Fire assurance Under Indian assurance Law

Law Offices - Fire assurance Under Indian assurance Law

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A covenant of insurance comes into being when a man seeking insurance protection enters into a covenant with the insurer to indemnify him against loss of property by or incidental to fire and or lightening, explosion, etc. This is primarily a covenant and hence as is governed by the normal law of contract. However, it has safe bet special features as insurance transactions, such as utmost faith, insurable interest, indemnity, subrogation and contribution, etc. These law are common in all insurance contracts and are governed by special law of law.

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Fire Insurance:

According to S. 2(6A), "fire insurance business" means the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence, customarily included among the risks insured against in fire insurance business.

According to Halsbury, it is a covenant of insurance by which the insurer agrees for observation to indemnify the assured up to a safe bet extent and subject to safe bet terms and conditions against loss or damage by fire, which may happen to the property of the assured while a definite period.
Thus, fire insurance is a covenant whereby the person, seeking insurance protection, enters into a covenant with the insurer to indemnify him against loss of property by or incidental to fire or lightning, explosion etc. This procedure is designed to insure one's property and other items from loss occurring due to faultless or partial damage by fire.

In its literal, sense, a fire insurance covenant is one:

1. Whose principle object is insurance against loss or damage occasioned by fire.

2. The extent of insurer's liability being minuscule by the sum assured and not necessarily by the extent of loss or damage sustained by the insured: and

3. The insurer having no interest in the protection or destruction of the insured property apart from the liability undertaken under the contract.

Law Governing Fire Insurance

There is no statutory enactment governing fire insurance, as in the case of nautical insurance which is regulated by the Indian nautical insurance Act, 1963. The Indian insurance Act, 1938 in general dealt with regulation of insurance business as such and not with any normal or special law of the law relating fire of other insurance contracts. So also the normal 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 decisions of Courts and opinions of English Jurists.

In determining the value of property damaged or destroyed by fire for the purpose of indemnity under a procedure 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 store value of the property before and after the loss. Any way such method of assessment was not applicable in cases where the store value did not narrate 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 portion 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 held as an income-producing investment, and therefore the court held that the proper portion of indemnity for damage to the property by fire was the cost of reinstatement.

Insurable Interest

A man who is so concerned in a property as to have benefit from its existence and prejudice by its destruction is said to have insurable interest in that property. Such a man can insure the property against fire.

The interest in the property must exist both at the inception as well as at the time of loss. If it does not exist at the commencement of the covenant it cannot be the subject-matter of the insurance and if it does not exist 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 windup of a covenant of insurance is issuance of the procedure is different from the acceptance or assumption of risk. Section 64-Vb only lays down broadly that the insurer cannot assume risk prior to the date of receipt of premium. Rule 58 of the insurance Rules, 1939 speaks about enlarge cost of premiums in view of sub section (!) of Section 64 Vb which enables the insurer to assume the risk from the date onwards. If the proposer did not desire a single date, it was inherent for the proposer to negotiate with insurer about that term. Precisely, therefore the Apex Court has said that final acceptance is that of the assured or the insurer depends simply on the way in which negotiations for insurance have progressed. Though the following are risks which seem to have covered Fire insurance procedure but are not totally covered under the Policy. Some of competitive areas are as follows:

Fire: Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat medicine and consequently damaged by fire is not covered. Further, burning of property insured by order of any collective Authority is excluded from the scope of cover.

Lightning : Lightning may ensue in fire damage or other types of damage, such as a roof broken by a falling chimney struck by lightning or cracks in a construction 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 damage to property (by fire or otherwise) directly caused by aircraft and other aerial devices and/ or articles dropped there from is covered. However, destruction or damage 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 man taking part along with others in any disturbance of collective peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, attack or a terrorist activity. Unlawful action would not be covered under the policy.

Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation: Storm, Cyclone, Typhoon, Tempest, Tornado and Hurricane are all varied 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 abnormal level. Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river or lakes, but also 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 sense with the insured property is covered. However, such vehicles or animals should not belong to or owned by the insured or any occupier of the premises or their employees while acting in the procedure of their employment.

Subsidence And Landslide Inculuding Rockside: Destruction or damage caused by Subsidence of part of the site on which the property stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or construction to a lower level, Landslide means sliding down of land normally on a hill.

However, normal cracking, settlement or bedding down of new structures; settlement or movement of made up ground; coastal or river erosion; defective establish or workmanship or use of defective materials; and demolition, construction, structural alterations or heal of any property or ground-works or excavations, are not covered.

