What is covered under a Fire Insurance Policy?

A fire insurance policy covers all properties- movable or immovable- against various perils. The fire insurance policy has been renamed as the standard fire and special perils policy. So, in this article, we must discuss what is covered under a Fire Insurance Policy.

Key Takeaways

• The Spontaneous Combustion Gap: Standard fire insurance excludes damage from natural heating or fermentation; if chemicals or textiles ignite while undergoing a drying or heat treatment process, the claim is rejected.

• The Forest Fire Blindspot: While standard contracts fully cover localized bushfires and clearing land by fire, they systematically exclude large-scale forest fires unless customized extensions are active.

• The Strict Self-Owned Vehicle Bar: Impact damage is only covered if the collision is caused by a rail/road vehicle or animal that does not belong to the insured in any way.

• The Subsidence vs. Defect Line: Landslides and building sinking are covered, but insurers completely exclude any structural damage caused by defective blueprints, normal settling cracks, or poor building materials.

• Explosion vs. Implosion Dynamics: Underwriters recognize both forces; explosions (sudden outward bursts) and implosions (inward structural failures caused by external atmospheric pressure) are treated as covered perils.

• The Critical Surveyor Verification Loop: Following a disaster, a professional insurance surveyor must visit the site to pinpoint the exact cause of combustion and calculate the true loss valuation before funds are disbursed.

Some of the properties covered under a fire insurance policy are:

1. Building:

• Both under-construction and completed projects
• Interiors, partitions, and electrical

2. Plant & Machinery, equipment, and accessories

• Both new and second-hand
• Obsolete machinery

3. Some other contents, covered are cables, pipelines, furniture, fixture, household goods, etc.

Some of the risks covered under a fire insurance policy are:

• Fire:

Destruction or damage caused to the insured property due to natural heating, fermentation, or spontaneous combustion or when it is undergoing any heating or drying process can’t be treated under damage to fire. For instance, if paints or chemicals are kept in a factory, and they catch fire while undergoing heat treatment; the same will not be covered under the policy. Similarly, if any public authority orders the burning of insured property, then also it will be excluded from the policy.

• Lightning:

The impact of lightning can result in fire or any other kind of damage, like cracks in a building due to a lightning strike, etc. Covers both fire and other damages caused by lightning under this peril.

• Explosion/Implosion:

An explosion means a sudden, violent burst with a loud voice. An explosion occurs when the pressure within the vessel reaches atmospheric pressure. The impact of the explosion can also lead to fire damage. On the other hand, implosion means bursting inward. It usually happens when the external pressure is more than the internal pressure.

• Aircraft Damage:

It includes loss or damage caused to the property directly by aircraft and aerial devices.

• Riot, Strike, and Terrorism Damage:

When a person acts with others to disturb public peace, (other than war or invasion) it is a riot, strike, or terrorist activity. Covers any loss or damage caused to the insured property by any such activity or by the action of any lawful authority in suppressing such disturbances or minimizing consequences. Though excludes terrorism from most of the policies, can add it as an extension by paying an extra premium.

• Storm, cyclone, typhoon, and flood:

These are all types of violent natural disturbances which can cause damage to your property, and therefore, the policy covers them.

• Impact Damage:

Covers any damage caused to the insured property when it comes in direct contact with rail/road vehicles or animals. However, such vehicles or animals should not belong to the insured in any way.

• Subsidence and Landslide including Rockslide:

While subsidence occurs when the land or building sinks to a lower level, a landslide usually occurs on a hill when the landslides are down. Covers any damage or destruction caused to the insured property due to subsidence and landslide. However, it does not cover normal cracking, defective design, and destruction due to the use of defective materials.

• Bursting and/or overflowing of water tanks, Apparatus, and Pipes:

Insured loss or damage caused to the insured property by water on account of bursting or overflowing of water tanks and pipes.

• Missile Testing Operations:

Covers any damage caused due to missile testing operations.

