What is fire insurance?

A contract of Fire Insurance is a contract by which the insurance company or the underwriter or the insurer undertakes for a consideration in the form of a payment of money, either in a lump sum or in instalments, to indemnify the insured against the consequences of a fire, or the loss or injury arising there from during an agreed a period and up to a certain amount.

The contract is to be found embodied in a document known as the ‘Policy of Fire Insurance.’ As in the case of life insurance an insurable interest is necessary here also. It has been held in various English cases that it is not necessary to have an actual formal policy in order to constitute a valid contract of fire insurance.

A slip by a broker with a view to the preparation of a policy may be taken as a contract of insurance, and it has also been held that a mere proposal to of insurance, and it has also been held that a mere proposal to insure followed by an acceptance of the proposal in itself constitutes a valid contract of fire insurance even though no payment by way of fire insurance premium has been made.

The general practice is that after the proposal by the owner of the property for insurance and after its acceptance a document called the ‘Cover Note’ is handed to the insured. This cover note is sufficient to enable the holder to claim damages in cases fire occurred during the interval.

In short, the cover note or an interim protection note constitutes a binding contract for the time mentioned therein. Fire insurance is also a contract uberrimae fidei i.e. of utmost good faith.

The Risk

The risk on a fire policy commences from the moment of time the cover note or the deposit receipt of the interim protector act of insurance. It is the practice to allow a certain number of days as days of grace within which a fire policy may e renewed after the expiration of the term.

In such a case, if a fire occurs within such a time the insured would be entitled to recover the damages. If, however, it is expressly stipulated in the policy that unless the renewal premium is paid and the renewal risk is accepted the insurance will expire the insured would not be able to recover damages in a case where fire occurred after the expiration of the term and before the acceptance by the fire insurance company of a proposal for further insurance.

Loss by Fire

The question as to what is the meaning of the expression Loss by Fire’ has frequently arisen. Of course, the literal meaning viz. Damage, loss or deterioration through ignition is included, but much more than that is covered. In India the special Municipal Acts of the different states lay down that damage by fire within the meaning of policies in India would include any damage done in the exercise of powers, in case of an outbreak of fire, by a magistrate or members or secretaries of committees, or members, of fire brigades, by way or breakage, pulling down of premises, and through any measures that may have to be taken in case of fire to preserve lives or property.

It would also include the damage to a property caused through heating, which heat has been engendered by some property near it which has caught fire. Or course, pure and simple heating without any ignition of the property itself of anything near it, would not be covered by the expression ‘Loss or Damage by Fire.’

In the case of lighting, if an actual fire has been caused by it, it would of course be covered by the ordinary risk of damage by fire; but not otherwise, unless specifically provided for in the policy. In short, losses directly caused through fire, i.e. those that are direct consequences of fire- are covered.

The others are not covered unless specifically provided for. If the loss is caused through the malicious act of the insured himself, he would not be able to recover damages. But it would be no excuse for the underwriter to say that the fire was caused through the negligence of the insured.

Fire policies usually cover loss through the fire whether caused through lighting, explosion of boils used for domestic purpose or explosion of gas used for domestic purposes or in a building not used as gas work. They do not include loss through fire caused by spontaneous fermentation, earthquakes, subterranean fire, riot, civil commotion, foreign enemy, military or usurped power, rebellion or insurrection.

Assignment

A fire policy can, according to the English Common Law, be assigned only with the consent of the insurer or the insurance company. It is said to be contract of a personal nature, and therefore a policy of insurance does not pass with the sale or assignment of the property on which it is affected. A transfer or assignment with the consent of the insurance office, as stated above, would only give an effective right to the assignee.

In connection with our Indian law, section 135 and 49 of the Transfer of Property Act, 1882, are important inasmuch as they show that these policies of fire insurance are assignable in India.

Claims and Average in Fire Insurance

On an outbreak of fire the insured must give notice to the insurance company. The claim should be for the exact value of the goods damaged or destroyed at the date of the fire. When goods are party destroyed or damaged, details as to the value of that in good condition and in damaged condition should be furnished to the insurance company.

When the damage is to buildings, a sum amounting to the cost of repairs of the damage, with due allowance for the greater value of the new premises over the old, should be the basis of the claim. This is, of course, applicable where the policy covers the full value of the property; but in fire insurance company cannot, in case the property is partially insured, claim to pay only a proportional loss, i.e. irrespective of the value of the whole property; e.g. if a property is worth Rs. 50,000 and is insured for Rs. 20,000 and the damage has been caused to the extent of Rs. 5,000 the insured can recover his full Rs. 5,000.

Policies, however, counteract this advantage from the point of view of the insured by inserting clauses known as “average clauses” under which it is expressly provided that in such cases the loss in proportion to the risk covered on the property can only be claimed. These average clauses have now developed into a number of variations suitable to various circumstances. Fire offices by inserting a clause called “reinstatement clause” reserve to themselves the right to reinstate the property instead of paying in money. This clause goes a long way in practice, to prevent rapacious and fraudulent claims being presented.

The Doctrine of Subrogation in Fire Insurance

Subrogation is a doctrine, applicable both to fire and marine insurance, by which the insurer or the underwriter becomes entitled to claim all advantages of every right of the insured on his paying compensation to the insured, against third parties who may be proved to be responsible for that loss, owing to such third parties ‘negligence, default, etc. To take an instance, it often happens that a lessee takes the lease of premises for a long period, which lease covers the repairs to premises.

The lessee under this covenant would be bound to repair the premises even in the case of damage by fire, Now, if the premises have been insured by the landlord and a fire breaks out, the landlord can recover the loss immediately from the insurance, company and the insurance company in turn, can recover the amount from the lessee because, on their having paid the loss to the lesser, i.e. the landlord, the landlord’s rights are subrogated to the insurer, in other words, the insurance company on satisfying the claim steps into the shoes of the insured.