Fire insurance Under Indian insurance Law

Student At Law - Fire insurance Under Indian insurance Law

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A contract of assurance comes into being when a someone seeking assurance security enters into a contract with the insurer to indemnify him against loss of asset by or incidental to fire and or lightening, explosion, etc. This is primarily a contract and hence as is governed by the normal law of contract. However, it has definite extra features as assurance transactions, such as utmost faith, insurable interest, indemnity, subrogation and contribution, etc. These principles are common in all assurance contracts and are governed by extra principles of law.

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Fire Insurance:

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

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

In its correct sense, a fire assurance contract is one:

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

2. The extent of insurer's liability being miniature 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 security or destruction of the insured asset 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 marine assurance which is regulated by the Indian marine assurance Act, 1963. The Indian assurance Act, 1938 in general dealt with regulation of assurance company as such and not with any normal or extra principles of the law relating fire of other assurance contracts. So also the normal assurance company (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 assurance have relied so far on judicial decisions of Courts and opinions of English Jurists.

In determining the value of asset damaged or destroyed by fire for the purpose of indemnity under a procedure of fire insurance, it was the value of the asset to the insured, which was to be measured. Prima facie that value was measured by reference of the market value of the asset before and after the loss. However such formula of estimation was not applicable in cases where the market value did not recount the real value of the asset to the insured, as where the asset was used by the insured as a home or, for carrying business. In such cases, the quantum of indemnity was the cost of reinstatement. In the case of Lucas v. New Zealand assurance Co. Ltd.[1] where the insured asset was purchased and held as an income-producing investment, and therefore the court held that the permissible quantum of indemnity for damage to the asset by fire was the cost of reinstatement.

Insurable Interest

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

The interest in the asset must exist both at the inception as well 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 assurance 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 asset and it is damaged by fire thereafter, he suffers no loss.

Risks Covered Under Fire assurance Policy

The date of conclusion of a contract of assurance 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 assurance Rules, 1939 speaks about strengthen 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 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 naturally on the way in which negotiations for assurance have progressed. Though the following are risks which seem to have covered Fire assurance procedure but are not totally covered under the Policy. Some of contentious areas are as follows:

Fire: Destruction or damage to the asset 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 installation undergoing heat treatment and consequently damaged by fire is not covered. Further, burning of asset insured by order of any social Authority is excluded from the scope of cover.

Lightning : Lightning may effect 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 asset (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 someone taking part along with others in any disturbance of social peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot, assault or a terrorist activity. Unlawful performance 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 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 car or animal by direct taste with the insured asset 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 asset stands or Landslide/ Rockslide is covered. While Subsidence means sinking of land or construction to a lower level, Landslide means sliding down of land regularly on a hill.

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

Bursting And/Or Overflowing Of Water Tanks, Apparatus And Pipes: Loss or damage to asset 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 connection with missile testing operations by the Insured or anyone else, is covered.

Leakage From automated Sprinkler Installations: Damage, caused by water accidentally discharged or leaked out from automated 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 extraction 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 assurance 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 social 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 indeed included.

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

Characterictics Of Fire assurance Contract

A fire assurance contract has the following characteristics namely:

(a) Fire assurance is a personal contract

A fire assurance contract does not ensure the security of the insured property. Its purpose is to see that the insured does not suffer loss by intuit of his interest in the insured property. Hence, if his connection with the insured asset ceases by being transferred to an additional one person, the contract of assurance also comes to an end. It is not so connected with the subject matter of the assurance as to pass automatically to the new owner to whom the subject is transferred. The contract of fire assurance is thus a mere a personal contract in the middle of the insured and the insurer for the payment of money. It can be validly assigned to an additional one only with the consent of the insurer.

(b) It is whole and indivisible contract.

Where the assurance is of a binding and its contents of stock and machinery, the contract 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 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 safe him from any loss or detriment 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. Thus , 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 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 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 irregularity in the contract.

Limitation Of Time

Indemnity assurance was an business agreement by the insurer to confer 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 best position. There was a traditional liability, i.e. To indemnify, and a secondary liability i.e. To put the insured in his pre-loss position, whether by paying him a specifying number 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 mean that he was not liable to indemnify him in one way or another, immediately the loss occurred. The traditional 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 asset can take fire assurance thereon. The following are among the class of persons who have been held to possess insurable interest in, asset and can insure such property:

1. Owners of property, whether sole, or joint owner, or partner in the firm owning the property. It is not essential 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 definite interests in the mortgaged asset 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 definite from that of the mortgagor"[3]

4. Trustees are legal owners and beneficiaries the useful owners of trust asset and each can insure it.

5. Bailees such as carriers, pawnbrokers or storehouse men are responsible for there security of the asset entrusted to them and so can insure it.

Person Not Entitled To Insure

One who has no insurable interest in a asset 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 company cannot insure the asset of the company as he has no insurable interest in any asset of the company even if he is the sole shareholder. As was the case of Macaura v. Northen assurance Co.[4] 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 assurance are contracts of utmost good faith, the proposer for fire assurance is also under a definite 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 complete good faith on the part of the assured. This duty to examine utmost good faith is ensured b requiring the proposer to pronounce 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 collate the risk and to fix thorough prime and accept the risk or decline it.

