fire insurance everything you wanted to know 17012017

Fire InsuranceEverything you wanted to know !!!!

Lajpat Ray Chandnani

What is Insurance?

It is a method of sharing Financial Losses of a ‘few’ from a common fund formed out of contribution of ‘many’ who are equally exposed to the same loss. It is a system of spreading the losses of an Individual over a Group of Individuals.

“A contract of Fire Insurance, 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 extent of the value thereof at the time of destruction or to the extent of the time of destruction or to the extent of damage in any case not exceeding the sum insured”.

Definition of Fire Insurance :

Insurance Act defines Fire Insurance as the business of effecting contracts of insurance against loss by or incidental to Fire or other occurrences customarily included among the risks insured against in Fire insurance policy.

Definition of Fire Insurance :

Fire and its Meaning under Fire Insurance : Fire may be defined as a chemical reaction which is accompanied by the emission of heat, light & smoke and a combination of these is called a flame. There is said to be a Fire within the meaning of Fire insurance when:1.There is actual ignition.2.The Fire is purely accidental or fortuitous in origin so far as the insured is concerned. 3.The Fire has burnt/ damaged the property of the insured.

Fire and its Meaning under Fire Insurance :

To start a Fire, there are three essential factors:

A. There must be a flammable gas & vapor.

B. There must be oxygen present.C. There must be source of heat e.g.

flame or a spark.


Where the above conditions are fulfilled, there is a damage by Fire whether by Fire itself or by heat or by smoke generated by it is covered under Fire policy. However following damages are also considered to be covered under the policy: i.Smoke damage caused by Fire. ii.Water damage in extinguishing Fire. iii.Property demolished by Fire brigade to prevent Fire from spreading. iv.Damage done by Fireman in executing their duties.v.Losses incurred by insured in attempting to check the progress of Fire or to save property.vi.Damage to property during removal from a burning building.vii.Damage due to falling of walls as a result of Fire.


Fire and its Meaning under Fire Insurance : The term ‘Fire’ means accidental ignition or burning. Mere scorching is not a loss by Fire e.g. cloth being damaged by a hot iron, since there is no ignition. The Fire may, however be accidental or fortuitous in origin as far as the insured is concerned. So long as the insured is not a party to the occurrence of Fire, the loss brought about by the Fire will be deemed to be loss within the term of ‘Fire’.

Physical Hazard : One of the most common source of Fire is electricity. Every year, hundreds of Fire are caused by electricity or the misuse of electricity or lack of understanding.

However there are other causes of Fire losses. E.g. welding, dropped cigarettes, sparks from grinding, overheating, carelessness etc.

The risk of a Fire starting is known as inception risk e.g. due to ignition, sparks from machinery, overheating of machinery, welding, volatile vapors from spray painting.

The risk of Fire developing & spreading is known as propagation of risk e.g. paint, oil, combustibles part of structure which will burn.

Causes of Fire

OCCUPATIONAL HAZARD:

Inception hazard: The risk arises from an occupation, how a building is occupied and the processes and hazard associated with such occupation. The nature of work carried out included hazards such as :Application of heat including dryingHeating appliances usedUse of non-flame proof electric in areas where flammable vapors are present.Use of power machinery e.g., drills, lathers, compressors powered by electricity. Gas, diesel etc.Smoking Grinding The materials employed would include Any combustible material present e.g. wood, plastic, paper, cloth.Pressure of flammable liquids or gases.

Causes of Fire

Propagation hazard: This type of hazard arising from the occupation of premises involves an assessment of the quantity and nature of combustible material exposed to loss, the purpose for which the building is to be used and the materials it contains. Light hazard Occupancies include: Hospitals, Hotels, Libraries, Museum, Offices, School, College etc. High hazard Category Included: Air craft hangers, Fire work manufactures, foam plastic, rubber manufacturer, wood, wool manufacturer etc.

