Fire Insurance Under Indian Insurance Law
A contract of Insurance comes into being when a person seeking insurance protection enters into a contract with the insurer to indemnify him against loss of character by or minor point to fire and or lightening, explosion, etc. This is chiefly a contract and hence as is governed by the general law of contract. However, it has certain special features as insurance transactions, such as utmost faith, insurable interest, indemnity, subrogation and contribution, etc. these principles are shared in all insurance contracts and are governed by special principles of law.
According to S. 2(6A), “fire insurance business” method the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or minor point to fire or other occurrence, customarily included among the risks insured against in fire insurance business.
According to Halsbury, it is a contract of insurance by which the insurer agrees for consideration to indemnify the assured up to a certain extent and unprotected to certain terms and conditions against loss or damage by fire, which may happen to the character of the assured during a specific period.
consequently, fire insurance is a contract whereby the person, seeking insurance protection, enters into a contract with the insurer to indemnify him against loss of character by or minor point to fire or lightning, explosion etc. This policy is designed to insure one’s character and other items from loss occurring due to complete or uncompletely damage by fire.
In its strict sense, a fire insurance contract is one:
1. Whose rule object is insurance against loss or damage occasioned by fire.
2. The extent of insurer’s liability being limited by the sum assured and not necessarily by the extent of loss or damage consistent by the insured: and
3. The insurer having no interest in the safety or destruction of the insured character except the liability undertaken under the contract.
LAW GOVERNING FIRE INSURANCE
There is no statutory enactment governing fire insurance, as in the case of marine insurance which is regulated by the Indian Marine Insurance Act, 1963. the Indian Insurance Act, 1938 mainly dealt with regulation of insurance business as such and not with any general or special principles of the law relating fire of other insurance contracts. So also the General 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 calculating the value of character damaged or destroyed by fire for the purpose of indemnity under a policy of fire insurance, it was the value of the character to the insured, which was to be measured. Prima facie that value was measured by reference of the market value of the character before and after the loss. However such method of assessment was not applicable in situations where the market value did not represent the real value of the character to the insured, as where the character was used by the insured as a home or, for carrying business. In such situations, the measure of indemnity was the cost of reinstatement. In the case of Lucas v. New Zealand Insurance Co. Ltd. where the insured character was purchased and held as an income-producing investment, and consequently the court held that the proper measure of indemnity for damage to the character by fire was the cost of reinstatement.
A person who is so interested in a character as to have assistance from its existence and prejudice by its destruction is said to have insurable interest in that character. Such a person can insure the character against fire.
The interest in the character must exist both at the inception in addition as at the time of loss. If it does not exist at the commencement of the contract 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. consequently, where he sells the insured character and it is damaged by fire thereafter, he suffers no loss.
RISKS COVERED UNDER FIRE INSURANCE POLICY
The date of conclusion of a contract of insurance is issuance of the policy 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 improvement payment 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 particular date, it was possible for the proposer to negotiate with insurer about that term. Precisely, consequently 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 Policy but are not totally covered under the Policy. Some of contentious areas are as follows:
FIRE: Destruction or damage to the character insured by its own fermentation, natural heating or instinctive combustion or its undergoing any heating or drying course of action cannot be treated as damage due to fire. For e.g., paints or chemicals in a factory undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of character insured by order of any Public Authority is excluded from the scope of cover.
LIGHTNING : Lightning may consequence in fire damage or other types of damage, such as a roof broken by a falling chimney hit by lightning or fractures in a building 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 character (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 groups 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 person taking part along with others in any disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, strike 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 various 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 shared 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 means or animal by direct contact with the insured character 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 during their employment.
SUBSIDENCE AND LANDSLIDE INCULUDING ROCKSIDE: Destruction or damage caused by Subsidence of part of the site on which the character stands or Landslide/ Rockslide is covered. While Subsidence method sinking of land or building to a lower level, Landslide method sliding down of land usually 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 design or workmanship or use of defective materials; and demolition, construction, structural alterations or repair of any character or ground-works or excavations, are not covered.
