`(To be embossed on black book front side and attach same format as first page of project

inside black book)

Title of the problem of the Project

A Project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce

By

Name of the Learner

Under the Guidance of

Name of the Guiding Teacher

Shri. Vishnu Waman Thakur Charitable Trust's

Bhaskar Waman Thakur College of Science,
Yashvant Keshav Patil College of Commerce,
Vidhya Dayanand Patil College of Arts,
VIVA College
(NAAC ACCREDITED-'B' Grade, CGPA 2.69)

April 2019

2nd Page
This page to be repeated on 2nd page (i.e. inside after main page)
 Shri. Vishnu Waman Thakur Charitable Trust's
Bhaskar Waman Thakur
College of Science,
Yashvant Keshav Patil College
of Commerce,
Vidhya Dayanand Patil College
of Arts,
VIVA College
(NAAC ACCREDITED-'B' Grade, CGPA 2.69)

Certificate
This is to certify that Ms/Mr _____________________________________has worked
and duly completed her/his Project Work for the degree of Bachelor in Commerce
(Accounting & Finance) under the Faculty of Commerce in the subject of
Accountancy / Management and her/his project is entitled,
“…………………………………..Title of the project ---------------------------------------
-----------------------------------” under my supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.
It is her / his own work and facts reported by her/his personal findings and
investigations.

Name of Guiding Teacher : “Type Name of Guide”

Seal of the
College Signature :

Date of submission:

Signature
External Examiners
 Declaration by learner

I the undersigned Miss / Mr. Name of the learner here by,

declare that the work embodied in this project work titled “________
Title of the Project ”,
forms my own contribution to the research work carried out under the guidance of
Name of the guiding teacher is a result of my own research work and has not
been previously submitted to any other University for any other Degree/ Diploma to
this or any other University.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name of Learner :
Signature :

Certified by

Name of Guiding Teacher : “Type Name of Guide”

Signature :
 Acknowledgment

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.

I would like to thank my Principal, __________for providing the necessary facilities

required for completion of this project.

I take this opportunity to thank our Coordinator_______________, for her moral

support and guidance.

I would also like to express my sincere gratitude towards my project guide

_____________ whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.
SR NO INDEX PAGE NO

1. Introduction

2. Meaning and definition of fire insurance

3. Features of fire insurance

4. Need of fire insurance

5. Types of fire insurance

6. Principles of fire insurance

7. Procedure of fire insurance policy

8. Conclusion

9. Biography
INTRODUCTION
A fire insurance is a contract under which the insurer in return for a consideration
(premium) agrees to indemnify the insured for the financial loss which the latter may
suffer due to destruction of or damage to property or goods, caused by fire, during a
specified period. The contract specifies the maximum amount, agreed to by the parties at
the time of the contract, which the insured can claim in case of loss. This amount is not,
however , the measure of the loss. The loss can be ascertained only after the fire has
occurred. The insurer is liable to make good the actual amount of loss not exceeding the
maximum amount fixed under the policy.

A fire insurance policy cannot be assigned without the permission of the insurer because
the insured must have insurable interest in the property at the time of contract as well as
at the time of loss. The insurable interest in goods may arise out on account of (i)
ownership, (ii) possession, or (iii) contract. A person with a limited interest in a property
or goods may insure them to cover not only his own interest but also the interest of others
in them. Under fire insurance, the following persons have insurable interest in the subject
matter:-

a Owner

b Mortgagee

c Pawnee

d Pawn broker

e Official receiver or assignee in insolvency proceedings

f Warehouse keeper in the goods of customer

g A person in lawful possession e.g. common carrier, wharfing, commission agent.

The term 'fire' is used in its popular and literal sense and means a fire which has 'broken
bounds'. 'Fire' which is used for domestic or manufacturing purposes is not fire as long as
it is confined within usual limits. In the fire insurance policy, 'Fire' means the production
of light and heat by combustion or burning. Thus, fire, must result from actual ignition
and the resulting loss must be proximately caused by such ignition. The phrase 'loss or
damage by fire' also includes the loss or damage caused by efforts to extinguish fire.

