A fire insurance policy covers for the loss or the damage caused to the property due to fire. A standard policy provides the insured, the coverage against the perils as mentioned in his policy documents. Some of the perils are fire, lightning, aircraft damage, storm, typhoon, hurricane etc.
However, the policy does not cover the damage or loss of the insured’s property due to an earthquake. But it is known that a major earthquake can cause considerable damage to the property or the goods of the insured. Hence many of the ambitious businesses or organization cover their property/goods by taking an add on coverage in their fire insurance policy.
The fire insurance policy has an earthquake extension clause mentioned in it. Although a standard policy does not cover for the earthquake damage, the earthquake extension clause in the policy comes to the rescue.
The earthquake extension clause protects the insured in case of the following two scenarios:
- Earthquake fire:
In this case, the insured is covered for any direct loss or damage by fire elicited by an earthquake.
- Earthquake shock:
In this case, the insured is covered for the loss or damage by the shock resulting from an earthquake.
To get the benefit of the earthquake extension coverage, the insured must pay an additional premium to the insurers or the insurance company. Upon payment of the agreed additional premium amount, the insured is extended the insurance coverage to cover the loss or damage to the property caused directly by an earthquake or by the after effects of the earthquake. The after effects of an earthquake which can cause loss or damage to the property are:
- Overflow of the sea, lakes, reservoirs and rivers
An insured must understand that there are also some conditions mentioned in the policy document with respect to the earthquake extension clause. Hence understanding these conditions mentioned in the fire insurance policy is important. Some of the conditions that can be present with the earthquake exclusion clause are:
- Excess clause:
An excess clause simply means that a compulsory amount is deducted from the claim amount with the objective of making the insured to act prudently and to avoid processing of smaller claims by him. If the insured has filed a claim of rupees 1000 and the excess amount mentioned in his policy is rupees 400, then the insurance company will pay only rupees 600 to the insured. The other half of the claim of rupees 400 (excess amount) must be borne by the insured himself. If the claim amount is rupees 350, the insurers will not pay the insured any amount since the excess amount declared in the policy is of rupees 400. This is how the excess clause works.
Similarly, for the earthquake exclusion clause, the excess is either 5% for every claim or a minimum amount of rupees 10,000. This numbers can vary according to the different insurance companies, and the insured members must take note of the same.
- Coverage of the extension:
The extension is granted only if the entire property is one complex, compound or location covered by the Policy. Also, the sum Insured for this extension must be identical to the sum Insured against the risk covered under the main policy, except for the value of the plinth and foundations of the building.
- The onus of proof:
The insured must provide proof of the loss or damage to the property caused directly or by the resulting actions of an earthquake.
A textile manufacturer in Punjab had taken a fire insurance policy to cover his business against the loss or damage caused due to the fire. His business was booming, but one day, a major earthquake took place, causing damage to the entire district.
His factory also suffered damage due to the major cracks caused in the building walls. He contacted his insurers to settle his claim.
Since he had taken an earthquake extension coverage in his fire insurance policy, the owner of the textile factory was able to cover his losses successfully. He was compensated for the full amount of damage to his premises as his claim was approved due to the earthquake extension clause mentioned in his fire insurance policy.