Bursting And/Or Overflowing Of Water Tanks, Apparatus And Pipes: Loss or damage to property by water or otherwise on inventory of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.

Missile Testing Operations: Destruction or damage, due to impact or otherwise from trajectory/ projectiles in association with missile testing operations by the Insured or anything else, is covered.

Leakage From automatic Sprinkler Installations: Damage, caused by water accidentally discharged or leaked out from automatic sprinkler installations in the insured's premises, is covered. However, such destruction or damage caused by repairs or alterations to the structure or premises; repairs removal or postponement of the sprinkler installation; and defects in construction known to the insured, are not covered.

Bush Fire: This covers damage caused by burning, either 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 under this procedure are as follows:

o Theft while or after the occurrence of any insured risks

o War or nuclear perils

o Electrical breakdowns

o Ordered burning by a collective authority

o Subterranean fire

o Loss or damage to bullion, high-priced stones, curios (value more than Rs.10000), plans, drawings, money, securities, cheque books, computer records except if they are authentically included.

o Loss or damage to property moved to a different location (except machinery and equipment for cleaning, repairs or renewal for more than 60 days).

Characterictics Of Fire insurance Contract

A fire insurance covenant has the following characteristics namely:

(a) Fire insurance is a personal contract

A fire insurance covenant does not ensure the protection of the insured property. Its purpose is to see that the insured does not suffer loss by hypothesize of his interest in the insured property. Hence, if his association with the insured property ceases by being transferred to another person, the covenant of insurance also comes to an end. It is not so linked with the subject matter of the insurance as to pass automatically to the new owner to whom the subject is transferred. The covenant of fire insurance is thus a mere a personal covenant in the middle of the insured and the insurer for the cost of money. It can be validly assigned to another only with the consent of the insurer.

(b) It is whole and indivisible contract.

Where the insurance is of a binding and its contents of stock and machinery, the covenant is expressly agreed to be divisible. Thus , where the insured is guilty of breach of duty towards the insurer in respect of one subject matters covered by the procedure , the insurer can avoid the covenant as a whole and not only in respect of that single subject mater , unless the right is restricted by the terms of the policy.

(c) Cause of fire is immaterial

In insuring against fire, the insured wishes to protect him from any loss or detriment which he may suffer upon the occurrence of a fire, Any way 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 , either it was because the fire was lighted improperly or was lighted properly but negligently attended to thereafter or either the fire was caused on inventory 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 Any way 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 irregularity in the contract.

Limitation Of Time

Indemnity insurance was an bargain by the insurer to bestow on the insured a contractual right, which prima facie, came into existence immediately 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 good position. There was a former 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 estimate or it might be in some other manner. But the fact that the insurer had an choice 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, immediately the loss occurred. The former 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 procedure was avoided 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 can take fire insurance thereon. The following are among the class of persons who have been held to possess insurable interest in, property and can insure such property:

1. Owners of property, either sole, or joint owner, or partner in the firm owning the property. It is not needful that they should proprietary also. Thus a lesser and a lessee can both insure it jointly or severely.

2. The vender and purchaser have both proprietary to insure. The vendor's interest continues until the conveyance is completed and even thereafter, if he has an unpaid vendor's lien over it.

3. The mortgagor and mortgagee have both safe bet interests in the mortgaged property and can insure, per Lord Esher M.R."The mortgagee does not claim his interest straight through the mortgagor , but by virtue of the mortgage which has given him an interest safe bet from that of the mortgagor"[3]

4. Trustees are legal owners and beneficiaries the beneficial owners of trust property and each can insure it.

5. Bailees such as carriers, pawnbrokers or storehouse men are responsible for there protection of the property entrusted to them and so can 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 cannot insure his debtor's property, because his right is only against the debtor personally. He can, however, insure the debtor's life.

2. A shareholder in a business cannot insure the property of the business as he has no insurable interest in any asset of the business even if he is the sole shareholder. As was the case of Macaura v. Northen insurance Co.[4] Macaura. Because neither as a straightforward creditor nor as a shareholder 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 also under a safe bet duty to make a full disclosure of all material facts and not to make any misrepresentations or misdescreptions thereof while the negotiations for obtaining the policy. This duty of utmost good faith applies equally to the insurer and the insured. There must be faultless good faith on the part of the assured. This duty to examine utmost good faith is ensured b requiring the proposer to voice that the statements in the proposal form are true, that they shall be the basis of the covenant and that any incorrect or false statement therein shall avoid the policy. The insurer can then rely on them to correlate the risk and to fix thorough premium and accept the risk or decline it.