The types of losses covered by fire insurance are:-

a.Goods spoiled or property damaged by water used to extinguish the fire.

b. Pulling down of adjacent premises by the fire brigade in order to prevent the
progress of flame.

c. Breakage of goods in the process of their removal from the building where fire is
raging e.g. damage caused by throwing furniture out of window.

d. Wages paid to persons employed for extinguishing fire.

The types of losses not covered by a fire insurance policy are:-

a. loss due to fire caused by earthquake, invasion, act of foreign enemy, hostilities or
war, civil strife, riots, mutiny, martial law, military rising or rebellion or
insurrection.

b. loss caused by subterranean (underground) fire.

c. loss caused by burning of property by order of any public authority.

d. loss by theft during or after the occurrence of fire.

e. loss or damage to property caused by its own fermentation or spontaneous

combustion e.g. exploding of a bomb due to an inherent defect in it.

f. loss or damage by lightening or explosion is not covered unless these cause actual
ignition which spread into fire.

A claim for loss by fire must satisfy the following conditions:-

a. The loss must be caused by actual fire or ignition and not just by high
temperature.

b.The proximate cause of loss should be fire.

c. The loss or damage must relate to subject matter of policy.

d. The ignition must be either of the goods or of the premises where goods are kept.

e. The fire must be accidental, not intentional. If the fire is caused through a
malicious or deliberate act of the insured or his agents, the insurer will not be
liable for the loss.
Meaning of fire insurances
The term fire in a fire insurance is interpreted in the literal and popular sense. There is fire
when something burns. In other words fire means visible flames or actual ignition.
Simmering/ smoldering is not considered fire in Fire Insurance. Fire produces heat and light
but either of them alone is not fire. Lightening is not a fire but if it ignites something, the
damage may be due to fire.

Under section 2(6A) Insurance Act 1938, the fire insurance business is defined as follows:
“Fire insurance business means the business of effecting, otherwise than independently to
some other class of business, contracts of insurance against loss by or incidental to fire or
other occurrence customarily included among the risks insured against in fire insurance
policies”.

Example: The following are the items which can be burnt/ damaged through fire:
‰
a. Buildings
‰
b. Electrical installation in buildings ‰

c. Contents of buildings such as machinery, plant and equipments, accessories, etc. ‰

d. Goods (raw materials, in–process, semi–finished, finished, packing materials, etc.) in

factories, godowns etc..
‰
e. Goods in the open ‰

f. Furniture, fixture and fittings ‰

g. Pipelines (including contents) located inside or outside the compound, etc.

The owner of abovementioned properties can insure against fire damage through fire
insurance policy which provides financial protection for property against loss or damage by
fire.
DEFINITION OF FIRE INSURANCES
A contract of fire insurances is one under which the company agrees to indemnify the insured
in consideration of payment of the premium in the event of property insured under the policy
being lost or damaged by fire or other perils enumerated there under to the extend of the
value there of at the time of destruction or to the extend of the value thereof at the time of
destruction or to the extend of the time of destruction or to the extend of the time destruction
or to the extend of damage in any case not exceeding the sum insured.

Insurance act defines fire insurance as the business of effecting contract of insurance against
loss by or incidental to fire or other occurrences customarily included among the risk insured
against in fire insurances policy
Features of fire insurances
1) Offer & Acceptance :

It is a prerequisite to any contract. Similarly, 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.

2) 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. It is as per section 64VB of Insurance Act 1938.
(Details under insurance legislation Module).

3) Contract of Indemnity

Fire insurance is a contract of indemnity and the insurance company is liable only to
the extent of actual loss suffered. If there is no loss, there is no liability even if there
is fire. Example: If the property is insured for Rs 20 lakhs under fire insurance and it
is damaged by fire to the extent of Rs. 10 lakhs, then the insurance company will not
pay more than Rs. 10 lakhs.