Causes of Fire

Location and Exposure Hazard: Location of building play an important role. Whether building is located in large cities, town, areas of old & closely sited building or often several stores in height, amount of internal timber work, floors, stairs and roof numbers. A Fire commencing in one such building can readily spread to an adjoining building either because of radiated heat or because there are unprotected opposing windows or because the upsurge of heat of because there are unprotected opposing windows or because the upsurge of heat from the burning building can carry with it sparks and flaming debris which may be deposited on an adjoining roof.

Causes of Fire

Size of Building: Larger building will always present greater hazard because once Fire initiated will be facilitated by the quantity of goods building contains. Single storied building is less hazardous than multistoried building.

Causes of Fire

Moral Hazard :

Moral hazard is an intangible aspect and as such it can not be quantified. The insured who deliberately sets Fire to his premises perhaps in times of bad trade, in order to reap the benefits of his insurance or he may act in collusion with another to stage a theft of his own property with a similar aim. A poor moral hazard is also shown by the insured who having a legitimate claim proves uncooperative and avaricious in negotiation of claim settlement. Some people make claims which even if justified may be grossly exaggerated. They believe that whatever sum is claimed will for some reason be reduced by insurer and there is therefore tendency to submit demands in excess of true losses. While this is perhaps merely a fact of human nature it is certainly a form of moral hazard. Insured should act as uninsured taking some precaution for safety of his property as he would, if the policy did not exist. Moral hazard can be considered under following headings:

Housekeeping including waste disposal Management including labour relations, smoking discipline And network

Causes of Fire

Any person / firm / organisation / institution who may suffer financial loss in the event of operation of insurable perils may insure such property under the Fire policy. They may be broadly categorised as under :

1. Owners of Building and contents such as house hold articles, furniture etc.

2. Shop Keepers.3. Educational/ Research Institutions.4. Hotels, Boarding and Lodgings, Hospitals, Clinics or such service

providers.5. Industrial and Manufacturing Firms.6. Godown Keepers.7. Bailees, Lessor, Lessee, Banks, Financial Institutions, Mortgagors,

Mortgagees.8. Traders in stocks.9. Trustees, Charitable Institutions.10. Transporters and C & F Agents.

Who can take the policy?

Important Definitions

POLICY: The promise to provide financial compensation for any specified loss is made out in a document called the policy.

COVER NOTE: A Provisional unstamped document valid for a short period and used until a policy is issued.

SUM INSURED: It is the amount for which the insurance is taken and the insurer’s maximum liability is limited to this amount. The block-wise sum insured should be declared in respect of the following

1. Building2. Machinery and accessories3. Stock and Stock in Process4. Furniture and other contents

PROPOSAL FORM: A person who wishes to Insure fills out particulars of his property and his requirement of Insurance on a proposal form.

IMPORTANT DEFINITIONS

Fire nsurance

IT IS PERMISSIBLE TO ISSUE ONLY ONE POLICY WHICH IS CALLED ‘STANDARD Fire AND SPECIAL PERILS POLICY’

All moveable/ immoveable properties of the proposer on land (excluding those in transit) broadly categorised as follows :

1.Building (including plinth and foundations, if required):1.Whether completed or in course of construction

(excluding the value of land).2. Interiors, Partitions and Electricals.

2.Plant & Machinery, Equipment & Accessories (including foundations, if required)

1.Bought Second hand.2.Bought New3.Obsolete Machinery

Fire INSURANCEScope : Properties that are covered

3. Stocks:1. Raw Material2. Finished Goods3. In process4. In trade belonging to Wholesaler, Manufacturer and Retailer.

4. Other Contents such as1. Furniture, Fixtures and Fittings2. Cables, Piping3. Spares, Tools and Stores4. Household goods etc.

5. Specific Items such as bullion, unset precious stones, curios, work of arts, manuscripts, plans, drawings, securities, obligations or documents, stamps, coins or paper money, cheques, books of accounts, computer system records, explosives.