The questions in the proposal form for a fire procedure are so framed as to get all information which is material to the insurer to know in order to correlate the risk and fix the premium, that is, all material facts. Thus the proposer is required too give information relating to:

o The proposer's name and address and occupation

o The record of the subject matter to be insured sufficient for the purpose of identifying it including,

o A record of the locality where it is situated

o How the property is being used, either for any manufacturing purpose or dangerous trade.etc

o either it has already been insured

o And also ant personal insurance history along with the claims if any made buy the proposer, etc.

Apart from questions in the proposal form, the proposer should disclose either questioned or not-

1. Any information which would indicate the risk of fire to be above normal;

2. Any fact which would indicate that the insurer's liability may be more than normal can be incredible such as existence of needful manuscripts or documents, etc, and

3. Any 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 lowly procedure of his business as an insurer;

2. Facts which tend to show that the risk is lesser than otherwise;

3. Facts as to which information is waived by the insurer; and

4. Facts which need not disclosed in view of a procedure condition.

Thus, assured is under a solemn obligation to make full disclosure of material facts which may be relevant for the insurer to take into inventory while choosing either the proposal should be thorough or not. While manufacture a disclosure of the relevant facts, the

Doctrine Of Proximate Cause

Where more perils than one act simultaneously or successively, it will be difficult to correlate the relative ensue of each peril or pick out one of these as the actual cause of the loss. In such cases, the religious doctrine of proximate cause helps to settle the actual cause of the loss.
Proximate cause was defined in Pawsey v. Scottish Union and National Ins. Co.,[5]as "the active, productive cause that sets in motion a train of events which brings about a ensue without the intervention of any force started and working actively from a new and independent source." It is dominant and productive cause even though it is not the nearest in time. It is therefore needful when a loss occurs to investigate and ascertain what is the proximate cause of the loss in order to settle either the insurer is liable for the loss.

Proximate Cause Of Damage

A fire procedure covers risks where damage is caused by way of fire. The fire may be caused by lightening, by explosion or implosion. It may be ensue of riot, attack or on inventory of any, malicious act. Any way these factors must ultimately lead to a fire and the fire must 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 under the malicious act clause and therefore .the insurer was liable to meet the claim is untenable, because unless and until fire is the proximate cause f damage, no claim under a fire procedure would be maintainable.[6]

Procedure For Taking A Fire insurance Policy

The steps complicated for taking a fire insurance procedure are mentioned below:

1. choice of the insurance Company:

There are many clubs that offer fire insurance against unforeseen events. The individual or the business must take care in the choice of an insurance company. The judgment should rest on factors like goodwill, and long term standing in the market. The insurance clubs can either be approached directly or straight through agents, some of them who are appointed by the business itself.

2. Submission of the Proposal Form:

The individual or the business owner must submit a completed prescribed proposal form with the needful details to the insurance business for proper observation and subsequent approval. The information in the Proposal Form should 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 clubs have their own personalized Proposal Forms wherein the exact information has to be provided.

3. examine of the Property/ Consideration:

Once the duly filled Proposal Form is submitted to the insurance company, it makes an "on the spot" examine 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 business and they need to record back to them after a thorough investigate and survey. This is imperative to correlate the risk complicated and hypothesize the rate of premium.

4. Acceptance of the Proposal:

Once the detailed and extensive record is submitted to the insurance business by the surveyors and linked officers, the former makes a thorough perusal of the Proposal Form and the report. If the business is satisfied that their is no lacuna or foul play or fraud involved, it formally "accepts" the Proposal Form and directs the insured to pay the first premium to the company. It is to be noted that the insurance procedure commences after the cost and the acceptance of the premium by the insured and the company, respectively. The insurance business issues a Cover Note after the acceptance of the first premium.

Procedure On Receipt Of observation Of Loss

On receipt of the observation of loss, the insurer requires the insured to yield details pertaining to the loss in a claim from relating to the following information-

1. Circumstances and cause of the fire;

2. Occupancy and situation 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 either any others are concerned 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. estimate claimed

Furnishing such information relating to the claim is also a health precedent to the liability of the insurer. The above information will enable the insurer to verify whether-

(1) The procedure 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 its sentimental vale. Loss of prospective behalf or other consequential loss is not to be taken into account.

Filing Of Claims

How a claim arises?

