.
  5. Sum insured is the maximum limit of liability under the policy.
  6. Subrogation-Subrogation is a corollary of the principle of indemnity.
  7. Contribution-The principle of contribution which is also a corollary of the principle of indemnity provides that if the same property is insured under more than one policy, insured cannot recover more than the loss suffered; he can recover only a rate-able proportion of the loss under each policy.
  8. Fire Tariff-Fire insurance business was governed by the All India Fire Tariff (AIFT). The Tariff Advisory Committee have laid down rules, regulations, advantages, terms and conditions than those relating to rating viz. clauses, warranties, policy wordings etc., shall be followed until decided otherwise.
  9. The tariff was structured into eight sections with an Annexure
  10. Standard Fire and Special Perils Policy-The policy form consists of
  • Operative clause,
  •  General exclusions and
  • General conditions
  1. Fire-The term ‘fire’, for insurance purposes, means actual ignition or burning, under accidental or fortuitous circumstances, so far as the insured is concerned
  2. Lightning-All damages caused by lightning, whether fire results or not, are covered.
  3. An explosion is “a sudden violent burst with a loud sound
  4. Implosion means bursting inward or collapse due to external pressure.
  5. Aircraft damage-Damage caused by aircraft, other aerial or space devices and articles dropped there from, excluding that caused by pressure waves.
  6. “Military Authority” means armed forces, paramilitary forces, police or any other authority constituted by the Government for maintaining law and order.
  7. Storm is defined as “some severe, if not violent, atmospheric disturbance such as unusually heavy rain, hail, wind, snow storms, or some combination of these.
  8. Flood is usually defined as “escape from its normal confines, of a body of water, due to a rise in its level, or to the breakdown of the barriers restraining it.
  9. Impact damages due to insured’s own Rail / Road vehicles and the like and articles dropped there from can be included as an “add on cover” by endorsement and at extra premium.
  10. Bursting and / or overflowing or water tanks, apparatus and pipes.
  11. A sprinkler installation is designed to automatically discharge water when a fire takes place. Damage caused by water is thereby payable as damage by fire.
  12. Bush fire is limited and localised compared to spread of forest fire and refers to, for example accidental burning of vegetation, grass etc., in and around the insured premises.
  13. Loss or damage to the stocks in cold storage premises caused by change of temperature.
  14. Expenses necessarily incurred on (i) Architects, Surveyors and Consulting Engineers fees and (ii) Debris Removal by the insured following a loss, destruction or damage to the property insured by an insured peril in excess of 3% and 1% of the claim amount respectively.
  15. Debris Removal “It is hereby declared and agreed that the expenses incurred up to 1% of the claim amount is covered on
  • Removal of debris from the premises of the insured
  •  Dismantling or demolishing
  •  Shoring or propping.
  1. Loss of gross profit; standing charges and increased cost of working to return to normalcy within a stipulated indemnity period can be covered under a separate Consequential Loss (Fire) Policy.
  2. Loss by theft during or after the occurrence of any insured peril except as provided under riot, strike, malicious damage and terrorism damage cover.
  3. Loss or damage due to earthquake, volcanic eruption or other convulsions of nature.
  4. All insurances under the policy cease after seven days from the date of fall of displacement of any building.
  5. The insurance does not cover any loss or damage to property which, at the time of loss or damage, is insured by any marine policy.
  6. The insurance may be terminated at any time.
  7. The condition gives right to the insurance company to enter the premises where loss has occurred, take possession of property and deal with it as may be necessary (e.g. salvaging) and sell such property for account of all concerned. This is known as the ‘right of entry’ condition.
  8. Fire insurance rates are determined on the assumption that property is insured for its full value.
  9. This is usual contribution condition. If there is more than one policy covering the same property by similar peril, in the event of loss, the company will be liable to pay only the rateable proportion of the loss.
  10. Every notice or other communication to the company required by the conditions must be written or printed.
  11. The full sum insured has to be maintained throughout the currency of the policy.
  12. In fire policy may be covered by endorsement under & quot; add-ons& quot;.
  13. The sum insured is to be fixed by the insured.
  14. The fire policy form consists of three main parts: Operative clause, General exclusions and General conditions.
  15. Fire Insurance contracts are governed by the general law of contract as embodied in the Indian Contract Act, 1872.

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