Fire INSURANCEScope : Properties that are covered

Nature of Fire Insurance Contract : It is an agreement between Insurer and Insured.The Insurer having received premium undertakes to make good the loss suffered by the Insured.The loss is made good subject to –

The loss resulting from Insured risk/peril. The property damaged is covered under the policy. And the loss happened during the policy period. The Fire

insurance contracts are governed by the general law of contract as embodied in the Indian Contract Act 1872.

Nature of Fire Insurance Contract :

Fire Insurance contracts must have the following essential ingredients.

Offer and acceptance. Consideration. Agreement between the parties Legal competence of the parties & Legality of the contract.

Fundamental Principles : Fire Insurance Contracts are also governed by Fundamental Principles evolved under Common Law. Fundamental Principles : Insurable Interest-

Legal right to Insure arising out of a pecuniary relationship between Insured and the subject matter of Insurance-Absolute Legal Ownership.

Moveable and immoveable property that can be insured. Should be the subject matter of insurance. Proposer should have legally recognized relationship, so that the loss of insured peril

causes pecuniary loss. Legal and absolute Owners Agents Administrators, Executors and Trustees Mortgagees. Lessee Insurer Insurable interest should be there at the time of the Insurance and should continue throughout the period of

insurance and at the time of loss it should be established.

Fundamental Principles : Duty of Disclosure : Utmost Good Faith In accordance with principle of utmost good faith the Proposer / Insured must disclose to the Insurer all material facts in regard to the proposed insurance and the insurer should disclose everything related to the terms, conditions, exclusions and rates for entering into the Contract.

Material Fact : All important, essential and relevant information.

Fundamental Principles : Duty of Disclosure : Facts which need not be disclosed : Basically the duty of utmost good faith exists to prevent the parties being drawn into a contract in ignorance of detrimental information. Accordingly the following facts need not be revealed, even if they are material :

a)Facts which improve the risk e.g., Fire Extinguisher, Sprinkler etc.

a)Facts which the insurer may e presumed to know e.g., existence of a state of War.

c)Matters of Law.

d)Facts capable of discovery by the insurer from information supplied in the Proposal Form.

e)Facts which the Insurers representative fails to notice during Risk inspection

The effect of the Breach of Utmost Good Faith :

The contract becomes void from inception : In case of misrepresentation with an intention to defraud.

To consider the contract void : Insurer may not pay the claim if it is discovered at the time of the claim that the breach is deliberate of material to the risk.

To impose penalty : If breach is innocent but material to the fact.

iv) To waive the breach : If breach is innocent and immaterial to the risk.

Fundamental Principles : Indemnity – To place the Insured, as far as possible, in the same financial position after a loss as be was before the loss.Indemnification is subject to

- Sum Insured- Depreciation- Average condition- Salvage.

Fundamental Principles : Indemnity –In Fire Insurance Indemnity is by

Reimbursement / Cash PaymentRepairReplacementReinstatement

In respect of loss of property due to Fire the measure of indemnity is determined by its value on the date of loss and at the place of loss.

Fundamental Principles : Indemnity –

Indemnity is the reason why Insurance is different from wagering/

It helps fixing the Sum Insured. It helps decide the amount to be paid for a

loss.It prevent an insured from making a profit

from his loss.It ensures that the insured gets his actual loss

and not the assumed loss.

How to select the sum insured? Sum Insured of a property should represent the

Market Value. Where more than one building (and contents) are

insured under a single policy, block wise values shall be furnished in respect of Building, Plant & Machinery, Stocks and other contents.

In case the value of a property increases due to factors like increase in prime cost, Exchange rate etc. during the currency of the policy, the corresponding sum insured may be increased on payment of proportionate premium.

Similarly, any reduction in sum insured during currency may be effected for which refund of premium will be allowed on short period basis.

How to select the sum insured?

