Factory and warehouse insurance plays an important role in an industrial set up which is involved in the manufacturing and storage of goods as well. It is a crucial insurance policy which gives financial coverage in case of loss or damage to the building, machinery in and outside the premises.
The factory and warehouse insurance company settle the claim as per the reinstatement value of the item. It means if machinery is damaged in an accident due to an insured peril, like fire, earthquake, flood, etc.; the factory and warehouse insurance company will settle the claim as per the sum insured which would be sufficient enough to reinstate or restore the damaged machinery back to its state.
Here, the principle of indemnity applies which says that the ‘cost’ of reinstatement of the machinery would be the ‘cost’ which would have been incurred to reinstate the machinery at a place where it was before the loss. Here the cost would comprise of the following=
- Cost of modification
- Cost of transferring the machinery from one place to the another
- Cost differential of reinstating the machinery at a new place
In those situations, if the policyholder decides to claim the indemnity value of a damaged machinery, the insurance company is liable to pay the value of such property at the time of the damage or as per the amount which would require replacing or repair the property. Also, sooner would be the reinstatement of the damaged machinery and its restoration to a normal level, the lesser would be the amount that would be paid by the insurer.
In those cases, where there is a partial loss, all expenses required for the restoration of the damaged machinery would be paid to that extent which they are insured in the policy. In certain cases, the factory and warehouse insurance company would offer the full coverage, provided the machinery is adequately insured. The insurer will not apply depreciation, except for those parts which have limited life and are also subject to wear and tear.
Further, the policy comes with an excess clause, which means, a certain loss or damage would be incurred by the policyholder, and the remaining would be settled by the insurer.
In any case, the insurer settles the claim; it should be as per the factory and warehouse insurance policy document.
Sanjay Ghosh and his wife Anmol run a woolens factory in Pune. Considering the perils which could arise to disrupt their business, Sanjay bought a factory and warehouse insurance policy as well. He got his machinery also covered under factory and warehouse insurance. Last year, one of its manufacturing machines got damaged when rain water entered its factory.
As Sanjay had a factory and warehouse insurance policy, he approached the insurer for the claim settlement. As the machinery was completely damaged, the insurer computed the reinstatement value and paid the same which was enough to replace the machinery and brought it back to its original state.
Here, the insurer’s liability was restricted to the coverage and the reinstatement cost of the machinery. To reinstate the machinery, Rs 80,000 was required, and the factory and warehouse insurance company settled the same amount, which also fell under the purview of the insurance coverage.
The insurer did not deduct depreciation and paid the reinstatement value which was enough to reinstate the damaged machinery back to its state which it was earlier.
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