Property Insurance

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A fire insurance policy offers protection against losses or damages that may arise due to a fire accident. Like in the case of other insurance contracts, insurance principles are applicable to fire insurance contracts. Here are some ways through which insurance principles apply to fire insurance contracts  –

1. The complete disclosure of information –

In a fire insurance contract, the legal doctrine of utmost good faith says that every material information should be disclosed. A breach of this clause may make the contract void. Also, the fire insurance policy makes it necessary for the insurance company to define all the clauses in the insurance contract without hiding any clause.

Case: Ramya Nair decides to buy a fire insurance policy for her house. However, at the time of filling out the policy document, she should make sure that she fills the form with all the information. Without hiding any material details. She should give the correct details of her house content to buy the right policy.

Read more: How to file a claim under Fire Insurance?

2. One should have insurable interest present in the property –

In a fire insurance policy, it is necessary that the insurable interest should be present at the time of buying the policy, throughout the tenure, and at the time of filing the claim as well. It means, the policyholder must incur profit from the existence of the insured property and suffer a loss due to its destruction. The principle of indemnity makes it necessary to inform the insurer in case the policyholder loses the insurable interest in the insured property at any time during the policy tenure.

Case: Jagriti Sinha owns a fashion house. Last year, she bought a fire insurance policy to protect herself from financial losses that may arise in the case of any fire accident. As Jagriti has an insurable interest in the fashion house, the insurer has issued her policy. In case she sells her store, she should inform the insurer who may cancel her policy.

3. Losses are indemnified only to the extent of actual loss –

The main purpose of the fire insurance policy is to place the policyholder in the same position, before the loss. The principle of indemnity says that the policyholder should indemnify, only to the extent of the loss, i.e., shall not make profit out of the insurance policy.

Case: Luckily, T.S Automobile had a fire insurance policy when a fire erupted at one of its offices in Nagpur and damaged goods worth Rs 2 lakh. In this case, the company approached the insurer who settled the claim only up to Rs 2 lakh and not anything beyond that.

4. Any right over-insured property is transferred to the insurance company –

The principle of subrogation says that if the loss incurred by the policyholder can be recovered from the third party, all the rights to indemnify the rights of recovery should be transferred to the insurance company after the claim is settled by the latter.

Case: A fire started in Ravish Sharma’s timber house and engulfed goods worth Rs 10 lakh. Though the insurer settled Ravish’s claim, should not transfer all the rights over the burnt timber to the insurance company. The insurer can convert timber into coal and sell it to recover the claim amount that it paid to Ravish.

Read More: How to decide the sum insured under a fire insurance policy?

5. Loss can be divided by multiple insurers –

If a person has taken fire insurance policies from multiple insurance companies, he/she can approach any of them or both at the time of loss or damage. However, the claim will settle down only on a proportionate basis. In any situation, the policyholder can’t recover more than the actual loss.

Case: Jayant Sinha has bought a fire insurance policy for covering his house. He has purchased the policy from two insurance companies, i.e., Insurer A and Insurer B. In the case of any loss or damage, Jayant can either approach both the insurance companies or settle up the entire claim by one insurer. Whatever the option Jayant chooses, he won’t get an amount more than the actual loss at the time of loss.

6. Immediate steps should be taken to control loss –

As the principle of loss, minimization applies to a fire insurance policy. Therefore, a policyholder should take all the necessary steps to safeguard the insured property. It means, just because someone has an insurance policy, it doesn’t mean he/she can act hastily.

Case: Rakesh Sharma owns a stationery store in Karol Bagh. Last year, Rakesh bought a fire insurance policy to ensure his goods. Though Rakesh takes an intelligent move by buying a fire insurance policy, he can’t act carelessly towards his shop just because he has a fire insurance policy. He should take all the steps, installing a fire alarm, to curtain the impact of fire and also take immediate steps, like, calling the fire brigade, etc.; in case a fire erupts at his shop.