4) Contribution:

If a person insured his property with two insurance companies, then in case of fire
loss both the insurance companies will pay the loss to the owner proportionately.
Example: A property worth Rs. 50 lakhs was insured with two Insurance companies
A and B. In case of loss, both insurance companies will contribute equally.

5) Period of fire Insurance:

The period of insurance is to be defined in the policy. Generally the period of fire
insurance will not exceed by one year. The period can be less than one year but not
more than one year except for the residential houses which can be insured for the
period exceeding one year also.
6) 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.

7) 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.

8) Utmost Good Faith:

The property owner must disclose all the relevant information to the insurance
company while insuring their property. The fire policy shall be voidable in the event
of misrepresentation, mis-description or non-disclosure of any material information.
Example: The use of building must be disclosed i.e whether the building is used for
residential use or manufacturing use, as in both the cases the premium rate will vary.

9) Insurable Interest:

The fire insurance will be valid only if the person who is insuring the property is
owner or having insurable interest in that property. Such interest must exist at the
time when loss occurs. It is well known that insurable interest exists not only with
the ownership but also as a tenant or bailee or financier. Banks can also have the
insurable interest. Example: Mr. A is the owner of the building. He insured that
building and later on sold the building to Mr. B and the fire took place in the
building. Mr. B will not get the compensation from the insurance company because
he has not taken the insurance policy being a owner of the property. After selling to
Mr. B, Mr. A has no insurable interest in the property.

10) Payment of Claims:

Fire policies generally contain a clause providing that upon the occurrence of fire
the insurer shall be immediately notified so that the insurer can take steps to salvage
the remainder of the property and can also determine the extent of the loss. Insurance
companies keep experts on their staff of value the loss. If in a policy there is an
international over valuation of the property by the policy-holder, the policy may be
avoided on the ground of fraud.
Need of fire insurances
Fire accidents are very much unexpected but heavily destructive. Hence, having fire
insurance is very much essential.

Fire Insurance policy covers your home‘s structure, or fixing and fittings, against hazard and
provides you with the financial resources to replace what you have lost, so that you can get
back to normal as soon as possible.

If the worst were to happen and your house burned down, where would you go, knowing that
you have relatives who will pitch in to help you out during such a difficult time is great, but if
you don‘t have those resources, what would you do? This is where you need a fire insurance
policy.

Fire insurance provides the security for home, stock, furniture, business buildings, etc; it
provides the cost of replacement of properties and assets, which gets damaged due to the fire
accident.

For example, if your home is destroyed or damaged enough by a fire to the point that it
renders you homeless, a fire insurance policy will often pay for the reasonable increase in
your living expenses, such as the additional cost of hotel stays, restaurant bills, etc. Secondly,
if you had property worth N1 million, then the insurance firm can be able to restore you to
the same old position, gaining back your momentum is very easy as you just have to rebuild
what you had once more. Benefits of having fire insurance It is bad enough when your house
burns down due to some unavoidable accident, but when you don‘t have an insurance cover
to help you slide back to your normal life, it‘s even worse. With that being said, it is well to
consider the importance of a fire insurance cover, especially if you know you cannot afford to
replace the house in your own financial efforts..

One of the major benefits of fire insurance in general is coverage of belongings that are
destroyed in a fire. This includes major appliances within the home, furnishings, clothing,
jewelries, and other items of value that are specifically covered within the terms of the policy.

Fire insurance provides the price of damage for the building, if any home furnishing is
damaged due to the fire incident, it provides alternative maintenance price for the electronic
items like television, computer, air conditioners, which is destroyed by fire. Having fire
insurance can save you from financial disaster. Along with replacement and reimbursement
of lost belongings, fire insurance can also provide financial assistance in finding a new place
to live and compensating the insured party for losses not covered under a homeowner
insurance plan.