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

o The proposer's name and address and occupation

o The article of the subject matter to be insured adequate for the purpose of identifying it including,

o A article of the locality where it is situated

o How the asset is being used, whether for any manufacturing purpose or risky trade.etc

o whether it has already been insured

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

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

1. Any data 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 anticipated such as existence of essential manuscripts or documents, etc, and

3. Any data bearing upon the more; hazard involved.

The proposer is not obliged to disclose-

1. data which the insurer may be presumed to know in the commonplace procedure of his company as an insurer;

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

3. Facts as to which data 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 whether the proposal should be thorough or not. While development 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 collate the relative effect of each peril or pick out one of these as the actual cause of the loss. In such cases, the doctrine of proximate cause helps to decide the actual cause of the loss.
Proximate cause was defined in Pawsey v. Scottish Union and National Ins. Co.,[5]as "the active, effective cause that sets in motion a train of events which brings about a effect without the intervention of any force started and working actively from a new and independent source." It is dominant and effective cause even though it is not the nearest in time. It is therefore essential when a loss occurs to investigate and ascertain what is the proximate cause of the loss in order to decide whether 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 effect of riot, assault or on inventory of any, malicious act. However 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 asset 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 assurance Policy

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

1. option of the assurance Company:

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

2. Submission of the Proposal Form:

The individual or the company owner must submit a completed prescribed proposal form with the essential details to the assurance company for permissible observation and subsequent approval. The data in the Proposal Form should be given in good faith and must be accompanied by documents that verify the actual worth of the asset or goods that are to be insured. Most of the clubs have their own personalized Proposal Forms wherein the exact data has to be provided.

3. examine of the Property/ Consideration:

Once the duly filled Proposal Form is submitted to the assurance company, it makes an "on the spot" examine of the asset or the goods that are the subject matter of the insurance. This is regularly done by the investigators, or the surveyors, who are appointed by the company and they need to article back to them after a thorough investigate and survey. This is imperative to collate the risk complicated and intuit the rate of premium.

4. Acceptance of the Proposal:

Once the detailed and whole article is submitted to the assurance company by the surveyors and connected 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 prime to the company. It is to be noted that the assurance procedure commences after the payment and the acceptance of the prime by the insured and the company, respectively. The assurance company 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 produce 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 whether any others are curious in the property;

4. Other insurances on the property;

5. Value of each item of the asset at the time of loss together with proofs thereof , and value of the saving ,if any; and

6. number claimed

Furnishing such data relating to the claim is also a health precedent to the liability of the insurer. The above data 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 asset damaged or lost is the insured property.

Rules for calculation of value of property

The value of the insured asset 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 profit or other consequential loss is not to be taken into account.

Filing Of Claims

How a claim arises?

After a contract of fire assurance has come into existence, a claim may arise by the doing 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 doing of an insured peril or where both insured and other perils operated , the dominant or effective cause of the loss must have been an insured peril;

2. The doing 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 article of an assured could influence 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 race of it the insured must do his best to avert or minimize the loss. For this purpose he must (1) take all inexpensive measures to put out the fire or preclude its spread, and (2) aid the fire brigade and others in their attempts to do so at any rate not come in their way.
With this object the insured asset may be removed to a place of safety. Any loss or damage the insured asset may withhold in the procedure of attempts to combat the fire or while its extraction to a place of security 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 inexpensive 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 asset may withhold while the steps taken to put out the fire and as long as it in their possession, because all that is thought about the natural and direct consequence of the fire; it has therefore been held in the case of Ahmedbhoy Habibhoy v. Bombay Fire marine 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 performance 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 assurance Co. Ltd v. Canadian normal electric Co. Ltd., [9] the Canadian consummate Court held that "the loss was caused by the fire fighters' mistaken belief that their performance was essential to avert an explosion , and the loss was not recoverable under the assurance policy, which covered only damage caused by fire explosion., and the loss was not recoverable under the assurance policy, which covered only damage caused by fire or explosion."

(C) Express rights

Condition 5- in order to safe their proprietary well insurers have prescribed for best proprietary expressly in this health agreeing to which on the happening of any destruction or damage the insurer and every someone authorized by the insurer may enter, take or keep proprietary of the construction or premises where the damage has happened or need it to be delivered to them and deal with it for all inexpensive purposes like examining, arranging, removing or sell or dispose 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 assurance policy, the Insured shall immediately give observation thereof to the assurance 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 asset should also be declared.

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

How assurance May Cease?

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

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

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

(3) The assurance may be fulfilled, at any tie at the invite of the insured and at the option of the company on 15 days observation to the insured

Conclusion

Tangible asset is exposed to numerous risks like fire, floods, explosions, earthquake, riot and war, etc. And assurance security 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 assurance in its correct sense is involved with giving security against fire and fire only. So while granting a fire assurance 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 assurance policies help in the amelioration of a Developing nation. Hence assurance 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 assurance Co. Ltd. (1997) 2 Lloyd's Rep. 541 (Qbd)

3. Small v. U.K marine assurance connection (1897) 2 Qb 311
4. (1925) Ac 619

5. (1907) Case.

6. National assurance company v. Ashok Kumar Barariio

7. Devlin v. Queen assurance 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 security by Ganapathy Ramachandran

2. Contemporary assurance Law, by John Birds

3. The Handbook of assurance Regulatory and amelioration Authority Act and Regulations with Allied Laws ,by Nagar

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