BURSTING AND/OR OVERFLOWING OF WATER TANKS, APPARATUS AND PIPES: Loss or damage to character by water or otherwise on account 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 connection with missile testing operations by the Insured or anyone 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 buildings or premises; repairs removal or extension of the sprinkler installation; and defects in construction known to the insured, are not covered.
BUSH FIRE: This covers damage caused by burning, whether 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 policy are as follows:
o Theft during or after the occurrence of any insured risks
o War or nuclear perils
o Electrical breakdowns
o Ordered burning by a public authority
o Subterranean fire
o Loss or damage to bullion, precious stones, curios (value more than Rs.10000), plans, drawings, money, securities, cheque books, computer records except if they are categorically included.
o Loss or damage to character moved to a different location (except machinery and equipment for cleaning, repairs or renovation for more than 60 days).
CHARACTERICTICS OF FIRE INSURANCE CONTRACT
A fire insurance contract has the following characteristics namely:
(a) Fire insurance is a personal contract
A fire insurance contract does not ensure the safety of the insured character. Its purpose is to see that the insured does not suffer loss by reason of his interest in the insured character. Hence, if his connection with the insured character ceases by being transferred to another person, the contract of insurance also comes to an end. It is not so connected with the subject matter of the insurance as to pass automatically to the new owner to whom the subject is transferred. The contract of fire insurance is consequently a insignificant a personal contract between the insured and the insurer for the payment of money. It can be validly stated to another only with the consent of the insurer.
(b) It is complete and indivisible contract.
Where the insurance is of a binding and its contents of stock and machinery, the contract is expressly agreed to be divisible. consequently , where the insured is guilty of breach of duty towards the insurer in respect of one subject matters covered by the policy , the insurer can avoid the contract as a whole and not only in respect of that particular 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 unhealthy which he may suffer upon the occurrence of a fire, however 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. consequently , whether it was because the fire was lighted improperly or was lighted properly but negligently attended to thereafter or whether the fire was caused on account 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 however 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 exception in the contract.
LIMITATION OF TIME
Indemnity insurance was an agreement by the insurer to confer on the insured a contractual right, which prima facie, came into existence closest 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 better position. There was a dominant 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 amount or it might be in some other manner. But the fact that the insurer had an option as to the way in which he would put the insured into pre-loss position did not average that he was not liable to indemnify him in one way or another, closest the loss occurred. The dominant 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 policy was avoided and any suit filed after that time limit would be barred by limitation.
WHO MAY INSURE AGAINST FIRE?
Only those who have insurable interest in a character can take fire insurance thereon. The following are among the class of persons who have been held to possess insurable interest in, character and can insure such character:
1. Owners of character, whether only, or joint owner, or partner in the firm owning the character. It is not necessary that they should possession also. consequently a lesser and a lessee can both insure it jointly or severely.
2. The vender and purchaser have both rights to insure. The vendor’s interest continues until the conveyance is completed and already thereafter, if he has an unpaid vendor’s lien over it.
3. The mortgagor and mortgagee have both definite interests in the mortgaged character and can insure, per Lord Esher M.R.”The mortgagee does not claim his interest by the mortgagor , but by virtue of the mortgage which has given him an interest definite from that of the mortgagor”
4. Trustees are legal owners and beneficiaries the advantageous owners of trust character and each can insure it.
5. Bailees such as carriers, pawnbrokers or warehouse men are responsible for there safety of the character entrusted to them and so can insure it.
PERSON NOT ENTITLED TO INSURE
One who has no insurable interest in a character cannot insure it. For example:
1. An unsecured creditor cannot insure his debtor’s character, because his right is only against the debtor personally. He can, however, insure the debtor’s life.
2. A shareholder in a company cannot insure the character of the company as he has no insurable interest in any asset of the company already if he is the only shareholder. As was the case of Macaura v. Northen Assurance Co. Macaura. Because neither as a simple 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 positive duty to make a complete disclosure of all material facts and not to make any misrepresentations or misdescreptions thereof during the negotiations for obtaining the policy. This duty of utmost good faith applies equally to the insurer and the insured. There must be complete good faith on the part of the assured. This duty to observe utmost good faith is ensured b requiring the proposer to declare that the statements in the proposal form are true, that they shall be the basis of the contract and that any incorrect or false statement therein shall avoid the policy. The insurer can then rely on them to estimate the risk and to fix appropriate premium and accept the risk or decline it.