Property Base of Insurance Sum Insured

1. Building(a) Completed Depreciated Value Basis Estimated cost of Reinstatement

(material + Labour) of a similar property as on the date of proposal with suitable escalation for the policy period less depreciation for age.

Reinstatement Value Basis Same as above but without depreciation. In other words, the policy will pay, in the event of loss/ damage, without any deduction for depreciation.

(b) In course of Construction

Reinstatement Value Basis Estimated Total completed value (Material + Labour)

How to select the sum insured?Property Base of Insurance Sum Insured

2. Plant & Machinery

(a) Bought II hand Market Value Estimated landed cost of replacement of a similar machine of the same kind and capacity as on the date of proposal with suitable escalation over the policy period less depreciation for age and usage for number of years from the date of manufacturing (and not from the year in which it was bought)

(b) Bought New Market Value Estimated landed cost of replacement of a similar machine of the same kind and capacity as on the date of proposal with suitable escalation for the policy period less depreciation for age and usage.

RIV Basis Estimated landed cost of a similar machine of the same kind and capacity as on the date of proposal with suitable escalation for the policy period.

P.S. Generally, the landed cost of an imported or indigenous machinery will include its prime cost, Customs Duty/Excise Duty , CV Duty, , loading and unloading charges, freight, insurance, incidental expenses and cost of erection at site.(c) Obsolete M/c. Agreed Value Value has to be ascertained by an expert valuer. The value so

ascertained will be the agreed value between insurer and proposer and loss/ damage will be assessed on this basis.

How to select the sum insured?3. Stocks


(a) Raw Material Market Value Landed cost at the time of proposal with suitable increase for inflation, if any.

(b) Finished Goods Market Value Landed cost of Raw materials at the time of proposal plus direct and indirect charges incurred for processing with suitable increase for inflation, if any.

(c) Stock in process Market Value Landed cost of Raw materials at the time of proposal plus direct and indirect charges incurred upto the stage of processing with suitable increase for inflation, if any.

P.S. : Landed cost means prime cost plus all duties plus freight, insurance and incidental charges.

How to select the sum insured?(d) Stock-in-trade


Manufacturer Market Value Cost of Raw materials plus manufacturing costs (direct and indirect charges) as on the date of proposal with suitable increase for inflation, if necessary.

Wholesaler Market Value Landed cost at which the goods can be purchased from Manufacturer as on the date of proposal with suitable increase for inflation, if necessary.

Retailer Market Value Landed cost at which the goods can be purchased from Wholesaler as on the date of proposal with suitable increase for inflation, if necessary.

How to select the sum insured?4. Furniture, Fixture & Fittings


Market Value Estimated cost of replacement of property of the same kind as on the date of proposal with suitable escalation for the policy period less depreciation for usage.

RIV Basis Estimated cost of Reinstatement) of a similar property as on the date of proposal with suitable escalation over the policy period.

5. Items to be covered specifically on declarationAgreed Value Basis Value as certified by an expert

valuer.

Understanding Fire Insurance Policy : Standard Fire and Special Perils policy : It consist of 5 parts-

The Recital Clause – introduces the parties The Operation Clause – defines liability of the Insurer

under the contract. The Attestation Clause – provides for signature of the

Insurer. The Conditions – govern and regulates the cover granted. The Schedule- Give individual details of the contract.

Fire Rating Guidelines usually encompasses the following:-

General rules & regulations Wordings for policy, add on covers, standard clauses &

standard proposal form Ratings for different types of risks like- Dwellings, offices, Hotels, Shops etc. Industrial/Manufacturing risk, utilities etc.