Your home is probably your most valuable asset. Failing to insure it against fire damage
could put you in a precarious financial situation if you leave yourself no recourse in the event
of a fire. You‘ve worked hard all your life to have the things that you deserve why put all of
that in jeopardy by failing to have adequate insurance coverage for fire? Fire is a
commonplace occurrence, but this doesn‘t mean that it is destined to happen to you. But if it
does, having fire insurance to help cover your financial losses. It is a critical safety net that
nobody should do without.
1. Valued Policy:

In this policy the value of the subject-matter is agreed upon at the time of
taking up the policy. The insurer agrees to pay a pre-determined amount if
the subject-matter is destroyed or damaged by fire. The principle of
indemnity is not applicable to this policy. The agreed value may be more or
less than the market value at the time of loss. These policies are generally
issued for those goods or property whose value cannot be determined after
their loss or damage. These goods may include works of art, jewellery,
paintings, etc.

2. Specific Policy:

Under this policy the risk is insured for a specific sum. In case of loss of
property, the insurer will pay the loss if it is less than the specified amount.
It can be explained with an example: An insurance policy is taken for Rs.
50,000 and the value of the property is Rs. 80,000. If the property worth
Rs. 40,000 is lost, the insured will get the whole amount of loss. If the loss
is up to Rs. 50,000, it will be paid in full. In case loss exceeds Rs. 50,000,
say it is Rs. 60,000, the indemnity will only be upto the amount insured i.e.
Rs. 50,000. Under this policy the insured is not punished for getting a
policy for lesser sum. The actual value of property is not taken into
consideration.

3. Average Policy:

If the ‘average clause’ is applicable to a policy, it is called Average Policy.

Average clause is added to penalise the insured for taking up a policy for a
lesser sum than the value of the property. The compensation payable is
proportionately reduced if the value of the policy is less than the value of
the property.

Suppose a person takes up a fire insurance policy of Rs. 20,000 and the
value of the property is Rs. 30,000. If there is a loss of property worth Rs.
50,000, the underwriter pays compensation of Rs. 10,000 (20,000/30,000
x 15,000) and not Rs. 15,000. It discourages the insured to get under-
valued policy.
4. Floating Policy:

A floating policy is taken up to cover the risk of goods lying at different

places. The goods should belong to the same person and one policy will
cover the risk of all these goods. This policy is useful to those businessmen
who are engaged in import and export of goods and the goods lie in
warehouses at different places. The premium charged is generally the
average of the premium that would have been paid, if specific policies
would have been taken for all these goods. Average clause always applies to
these policies.

5. Comprehensive Policy:

A policy may be taken up to cover up all types of risks, including fire. A

policy may be issued to cover risk like fire, explosion, lightening, burglary,
riots, labour disturbances etc. This is called a comprehensive policy or all
risk policy.

6. Consequential Loss Policy:

Fire may dislocate work in the factory. Production may go down while the
fixed expenses continue at the same rate. A policy may be taken up to cover
up consequential loss or loss of profits. The loss of profits is calculated on
the basis of loss of sales. A separate policy may be taken up for standing
charges also.

7. Replacement Policy:

The underwriter provides compensation on the basis of market price of the property. The
amount of compensation is calculated after taking into account the amount of depreciation. A
replacement policy provides that compensation will be according to the replacement price.
The new asset should be similar to the one which has been lost. The amount of compensation
will depend upon the market price of the new assets so that it is replaced without additional
cost to the insured.

8. Blanket Policy:

Blanket policy is issued to cover more than one named building or property, or all the
contents of more than one named building. Under such a policy, all the fixed and current
assets of a manufacturer or a trade lying in different buildings can be covered by one policy
at the same premium.
9. Consequential Loss Policy:

It is a policy under which the insurer agrees to indemnify the insured for
the loss of profits which he suffers due to the dislocation of his business
caused by fire. It is also known as loss of Profit Insurance.

10. Reinstatement Policy ;

If the insurer undertakes to reinstate (replace) the insured property in case

of risk, it is called as reinstatement or replacement policy.