• Leakage from Automatic Sprinkler Installations:

Any damage caused to the insured place when water accidentally discharged or leaked out from automatic sprinkler installations gives coverage to that.

• Bushfire:

It covers damages caused due to the burning, whether accidental or otherwise, of bushes and jungles and the clearing of lands by fire. However, it doesn’t include damages caused by a forest fire.

Summary Table: Underwriting Classifications & Perils under an SFSP Policy

Case study

Rajesh Mishra was the owner of a garment showroom in a commercial area of Mumbai. The showroom stocked all trendy and designer clothes for the complete family. It was the day before Diwali in 2015 when the fire suddenly erupted at his showroom and spread so quickly engulfing everything. Including delivering stock to a foreign client, before anybody could do anything to stop it. Two fire brigades took around three hours to extinguish the fire. Thankfully, it hurt no one physically. But the fire damaged both the building and the content.

Luckily, three years ago when Rajesh started his business, he bought a fire insurance policy. He approached his insurer who sent a surveyor to ascertain the cause and calculate total losses. Once the surveyor submitted his report, the insurer disbursed the claim amount in a few days.  As the fire occurred due to the insured peril, the insurer covered all the losses. The policy curtailed business losses to a great extent and helped Rajesh to survive a financial loss.

Frequently Asked Questions (FAQs)

1. What is a standard fire and special perils policy and what assets does it protect?

A) A standard fire and special perils policy is a comprehensive property insurance contract designed to protect both moveable and immoveable assets. It covers completed or under-construction buildings, specialized electrical fittings, interior partitions, new or second-hand manufacturing machinery, business fixtures, pipelines, and stored showroom inventory against sudden physical destruction.

2. Are all types of fire damages covered under a standard fire insurance policy?

A) No, a standard policy does not cover all fire damages. Claims are systematically denied if the fire is caused by spontaneous combustion, natural heating, fermentation, or if the items catch fire while undergoing a specialized heating or drying process. Additionally, property burning ordered by a public or lawful authority is completely excluded.

3. Does commercial fire insurance cover natural disasters like floods, cyclones, and landslides?

A) Yes, the modern standard fire and special perils framework includes comprehensive protection against major natural disturbances. The policy covers structural and content damage caused by violent storms, regional cyclones, seasonal typhoons, surface flooding, landslides, rockslides, and sudden land subsidence.

4. What is the difference between a bushfire and a forest fire in property insurance terms?

A) In property insurance underwriting, a bushfire refers to the accidental or operational burning of small bushes, jungles, and the clearing of land by fire, which is a standard covered peril. Conversely, a forest fire is classified as a separate, massive geographic risk that is explicitly excluded from baseline contracts and requires a specific policy rider.

5. How does impact damage coverage function if a vehicle hits a company warehouse?

A) Impact damage coverage reimburses the company for structural damage if an external rail vehicle, road truck, or animal collides directly with the building. However, insurers enforce a strict exclusion here: the vehicle or animal responsible for the impact must not belong to or be operated by the insured business or its employees.

6. Can a business protect its inventory against water damage from bursting pipes or sprinklers?

A) Yes, a standard fire and special perils policy features dedicated protection for liquid-driven system failures. It fully covers the financial losses an enterprise faces if internal water tanks burst, pipes overflow, or if water is accidentally discharged or leaked from an automatic sprinkler installation setup.

About The Author

Shivani

MBA Insurance and Risk

She has a passion for property insurance and a wealth of experience in the field, Shivani has been a valuable contributor to SecureNow for the past six years. As a seasoned writer, they specialize in crafting insightful articles and engaging blogs that educate and inform readers about the intricacies of property insurance. She brings a unique blend of expertise and practical knowledge to their writing, drawing from her extensive background in the insurance industry. Having worked in various capacities within the sector, she deeply understands the challenges and opportunities facing property owners and insurers alike.