Scope of Cover of Standard Fire and Special Perils Policy

I. FireExcluding destruction or damage caused to the property

insured by

its own fermentation, natural heating or spontaneous combustion

its undergoing any heating or drying process

burning of property insured by order of any Public Authority

II. Lightning


III. Explosion/ImplosionExcluding destruction or damage caused to the boilers (other than domestic boilers), economizers or other vessels in which steam is generated, machinery or apparatus subject to centrifugal force by its own explosion/implosion

IV. Aircraft DamageDestruction or damage caused by Aircraft, other aerial or space devices and articles dropped there from excluding those caused by pressure waves


V. Riot, Strike and Malicious Damage

Loss of or visible physical damage or Destruction by external violent means directly caused to the property insured but excluding those caused by:

a) Total or partial cessation of work or the retarding or interruption or cessation of any process or operations or omissions of any kind

b) Permanent or temporary dispossession resulting from confiscation, commandeering requisition or destruction by order of the Govt. or any lawfully constituted authority

a) Permanent or temporary dispossession of any building or plant or unit or machinery resulting from the unlawful occupation by any person of such building or plant or unit or machinery or prevention of access to the same

b) Burglary, housebreaking, theft, larceny or any such attempt or any omission of any kind of any person (whether or not such act is committed in the course of a disturbance or public peace) in any malicious act


VI. Impact Damage

Impact by any Rail/Road vehicle or animal by direct contact not belonging to or owned by

a. the insured or any occupier of the premises orb. their employees while acting in the course of their

employment


VII. 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 excluding

a. The normal cracking, settlement or bedding down of new structuresb. Coastal or river erosionc. Defective design or workmanship or use of defective materials


VIII.Bursting and/or overflowing of Water Tanks, Apparatus and Pipes

VIII. Missile Testing operations

VIII. Leakage from Automatic Sprinkler Installations

Excluding destruction or damage caused bya. repair or alterations to the buildings or Premisesb. repair, removal or extension of the Sprinkler

Installationc. defects in construction known to the insured


XI. Bush Fire

Excluding destruction or damage caused by Forest Fire

Understanding Fire Insurance Policy :

Exclusions Applicable:

Losses/ Expenses not covered:Applicable Deductibles as per policyExpenses incurred on Architects, Surveyors' Consultant Engineers fees and Debris Removal in excess of 3% and 1% of claim amount respectively.Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or damage of any kind.

Perils not covered:War and allied perilsIonising radiations and contamination by radioactivityPollution or Contamination

Understanding Fire Insurance Policy :

Properties not covered:• Items like manuscripts etc. unless specifically declared.• Cold storage stocks due to change of temperature.• Loss / damage/ destruction of any electrical and/or electronic machine,

apparatus, fixture or fitting arising from over running, excessive pressure, short circuiting, arcing, self heating or leakage of electricity, from whatever cause including lightning.

• Loss / damage / destruction of Boilers, Economisers or other Vessels in which steam is generated machinery or apparatus subject to Centrifugal force, by its own explosion/ implosion.

Understanding Fire Insurance Policy :Location of Risk:

1. The proposer shall describe all locations where the properties are built or installed or stored or kept at the inception

2. Any change of location of risk shall be covered on intimation of such change.

3. Change of ownership in the insured property shall be intimated so that the new owner may be covered be means of suitable endorsement.

4. Any material change in the location of risk, trade or manufacturing activities shall be intimated to the insurer so that the changes are endorsed to offer continuous cover.

Understanding Fire Insurance Policy : Add on Covers : Perils : Loss/ damage/ destruction of the property caused byStorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and InundationDeterioration of Stocks in Cold Storage premises due to power failure following damage due to an insured perilForest FireImpact Damage due to Insured's own Vehicles, Fork lifts and the like and articles dropped therefromSpontaneous CombustionOmission to insure additions, alterations or extensionsEarthquake (Fire and Shock).Spoilage material damage cover.Leakage and contamination cover.Temporary removal of stocks.Terrorism.

Understanding Fire Insurance Policy : Add on Covers : Expenses:

•Architects , Surveyors and Consulting Engineer's Fees (in excess of 3% claim amount)•Debris Removal (in excess of 1% of claim amount)•Loss of rent.•Insurance of additional expenses of rent for alternative accommodation.•Start up Expenses.

