A fire insurance policy compensates the policyholder for the loss or damage arises due to fire. It gives financial security to the insured by shielding him/her from losses or damages caused by fire.
Any individual, firm, organization, or institution can apply for the fire insurance policy. Given below is a list of people or entities who should buy a fire insurance policy:
- Owners of buildings and the owners of the content inside the building which includes artifacts, furniture, etc.
- Educational Institutions
- Shopkeepers
- Industrial or Manufacturing firms
- Godown keepers
- Hotels
- Boarding and Lodging
- Hospitals and Clinics
- Traders in stock
- Charitable Institutions, Trustees
- Transporters and C & F agents
- Banks
- Financial Institutions
- Bailee, Lessor, Lessee and Mortgagors and mortgagees.
The only need is that you have an insurable interest in the asset either in your custody or possession.
Various principles govern a fire insurance policy, let’s have a look at them –
1. Principle of Insurable Interest –
It is necessary for the policyholder to have an insurable interest in the subject-matter for which he/she has purchased the fire insurance policy. It means, the insured may suffer loss at the time of damage to the item or gain from its protection. However, insurable interest should be present both at the time of buying the policy and filing a claim.
Case — Mrs. Rajni Saxena runs a garment store in Pune. Last year, the electronics shop near to her store caught fire and damaged goods worth Rs 2 lakhs kept in the shop. Sadly, the owner of the electronics shop did not have a fire insurance policy.
Taking a lesson from the incident, Rajni also bought a fire insurance policy to protect her goods from losses or damages caused by fire. As Rajni had an insurable interest in goods kept in her store and the losses or damages caused to them would affect her financially, the insurer covered her goods. However, in case she sold her store or closed the business, she should inform the insurance company and cancel the policy.
2. Principle of Utmost Good Faith –
The contract of insurance relies on the principle of trust. It means, at the time of buying the policy, the policyholder should disclose all the material facts and do not lie. On the other hand, the insurance company should give correct information about the policy and there should be no hidden clause.
Case — Mr. Vikas Sharma called up the insurance company to buy a fire insurance for his house. Now, it is the duty of Vikas to give correct details about the items which he wants to cover in the policy without hiding any material fact. Similarly, the insurance company should also state all the policy conditions clearly without hiding any clause.
3. Principle of Indemnity –
It says that the purpose of insurance should be to compensate the policyholder for loss or damage and the compensation should be such that it places him/her in nearly the same position after the loss as he/she was before the loss. It means, the policyholder will not get anything more than the losses
Case — J.W Construction has a fire insurance policy for its factory content. Last year, a fire erupted at the factory due to short-circuit and damaged content worth Rs 2 lakh. J.W Construction approached his fire insurance company who settle up to Rs 2 lakh and not anything beyond that.
4. Principle of Proximate –
A fire insurance policy offers coverage against loss or destruction due to fire, however, some perils are expressly not covered. The insurer’s liability arises even if the loss is due to uninsured peril followed by an insured peril. Note, the proximate clause is only the nearest clause and not the remote clause.
Case — A fire at a nearby construction site caused a slight explosion at T.J Paper Mills, which damaged its plant & machinery. Luckily, T.J Paper Mills had a fire insurance policy. The insurer found that the proximate cause of the loss/damage was fire and therefore, covered the loss or damages caused to machinery. In this case, the fire insurance specifically mentioned that loss/damage due to the explosion of any kind will not be covered, however, as the proximate cause was fire, the insurer covered it.
5. Principle of Subrogation –
It says that the policyholder can only realise the actual value of the loss or damage and in case the damaged product has any value left or there is any right against a third-party regarding that, it should also be passed on to the insurance company.
Case — A fire erupted at the workshop of Jeevan Sharma and engulfed timber worth Rs 5 lakh which was kept there for building furniture. Jeevan Sharma approached his fire insurance company who settled his claim, except deductible. However, any right over the burnt timber should now be transferred to the insurance company who can now convert it into coal and sell it to earn profits.
6. Principle of loss minimisation –
This principle says that the policyholder must take all the necessary steps to cut the loss of insured property. It means, the policyholder should not act carelessly just because he/she has a fire insurance policy.
Case — Last year, Mr. Jayant Dahiya, the owner of J.D Paper Mills bought a fire insurance policy to insure his stocks. Though, Jayant makes the right move by buying an insurance policy, it doesn’t mean, he can act carelessly and let his goods burnt by fire. In fact, he should take all necessary steps, like installing a fire alarm, having fire extinguishers, and calling the fire brigade immediately at the time of the accident, etc.; to curtail the loss.