.11.Transit Policy:

It covers risk due to fire during transit. The policy commences with the
loading of goods in the carriage and ends once the goods are unloaded at
the destination.

12.Adjustable Policy:

Adjustable policy is issued for a particular period on the existing stock. The
premium amount is paid in full at the time the policy is taken. Any variation
in the value of the stock covered by the policy is intimated to the insurer by
the insured. The insured, on receipt of such an information, endorses the
policy in accordance with the change intimated and the premium adjusted.
The premium is finally settled at the expiry of the policy.
Principles of fire insuramces
Principles of Fire Insurance: The principal types of fire insurance policies are given below:

1. Valued policy

When the agreed value of the subject matter is mentioned in the policy is named as valued
policy. This value may not necessarily be the actual value of the property. In the event of toss
by fire the insurer pays the admitted value of the property.

2. Unvalued policy

An unvalued policy in one in which the value of the subject matter is not declared at the time
of policy taken. But in case of loss the value is computed by assessment. This is also called
an open policy.

3. Specific policy

In case of specific policy, the property is insured for a definite sum. If there is loss, the stated
amount will have to be paid to the policyholder. But the actual value of the subject matter is
not considered in this respect. For examples if a policy is taken for Rupees 20,000 upon a
building whose actual value is Rs.1, 00,000 and afire occurs causing the amount of loss
Rs.20, 000. The insurance company will pay the whole amount of loss of Rs.20, 000
irrespective of the fact that the building was insured for one-fifth of its value.

4. Average policy

An average policy is one which contains the average clause. This clause required the
insurance company to pay only that portion of the loss which is borne by the insured amount
to the actual value of the subject matter of the insurance. For example a value of the property
is Rs.1, 00,000. It is insured for Rs.60, 000 (60% of the total value) and the amount of loss is
Rs.60, 000. The insurance company will not pay Rs.60, 000 to the policyholder but will pay
Rs.36, 000 (60% of Rs.60, 000).

5. Floating policy

A floating policy is that which covers the fluctuating risk of several goods lying in different
localities for supply to various markets. Such a policy is usually taken out under one sum and
one premium by the businessman whose goods are lying at docks and warehouses.
6. Stock declaration policy

This policy is taken for covering the stock where great fluctuations in the value can happen
throughout the contract period. On such policy 75% of the premium has to be deposited in
advance. The maximum liability of insurance company is specified in the

policy by the insured. At the end of year the average stock and final premium is calculated.

7. Loss of profit policy

Such type of policy covers the loss of profit which sustains as a result of fire. This policy is
also known as consequential loss policy.

8. Standard fire policy

This policy is issued for compensation of all direct loss or damage caused by lighting and
burning. Such policy also covers damages by earthquake, hair flood, explosion, cyclone and
riot.

9. Reinstatement policy

Under this policy insurance company pays more than the actual value of the property
destroyed by fire in order to cover the cost of replacement of the said property. It is also
called as ―Replacement Policy‖. This type of policy is not very common in these days.

10. Schedule Policy

A schedule policy is one which insures many properties under collective terms and
conditions, Details of the properties and their respective rates of premium are listed in one
policy only for the convenience of the insured.

11. Sprinkler leakage policy

This type of policy covers the loss of building as a result of the damage by the leakage of
liquid or water.
12. Excess policy

This policy is issued for the stock of merchandise whose value is constantly fluctuating. In
such case it is not suitable to take one policy for certain sum. So the insured takes an ordinary
policy for minimum value of the stock and excess policy for excess value of the stock. The
actual value of the stock will be reported periodically

13. Maximum value with Discount policy

Under this policy one third discount of the premium paid is refundable to the insured at the
maturity of the policy. This policy covers the risk for maximum amount.
Prodecure of fire insurances
PROPERTY UNDER FIRE INSURANCE:

For insuring any property under the fire insurance policy, the following is the
procedure:

1) Filling of proposal form

2) 2) Inspection of the property

3) Payment of premium

4) Issue of Cover note/ Policy document in lieu of acceptance of the proposal.