Understanding Fire Insurance Policy : Important Provisions :

Period of Coverage and Payment of Premium :

Fire Policy is an annual policy, generally, renewable each year.Long Term policy (for a minimum period of three years) can be considered for covering "dwellings" only with suitable discounts in premium.Cover for RSMD perils can be considered during currency (where they are deleted at inception by choice) in special circumstances.Policy can be cancelled at any time during the currency with suitable refund of premium for the unexpired period.RSMD perils can be deleted at the inception of the policy for which suitable reduction in package premium rate is allowed.MINIMUM PREMIUM:- Minimum premium shall be Rs. 100/- per policy100% premium shall be paid in full at the inception of policy and no installment facility is available.

Understanding Fire Insurance Policy : Important Provisions :

RULES FOR CANCELLATION:

(a) At the option of the Insured: Retention of premium shall be at Pro-rata + 15% for the period the policy has been in force or Short Period Scale as prescribed by respective Insurer.

(b) At the option of the Insurer: Refund of premium shall be on Pro-rata basis for the unexpired term.

The rates of premium under Fire Insurance are expressed in Per Mille (%0) i.e. per thousand.

There are 5 Sections pertaining to rating:

Section-III – Residential buildings, Hotels, Shops, Offices etc.

Section-IV – Industrial /Manufacturing Risks

Section-V – Utilities located outside the Industrial/Mfg. Risks

Section VI -- Storage risks outside the Industrial /Mfg. Risks

Section –VII –Tank farms/ Gas holders etc.

Understanding Fire Insurance Policy : Important Provisions :Rating


(Section-III)

The buildings and contents of risk rateable under this section shall be rated ‘Per Se’.Example: A multistoried building may have residences on one floor, offices on another floor and shops on some other floor. Each occupancy will attract its own rate specified in the tariff.

Rates provided in this section are for the entire insured property in the same industrial compound i.e. all process areas, storage areas, offices, utilities, misc. blocks, pipelines, roads etc.

However dwelling houses located inside the factory compound may be rated ‘Per Se’.


(Section-IV)

LONG TERM POLICY FOR DWELLINGS

a. Minimum Period 3 yearsb. Mid-term inclusion of Perils not allowedc. Premium for entire period collected in advance

Method APremium shall be charged full without any discount. However sum insured shall

be increased by 10 % of original sum insured at the end of every 12 months period.

OR

Method BDiscount will be allowed on Gross Premium as per table given in the

tariff.

No discount will be allowed on Earthquake Premium.

Fire Insurance ClaimsHow to claim?

1. If a misfortune befalls,

2. Intimate such loss / damage immediately so that a Competent Surveyor may be deputed to minimise the loss.

3. Give an account of all properties damaged or destroyed with estimated amounts having regard to their values as on the date and place of loss.

4. Cooperate with surveyors by providing all the necessary documents for assessment of loss and establishing liability.

5. Cooperate with the insurer in all their activities of entering the premises, taking possession of properties, their examining, sorting, removing or selling to your account, without prejudice.

6. Inform particulars of all other insurances existing on the property at the time of loss.

1. Common Documents for all claims under a Standard Fire and Special Perils Policy:

2. Certified True copy of the policy along with schedule and Endorsements/clauses.

3. Claim Form.

4. Newspaper reports on the incident, if any.

5. Photographs.

6. Past claims experience.

Fire Insurance ClaimsDocuments required by insurer for processing the claim

1. Report of the Internal Committee constituted for the purpose of

investigating the cause of Fire.

2. Fire Brigade Report.

3. First Information Report / Letter of intimation to the Police Station duly

endorsed / Police Panchnama.

4. Forensic Laboratory Report on samples collected at affected site.

5. Drug Inspector's Report on destruction of Drugs/ Pharmaceutical items

(for claim on pharma products only).

6. Final Investigation Report.

7. Action taken on the suggestion of TAC/ LPA on loss minimisation of

prevention.