The questions in the proposal form for a fire policy are so framed as to get all information which is material to the insurer to know in order to estimate the risk and fix the premium, that is, all material facts. consequently the proposer is required too give information relating to:
o The proposer’s name and address and occupation
o The description of the subject matter to be insured sufficient for the purpose of identifying it including,
o A description of the locality where it is located
o How the character is being used, whether for any manufacturing purpose or hazardous trade.etc
o Whether it has already been insured
o And also ant personal insurance history including the claims if any made buy the proposer, etc.
except questions in the proposal form, the proposer should disclose whether 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 expected such as existence of valuable manuscripts or documents, etc, and
3. Any information bearing upon the more; danger involved.
The proposer is not obliged to disclose-
1. Information which the insurer may be presumed to know in the ordinary course 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 policy condition.
consequently, assured is under a solemn obligation to make complete disclosure of material facts which may be applicable for the insurer to take into account while deciding whether the proposal should be accepted or not. While making a disclosure of the applicable facts, the
DOCTRINE OF PROXIMATE CAUSE
Where more perils than one act simultaneously or successively, it will be difficult to estimate the relative effect of each peril or pick out one of these as the actual cause of the loss. In such situations, the doctrine of proximate cause helps to determine the actual cause of the loss.
Proximate cause was defined in Pawsey v. Scottish Union and National Ins. Co.,as “the active, effective cause that sets in motion a aim of events which brings about a consequence without the intervention of any force started and working actively from a new and independent source.” It is principal and effective cause already though it is not the nearest in time. It is consequently necessary when a loss occurs to probe and ascertain what is the proximate cause of the loss in order to determine whether the insurer is liable for the loss.
PROXIMATE CAUSE OF DAMAGE
A fire policy covers risks where damage is caused by way of fire. The fire may be caused by lightening, by explosion or implosion. It may be consequence of riot, strike or on account of any, malicious act. However these factors must ultimately rule to a fire and the fire must be the proximate cause of damage. consequently, a loss caused by theft of character by militants would not be covered by the fire policy. The view that the loss was covered under the malicious act clause and consequently .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 policy would be maintainable.
PROCEDURE FOR TAKING A FIRE INSURANCE POLICY
The steps involved for taking a fire insurance policy are mentioned below:
1. Selection of the Insurance Company:
There are many companies that offer fire insurance against unforeseen events. The individual or the company must take care in the selection of an insurance company. The judgment should rest on factors like goodwill, and long term standing in the market. The insurance companies can either be approached directly or by agents, some of them who are appointed by the company itself.
2. Submission of the Proposal Form:
The individual or the business owner must submit a completed prescribed proposal form with the necessary details to the insurance company for proper consideration and later 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 character or goods that are to be insured. Most of the companies have their own personalized Proposal Forms wherein the exact information has to be provided.
3. Survey of the character/ Consideration:
Once the duly filled Proposal Form is submitted to the insurance company, it makes an “on the identify” survey of the character or the goods that are the subject matter of the insurance. This is usually done by the investigators, or the surveyors, who are appointed by the company and they need to report back to them after a thorough research and survey. This is imperative to estimate the risk involved and calculate the rate of premium.
4. Acceptance of the Proposal:
Once the detailed and comprehensive report is submitted to the insurance company by the surveyors and related officers, the former makes a thorough perusal of the Proposal Form and the report. If the company 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 policy commences after the payment and the acceptance of the premium by the insured and the company, respectively. The Insurance Company issues a Cover observe after the acceptance of the first premium.
PROCEDURE ON RECEIPT OF NOTICE OF LOSS
On receipt of the notice of loss, the insurer requires the insured to furnish 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 character; that is capacity in which the insured claims and whether any others are interested in the character;
4. Other insurances on the character;
5. Value of each item of the character at the time of loss together with proofs thereof , and value of the salvage ,if any; and
6. Amount claimed
Furnishing such information relating to the claim is also a condition precedent to the liability of the insurer. The above information will permit the insurer to verify whether-
(1) The policy is in force;
(2) The peril causing the loss is an insured peril;
(3) The character damaged or lost is the insured character.