I) Filling of Proposal Form

The fire proposal includes the following information :

Description of the property. This would include: I)

(i) Construction of external walls and roof, number of storeys.

(ii) Occupation of each portion of the building.

(iii) Presence of hazardous goods.

(iv) Process of manufacture.

(v) The sums proposed for insurance.

(vi) The period of insurance.

(vii) History of previous losses.

(viii) Insurance history - whether previously other insurers had declined

the risk, etc.

II) 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.
III) Payment of Premium: Based on the proposal form and the inspection
report of the engineers, the insurance company will submit the
premium rates to the property owner and if these rates are acceptable
to him then he should pay the amount to the insurance company. It is
also a legal requirement under section 64VB of Insurance Act 1938 that
the premium is paid in advance in full to the insurance company. Act
1938 that the premium is paid in advance in full to the insurance
company.

IV) IV) Issue of Cover note/ Policy document: On receipt of a completed

proposal form and / or inspection report, the cover note is issued,
pending preparation of the policy document. The cover note is an
unstamped document issued to provide evidence of cover till the time
the policy is issued. The cover note provides insurance against specified
perils on the usual terms and conditions of the company’s policy.

The printed policy form provides for a schedule in which the individual
details of the contract are typed. The items are similar to those in the
Cover Note but with more detailed information.

After issuing the policy document, it is likely that there may be some
changes in the nature of property or sum insured may increase or
decrease. In this case, these changes can be incorporated by way of
endorsements which are issued to record changes such as alteration in
risk, increase or decrease of sum insured, etc.

PROCEDURE TO SETTLE THE FIRE INSURANCE CLAIM:

A) If there are any damage or loss arising due to fire then the policy
holder should immediately inform the insurance company in
writing and with estimated amount of loss.

B) Survey Report: If the amount of loss is small (i.e. up to Rs. 20,000/-

), the insurance company may depute an officer to survey the loss
and decide on the settlement of the loss on the basis of the claim
form and the officer’s report. However, in large losses, an
independent surveyor duly licensed by the Government is appointed
to give a report on the loss.
The survey report would generally deal with the following matters:

(i) Cause of loss.

(ii) Extent of loss.

(iii) Under-Insurance, if any.

(iv) Details and value of salvage, and how it has been disposed of
or proposed to be disposed of.

(v) Details of expenses (e.g. fire brigade expenses).

(vi) Compliance with policy conditions and warranties.

(vii) Details of other insurance policies on the same property, and

the apportionment of the loss and expenses among co-
insurers.

(viii) C) Claim form: The policy holder will submit the claim form
with the following information :

(i) Name and address of the Insured.

(ii) Date of loss, time and place from where the fire started.

(iii) Cause of fire.

(iv) Details of the property damaged such as description,

etc.

(v) Value at the time of fire, value of salvage and the amount
of loss.

(vi) Details of other policies on the same property giving the

name of the insurer, policy number and sum insured

(ix) Fire Brigade report details.

(x) F.I.R. at the nearest police station regarding third party

liability, if any.
C) Settlement of claim: On the basis of the claim form and the survey
report, decision

1.6 PRACTICE OF FIRE INSURANCE IN INDIA

In India, under fire insurance policy, in addition to fire, other

perils are also included and the policy is known as “Standard Fire
and Allied Perils Policy”.

The perils specified in the fire policy are:

A. Fire: It has been explained as above.

B. Lightning: Any lightning due to cloud burst may damage the

property and the same will be covered under the fire policy.

C. C. Explosion / Implosion: Sudden change in the temperature in

any plant & machinery or exposure to atmospheric pressure
may result into loss and the same will be covered under fire
policy.

D. Aircraft Damage: Any damage to the property due to any

droppings by aircraft or by itself will also be covered under the
fire policy.

E. Riot, Strike and Malicious Damage (RSMD): Any damage to

the property due to public or strike by employees or malicious
damage (intentional damage) by any person will be covered
under this policy.

F. Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood

and Inundation (STFI): The property damage due to any of
these storms and flood will also be covered under this policy.
The meaning of these perils lies in different intensity of the
storms. Flood not only means the leakage of water through river
but also accumulation of water due to heavy rains in the
premises.
G. Impact Damage: Damage to the property due to impact by any
Rail / Road vehicle or animal by direct contact, but not
belonging to or owned by the Insured or any occupier of the
premises or their employees while acting in the course of their
employment.

H. Subsidence and Landslide including Rock Slide Destruction or

damage caused by Subsidence of part of the site on which the
property stands or Land slide / Rock slide.

I. Bursting and/or overflowing of Water Tanks, Apparatus and

Pipes: If due to bursting or overflowing of water from the water
tanks installed in the premises of the policyholder any damage
or loss to the property of the policyholder is caused, it will be
covered under this policy.

J. Missile Testing Operations: Any loss or damage due to missile

testing by the Govt. or otherwise will be covered under this
policy

K. Leakage from Automatic Sprinkler Installations : In most of the

organizations as a fire protection measure, automatic sprinkler
system is installed. If due to non–usage of the sprinkler system
or otherwise it starts leaking and damages the property, then it
will be covered under the fire insurance policy.

L. L. Bush Fire: It means fire spread from the bushes (small fire)
but will not include forest fire.

1.7 THE FIRE INSURANCE DOES NOT COVER THE

FOLLOWING RISKS KNOWN AS GENERAL EXCLUSIONS

(i) In every claim minimum deduction say Rs 5000/- or Rs

10000/- will be made while settling the claim under this policy.
It is to avoid small losses.

(ii) Loss, destruction or damage caused by war, and kindred

perils.
(iii) Loss, destruction or damage directly or indirectly caused to
the insured property by nuclear peril.

(iv) Loss, destruction or damage caused to the insured property

by pollution or contamination.

(v) Loss, destruction or damage to any electrical and / or

electronic machine, apparatus, fixture or fitting (excluding fans
and electrical wiring in dwellings) arising from or occasioned by
over-running, excessive pressure, short circuiting, arcing, self-
heating or leakage of electricity, from whatever cause (lightning
included).

(vi) Loss of earnings, loss by delay, loss of market or other

consequential or indirect loss or damage of any kind or
disruption whatsoever.

(vii) Earthquake: It is not covered under the fire policy but by

paying additional premium, the earthquake can be covered.

1.8 SPECIAL POLICIES

a) Floater Policy

This policy is issued only for the stocks, not for plant &
machineries. Sometime the stock is kept at various locations
and it is very difficult to provide the value of stock at each
location. Therefore to cover the risks of stocks at various
locations under one sum insured an additional premium can be
paid. Example: A person is having two godowns at Delhi and the
value of stock is Rs 50 lakhs and he is not having the value at
each location then he can insure the stock under floating policy
by paying an additional premium.

b) Declaration Policies This type of policy is useful where there

is frequent fluctuations in stocks / stock values and to avoid the
under insurance ( insurance of lower value) of the stock,
Declaration Policy(ies) can be granted subject to the following
conditions:
(a) The minimum sum insured shall be Rs. l crore.

(b) Monthly declarations based on the average of the highest

value at risk on each day or highest value on any day of the
month shall be submitted by the Insured latest by the last day of
the succeeding month. If declarations are not received within
the specified period, the full sum insured under the policy shall
be deemed to have been declared.

(c) Reduction in sum insured shall not be allowed under any

circumstances.

(d) Refund of premium on adjustment based on the

declarations / cancellations shall not exceed 50% of the total
premium.

(e) The basis of value for declaration shall be the Market Value
unless otherwise agreed to between insurer and insured.