After a covenant of fire insurance has come into existence, a claim 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 claim should be valid the following conditions must be fulfilled:

1. The occurrence should take place due to the operation of an insured peril or where both insured and other perils operated , the dominant or productive cause of the loss must have been an insured peril;

2. The operation of the peril must not come within the scope of the procedure exceptions;

3. The event must have caused loss or damage of the insured property;

4. The occurrence must be while the currency of the policy;

5. The insured must have fulfilled all the procedure conditions and should also comply with requirements to be fulfilled after the claim had arisen.

Material Facts In Fire Insurance: former Conviction Of The Accused

The criminal record of an assured could work on the moral hazard, which insurers had to assess, and the non-disclosure of a serious 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 duty to examine good faith towards the insurers and the in pursuit of it the insured must do his best to avert or minimize the loss. For this purpose he must (1) take all reasonable measures to put out the fire or prevent its spread, and (2) assist the fire brigade and others in their attempts to do so at any rate not come in their way.
With this object the insured property may be removed to a place of safety. Any loss or damage the insured property may hold in the procedure of attempts to combat the fire or while its removal to a place of protection etc., will be deemed to be loss proximately caused by the fire.

If the insured fails in his duty willfully and thereby increases the burden of the insurer, the insured will be deprived of his right to revive any indemnity under the policy.[7]

Insurer'S proprietary On The Outbreak Of Fire

(A) Implied Rights

Corresponding to the insured's duties the insurers have proprietary 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 proprietary of the property.

The insurers will be liable to make good all the damage the property may hold while the steps taken to put out the fire and as long as it in their possession, because all that is determined the natural and direct consequence of the fire; it has therefore been held in the case of Ahmedbhoy Habibhoy v. Bombay Fire nautical Ins. Co [8] that the extent of the damage flowing from the insured peril must 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 avoid an insured risk was not a consequence of that risk and was not recoverable unless the insured risk had begun to operate. In the case of Liverpool and London and Globe insurance Co. Ltd v. Canadian normal galvanic Co. Ltd., [9] the Canadian supreme Court held that "the loss was caused by the fire fighters' mistaken belief that their action was needful to avert an explosion , and the loss was not recoverable under the insurance policy, which covered only damage caused by fire explosion., and the loss was not recoverable under the insurance policy, which covered only damage caused by fire or explosion."

(C) Express rights

Condition 5- in order to protect their proprietary well insurers have prescribed for good proprietary expressly in this health agreeing to which on the happening of any destruction or damage the insurer and every man authorized by the insurer may enter, take or keep proprietary of the construction or premises where the damage has happened or want it to be delivered to them and deal with it for all reasonable purposes like examining, arranging, removing or sell or arrange off the same for the inventory of whom it may concern.

When and how a claim is made?

In the event of a fire loss covered under the fire insurance policy, the Insured shall immediately give observation thereof to the insurance company. Within 15 days of the occurrence of such loss, the Insured should submit a claim in writing, giving the details of damages and their estimated values. Details of other insurances on the same property should also be declared.

The Insured should fetch and produce, at his own expense, any document like plans, inventory books, investigation reports etc. On ask by the insurance company.

How insurance May Cease?

Insurance under a fire procedure may cease in any of the following circumstances, namely:

(1) Insurer avoiding the procedure by hypothesize of the insured manufacture misrepresentation, misdescription or non-disclosure of any material particular;

(2) If there is a fall or displacement of any insured construction range or structure or part thereof , then on the expiry of seven days wherefrom, except where the fall or displacement was due to the action of any insured peril; notwithstanding this, the insurance may be revived on revised terms if express observation is given to the business as soon as the occurrence takes place;

(3) The insurance may be concluded at any tie at the invite of the insured and at the choice of the business on 15 days observation to the insured

Conclusion

Tangible property is exposed to numerous risks like fire, floods, explosions, earthquake, riot and war, etc. And insurance protection can be had against most of these risks severally or in combination. The form in which the cover is expressed is numerous and varied. Fire insurance in its literal, sense is concerned with giving protection against fire and fire only. So while granting a fire insurance procedure all the requisites need be fulfilled. The insured are under a moral and legal obligation to be at utmost good faith and should be telling true facts and not just fake grounds only with the greed to recover money. Further all insurance policies help in the development of a Developing nation. Hence insurance clubs have a burden to help 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 nautical insurance association (1897) 2 Qb 311
4. (1925) Ac 619

5. (1907) Case.

6. National insurance business 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. Contemporary 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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