Rules for calculation of value of character
The value of the insured character is-
1) Its value at the time of loss, and
2) At the place of loss, and
3) Its real or inherent value without any attention to its sentimental vale. Loss of prospective profit or other consequential loss is not to be taken into account.
FILING OF CLAIMS
How a claim arises?
After a contract of fire insurance has come into existence, a claim may arise by the operation of one or more insured perils on an unsecured character. There may in addition one or more uninsured perils also operating simultaneously or in series of the character. 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 principal or efficient cause of the loss must have been an insured peril;
2. The operation of the peril must not come within the scope of the policy exceptions;
3. The event must have caused loss or damage of the insured character;
4. The occurrence must be during the money of the policy;
5. The insured must have fulfilled all the policy conditions and should also comply with requirements to be fulfilled after the claim had arisen.
MATERIAL FACTS IN FIRE INSURANCE: past CONVICTION OF THE ACCUSED
The criminal record of an assured could affect the moral danger, which insurers had to estimate, and the non-disclosure of a serious criminal offence like robbery by the plaintiff would a material non-disclosure.
INSURED’S DUTY ON sudden increase OF FIRE, IMPLIED DUTY
On the sudden increase of a fire the insured is under an implied duty to observe good faith towards the insurers and the in pursuance of it the insured must do his best to avid 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 character may be removed to a place of safety. Any loss or damage the insured character may sustain during attempts to combat the fire or during its removal to a place of safety 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.
INSURER’S RIGHTS ON THE sudden increase OF FIRE
(A) Implied Rights
Corresponding to the insured’s duties the insurers have rights by the law, in view of the liability they have undertaken to indemnify the insured. consequently the insurers have a right to-
o Take reasonable measures to extinguish the fire and to minimize the loss to character, and
o For that purpose, to go into upon and take possession of the character.
The insurers will be liable to make good all the damage the character may sustain during the steps taken to put out the fire and as long as it in their possession, because all that is considered the natural and direct consequence of the fire; it has consequently been held in the case of Ahmedbhoy Habibhoy v. Bombay Fire Marine Ins. Co  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 avid the risk
Damage consistent 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 function. In the case of Liverpool and London and Globe Insurance Co. Ltd v. Canadian General Electric Co. Ltd.,  the Canadian Supreme Court held that “the loss was caused by the fire fighters’ mistaken belief that their action was necessary to avid 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 rights well insurers have prescribed for better rights expressly in this condition according to which on the happening of any destruction or damage the insurer and every person empowered by the insurer may go into, take or keep possession of the building or premises where the damage has happened or require it to be delivered to them and deal with it for all reasonable purposes like examining, arranging, removing or sell or dispose off the same for the account 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 closest give notice 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 character should also be declared.
The Insured should obtain and produce, at his own expense, any document like plans, account books, investigation reports etc. on need by the insurance company.
HOW INSURANCE MAY CEASE?
Insurance under a fire policy may cease in any of the following circumstances, namely:
(1) Insurer avoiding the policy by reason of the insured making misrepresentation, misdescription or non-disclosure of any material particular;
(2) If there is a fall or displacement of any insured building 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; despite this, the insurance may be revived on revised terms if express notice is given to the company as soon as the occurrence takes place;
(3) The insurance may be terminated at any tie at the request of the insured and at the option of the company on 15 days notice to the insured
Tangible character 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 strict sense is concerned with giving protection against fire and fire only. So while granting a fire insurance policy 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 retrieve money. Further all insurance policies help in the development of a Developing nation. Hence insurance companies have a burden to help the insured when the insured are in trouble.
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 Marine Insurance Association (1897) 2 QB 311
4. (1925) AC 619
5. (1907) Case.
6. National Insurance Company 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)
1. The Economics of Fire Protection by Ganapathy Ramachandran
2. Modern Insurance Law, by John Birds
3. The Handbook of Insurance Regulatory and Development Authority Act and Regulations with Allied Laws ,by Nagar