Property insurance covers the owners or the rental of the property against any damage or theft to the structure or its contents. Property insurance covers for perils like fire, smoke, wind, hail, lightning, theft and burglary.

A property insurance has various clauses and fire insurance is one of them. There is a clause called contract price in a fire insurance policy which has a condition underlying for goods which are sold but not yet delivered are damaged.

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As per the clause, if the policyholder is responsible for the delivery of the goods as per the contract of sale and the contract is cancelled due to non-delivery of the goods, then the insured is covered against the loss if there would be 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, its type, along with its quantity. Sometimes it may happen that, the goods are sold, the contract is signed, but before the goods are delivered to the third party, they are damaged due to perils such are fire, flood etc. In such a case, the third party may cancel the contract with the seller of the goods. The contract may be cancelled wholly or to the extent of loss or damage.

If the seller of the goods has purchased a 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 case of a 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 case, the seller of the goods can approach the fire insurance company and get the claim settled.

Case: 1

Rajesh, an owner of a small weaving business, had obtained a property insurance policy to protect his goods in case or 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. 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 cancelled the contract wholly. Rajesh immediately contacted his insurance company. Upon investigation of the matter, the insurers found that the goods were indeed damaged due to 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 from the last five years in a 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 fire insurance policy. Rashmi knew the importance of having the 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 of 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, the destiny had some other plans. The night before the delivery of 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 cancelled 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 who 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.

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