Fire Insurance ClaimsAdditional Documents required by insurer for processing the claim

In addition to the documents specified above, in respect of Acts of God Clause, other documents like newspaper cuttings, photographs and meteorological reports are helpful in substantiating such losses. Where the incident is localized, not reported in the media or not recorded by any Meteorological Department, the surveyor should enquire about the incident from local government/statutory authorities and support the description of the occurrence and the loss by taking photographs of the damage.

Fire Insurance Claims : Acts of God PerilsAdditional Documents required by Insurer for processing the claim

In case of isolated losses under the above endorsement, copy of the First Information Report lodged with police and their Final Investigation Report should be furnished.

Fire Insurance Claims : RSMTD PERILSAdditional Documents required by insurer for processing the claim

Factory Inspector's Report or Report of Director of Industrial Safety and Welfare.

Fire Insurance Claims : Explosion ClaimsAdditional Documents required by insurer for processing the claim

Case Study

A transporter’s godown was insured for FFF and contents under the standard Fire Insurance policy. It was doing a roaring business and its godown was packed to capacity.

A riot broke out in the vicinity of the godown

and the rioters torched the godown along with the other buildings. The Fire brigade could not reach the godown on time due to the riots. By the time it reached the entire godown was reduced to ashes.

Hundreds of consigners and consignees lost their goods stored in the transporters godown stored for transportation. Most of them obtained the damage certificate from the transporter and did not press for any claim on them. However a few of them lodged their claim on the transporter, who in turn claimed on the insurance company.

Keeping in mind the aspect of insurable interest, how will you deal with the claim.

Case Study M/s Santa Singh and Banta Singh Pvt. Ltd. was a joint

proprietorship firm. It was a reputed firm running a shop in the same name, selling costly electrical items, appliances, gadgets, durables etc. The shop was insured under separate Fire and Burglary Policies.

There was a big Fire in the shop and a huge quantity of goods worth Rs. 5 lacs was lost. The sum insured was adequate to cover the loss.

While scrutinizing the claim it was found that the name of the insured has changed to M/s Sardar Santa and Sardar Banta Pvt. Ltd. before the date of the loss. The change in the name was reported to their Banker’s but the insurance company was not informed. When asked they explained that this was due to an oversight.

On further enquiry it was learnt that to save tax liabilities the name of the firm was changed. The proprietors remained the same and the nature of the business also remained the same.

How will you deal with this claim? Should the insurance company pay the claim?

CASE STUDY

A STEEL FACTORY PRODUCED QUALITY STEEL WHICH HAD TO UNDERGO THE PROCESS OF TEMPERING TO ARRIVE AT THE RIGHT TENSILE STRENGTH REQUIRED FOR THE PURPOSE OF MAKING PRECISION INSTRUMENTS.

ON THE FATEFUL DAY THERE WAS A BIG Fire AND THE FACTORY

WAS BADLY DAMAGED. THE STEEL UNDER PROCESS RECEIVED EXCESSIVE HEAT AND AS A RESULT THE FINISHED PRODUCT WAS FOUND UNSUITABLE FOR USE.

THE STEEL IN PROCESS GOT ADDITIONAL HEAT DUE TO THE

ACCIDENTAL Fire. WHAT IS THE PROXIMATE CAUSE OF LOSS FOR THE DAMAGE TO THE STEEL IN PROCESS.

IN THE PREVIOUS CASE STUDY -

IS THE LOSS OR DAMAGE DUE TO ACCIDENTAL Fire

THE ACTUAL EFFICIENT CAUSE OF LOSS

THE MOST DOMINANT CAUSE GIVING RISE TO A CHAIN OF EVENTS RESULTING IN THE LOSS

WILL THE LOSS BE TERMED AS AN ACCIDENTAL LOSS.

Any Questions?

Thanks.

fire insurance everything you wanted to know 17012017

Leadership & Management