(f) It is not permissible to issue declaration policy in respect of

i) Insurance required for a short period

ii) Stocks under going process

iii) Stocks at Railway sidings

Example:

Sum insured : Rs. 1,00,00,000/- ( 1 crore)

Rate : Rs. 1.00 per mille

Premium : Rs. 10,000/

Monthly Declarations

January Rs. 58,00,000/

February Rs. 56,00,000/

March Rs. 46,00,000/

April Rs. 30,00,000/

May Rs. 30,00,000/

June Rs. 30,00,000/

July Rs. 30,00,000/

August Rs. 40,00,000/

September Rs. 40,00,000/

October Rs. 40,00,000/

November Rs. 40,00,000/

December Rs. 40,00,000/

Total Declarations Rs. 4,80,00,000/

Average sum insured/ month Rs. 40,00,000/

Premium received in Advance Rs. 10,000/

Premium on average sum Rs. 4,000/

insured (say) Excess premium paid Rs. 6,000/

According to rule, refund cannot exceed 50% (i.e.) Rs. 5000/-

and not Rs. 6000/-.

c) Floater Declaration Policy

It is combination of the above mentioned policies i.e. stock

lying at different locations and the value of stock fluctuating.
1.9 ADDITIONAL TERMS & CONDITIONS

a) Reinstatement Value This is the fire policy with the

reinstatement value clause attached to it. The clause provides
that in the event of loss, the amount payable is the cost of
reinstating property of the same kind or type, by new property
(i.e.) “New for Old”.

This basis of settlement differs from the basis under the fire
policy where the losses are settled on the basis of market value
i.e. making deductions for depreciation, etc.

Under reinstatement value policy, it is possible to cover the

depreciated value of the building or machinery. The cost of
replacement of the damaged property is ascertained by new
property of the same kind. If due to technical improvements the
new machinery is better than the damaged machinery e.g.
output is increased with less consumption of power, the insured
is obliged to bear a part of the cost of the new machinery to
ensure that he does not derive any undue benefits. Thus, the
principle of indemnity is still observed.

The reinstatement value clause incorporates the following

special provisions:

(a) Reinstatement must be carried out by the insured and

completed within 12 months after the destruction or damage, or
within such extended time as may be allowed by insurers, failing
which the loss will be settled on the normal indemnity basis i.e.
according to the Fire Policy.

(b) Until reinstatement is carried out, the liability under the

policy remains on the normal indemnity basis. i.e. market value
basis.

(c) Pro-rata Average is applied by comparing the sum insured

with the cost of reinstatement of the entire property insured as
on date of reinstatement.
(d) The reinstatement basis of settlement will not apply

(i) If the insured fails to intimate to the insurer within 6 months

or any extended time his intention to replace the damaged
property.

(ii) If the insured is unable or unwilling to replace the damaged

property. In such cases the loss will be settled on the normal
basis of indemnity.

(e) The work of reinstatement may be carried out upon another

site and in any manner required by the insured provided the
liability under the policy is not thereby increased.

These insurances are granted to insureds whose bonafides are

satisfactory and, are generally issued only in respect of building,
plant and machinery in a comparatively new condition.

These insurances are not granted on stocks.

b) Local Authorities Clause

Reinstatement Value Policy may be extended to cover such

additional cost of reinstatement of the destroyed or damaged
property as may be incurred solely by reason of the necessity to
comply with the Building or other Regulations under any Act of
Parliament or bye-laws of any Municipal or Local Authority.

c) Agreed Bank Clause

All policies in which a Bank has a partial interest are to be made

out in the name of the Bank and Owner or Mortgagor and the
Agreed Bank Clause incorporated in the policy.

The salient features of the clause are :

(a) The claim is payable to the bank whose receipt shall be a

complete discharge and binding on all parties insured.
(b) Any notice under the policy is sufficient if given by or to the
bank.

(c) Any settlement, compromise etc. in relation to dispute if

made with the bank shall be valid and binding on all parties
insured.

(d) Any alteration or increase in risk does not invalidate the

insurance, provided the bank notifies the same as soon as it
comes to its knowledge and pays additional premium.
CONCULSION OF FIRE INSURANCES