Property insurance covers the owners or the rental of the property against any damage or theft to the structure or its contents. It covers for perils like fire, smoke, wind, hail, lightning, theft, and burglary.
Property insurance policy has various clauses and fire insurance is one of them. The fire insurance policy includes a clause called the contract price clause, covering goods sold but not yet delivered in case of damage.
According to the clause, if the policyholder is accountable for delivering the goods as per the sale contract and the contract is terminated due to non-delivery, then the insured is protected against any loss or damage to the goods.
When the insured enters into an agreement with the other party, the contract comes with all the material facts about the goods, their type, along their quantity. Sometimes, goods are sold and contracts signed, but before delivery to the third party, they sustain damage from perils like fire or flood.
In such a case, the third party may cancel the contract with the seller of the goods. The contract can be canceled entirely or partially depending on the extent of loss or damage incurred.
If the seller of the goods has purchased property insurance then he/she can get the benefit of this policy. The insurance company, in such case, is liable to pay for the damaged goods based on the contract price.
For instance, in the case of fire insurance, any loss/damage happens to goods due to fire, after the contract is signed and goods are sold but before the delivery of goods, a fire erupted and damaged them. In this scenario, the seller of the goods can contact the fire insurance company to settle the claim.
Case: Contract Price Insurance Clause in Property Insurance 1
Rajesh, an owner of a small weaving business, had obtained a property insurance cover to protect his goods in case of fire or any other peril. His business was booming, and he had entered into many contracts. Once, due to short-circuiting, a fire broke out in his premises where the goods were stored. The majority of the goods that were damaged were sold but yet not delivered.
When the third-party to whom Rajesh had sold the goods came to know about the incident, they canceled the contract wholly. Rajesh immediately contacted his insurance company. After investigating the matter, the insurers determined that the goods were indeed damaged by fire.
Also, Rajesh had properly adhered to the insurance policy and paid the premium on a regular basis. Hence the insurance company settled Rajesh’s claim based on the contract price and covered his loss.
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Case: 2
Working for the last five years in the corporate world, Ms. Rashmi Dua started her own boutique in Defense Colony, New Delhi. It was a small-scale business for which Rashmi took all steps to grow and protect it. Considering the risk that could arise to disrupt her business, she purchased a fire insurance policy. Rashmi knew the importance of having an insurance policy, and therefore, she was punctual when it came to paying a premium for the fire insurance policy. Last year, she bagged a big contract for ethnic clothes from R.J Clothing. It was her first big contract, and therefore, she did not want to take any risk with it. She employed some of its best employees, who completed the order within the deadline.
Unfortunately, destiny had some other plans. The night before the delivery of the consignment, a fire erupted at the boutique due to an electrical fault. The items kept in the boutique caught fire immediately, which damaged the entire consignment of R.J Clothing. When the buyer came to know about the fire, it canceled the contract.
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In this case, though the consignment was already sold, the loss happened before the delivery. Rashmi approached her fire insurance company and agreed to settle the claim which happened due to fire loss. The insurance company settled the claim on the basis of the contract price of the insurance policy.
