Which Assets are Not Covered by The Fire Insurance Policies?

Any individual with an insurable interest in a property should purchase a fire insurance policy. The policy is a comprehensive cover that provides for losses incurred due to a fire. Any individual who owns a property, plant, manufacturing unit, stocks, bank, financial institution, etc. should purchase a fire insurance policy. The premium for the policy is based on the market value of the property, which is determined using predefined methods.

Key Takeaways

• The Core Insurable Interest Trigger: Fire insurance availability relies on equity; any entity can secure a policy provided they hold a clear insurable interest in the property at inception and claim time.

• The Cold Chain Temperature Trap: Standard fire forms only underwrite active, burning destruction; stock ruined by an indirect change in temperature due to electrical failure is completely unpayable.

• The Isolated Short-Circuit Filter: If an electrical appliance is ruined by a sudden power surge or overload without igniting an active building fire, the appliance claim faces immediate rejection.

• Specialty Riders for Capital Assets: Highly concentrated valuables-such as bullion, currency, manuscripts, and plans-require paying an additional premium based on an agreed value schedule.

• Third-Party Double-Recovery Prevention: An enterprise cannot file a fire claim for leased machinery if an active commercial contract states a third party is liable to bear the damage.

• Intangible Valuation Blindspot: Physical property policies are designed to replace concrete physical items, meaning intellectual property, design concepts, and computer records are completely excluded.

The assets mentioned below are not covered by the fire insurance policy:

1. Specific Items such as bullion, unset precious stones, curios, works of art, manuscripts, plans, drawings, securities, obligations or documents, stamps, coins or paper money, cheques, books of accounts, computer system records, explosives unless specifically mentioned.
2. Cold storage stocks are damaged due to changes in temperature
3. Electrical fittings, machines, or apparatus, damaged due to short-circuiting or overload
4. Boilers, economizers, or other equipment where steam is generated inside the machinery if damaged by its own implosion, or explosion.
5. Any perishable goods like fruits and vegetables.
6. Intellectual property
7. Any other asset which has been excluded as per the agreement between the insurer and insured
8. Any asset for which a third party is liable to bear the damage under an agreement with the insured.

Items mentioned in the first point can be covered by paying an extra premium based on the agreed value.

Case: on Excluded Assets in Fire Insurance

Shapoorji & Sons is running a food processing unit for preparing and packaging dried vegetables and pickles. It purchases and processes more than Rs. 50,000 worth of vegetables and fruits every day.

Shapoorji also has a storage unit to store the perishable goods while they are under process. One night the circuits for the cold store short-circuited and raw material worth Rs. 10,000 was damaged due to the change in temperature.

While there was no fire the transformer, which stabilized the power for the store had been burned and was rendered useless.

Shapoorji approached the insurer for the damages, but the claim was rejected as both the perishable goods stored in the storage and the short circuit damage are excluded under the fire insurance policy.

The firm had to bear the cost of raw materials and stabilizers from its own pocket.

Fire Insurance Policy for Gold Exchange Office

Nomura Gold Exchange is a ‘Cash for Gold’ business with offices throughout the country. They ensure all of these offices are under a fire policy for any loss. However, the stock of Gold bullion, jewelry, and cash are covered only on a declared value basis, under the policy.

Read More: What is covered under a fire insurance policy?

Leaving the firm uninsured for any excess cash or precious metal kept in their offices. Similarly, documents of lien and securities kept with the firm are not insured for fire loss. Thus, Nomura must take extra care in storing such documents, and usually, these are shifted to a secure storage facility every day.

Summary Table: Underwriting Asset Exclusions in Fire Insurance Policies

Third-Party Assets

Essel Porters Ltd. uses machinery leased from Porting Facilities Ltd. According to the agreement between the two firms, any damage to the machinery at Essel’s premises will be covered by Porting Facilities and not Essel Porters.

Porting has already taken fire insurance on the leased machines, and thus Essel cannot cover or claim the damages from their own fire insurance for the same.

Intellectual Property

7M Limited is an innovation firm. The offices of this firm are generally full of innovative ideas, designs, and concepts. Fire insurance does not cover the loss of such documents, though, and as a policy, all of these concepts and any documentation related to them must be submitted to the central computer system each day.

Frequently Asked Questions (FAQs)

1. Which specific assets are systematically excluded from a standard fire insurance policy?

A) A standard commercial fire insurance contract enforces clear boundaries regarding what it will not replace. The core excluded assets include perishable goods, cold storage stocks damaged by temperature changes, electrical machinery ruined by short-circuiting, industrial steam boilers, intellectual property, and un-ridered valuables like bullion, coins, paper money, cheques, and books of accounts.

2. Is cold storage inventory covered if it spoils due to a power failure or stabilizer breakdown?

A) No, if a power stabilizer or transformer short-circuits and causes a breakdown, a standard fire policy will reject the claim for the spoiled inventory. Because the destruction was caused by a change in temperature rather than direct fire damage, the loss falls under standard policy exclusions unless the business explicitly purchased a specialized cold storage stock deterioration rider.

3. How can a business owner protect high-value assets like gold bullion and works of art?

A) High-value corporate assets such as gold bullion, currency, precious stones, and rare works of art are excluded from baseline property terms due to their highly concentrated value. To secure valid protection, the policyholder must declare these items individually at inception, paying an extra premium to cover them on an agreed value basis written into the contract schedule.

4. Does fire insurance cover an electrical machine that catches fire due to an internal short-circuit?

A) The coverage is split based on the spread of the fire. The individual electrical fitting, machine, or apparatus damaged by its own short-circuiting or overload is completely excluded from the payout. However, if the internal short-circuit ignites an active, secondary fire that spreads and damages the surrounding building infrastructure, those secondary losses are fully covered.

5. Can an enterprise claim fire damages for equipment leased from a third-party provider?

A) An enterprise cannot claim compensation for leased assets if their underlying commercial lease agreement dictates that the third party is contractually liable to bear the damage. Because the lessor typically maintains their own independent property protection on the machinery, the lessee lacks the unique, exclusive insurable interest required to file a dual claim.

6. Why is intellectual property and design documentation excluded from property fire forms?

A) General property insurance is underwritten strictly to indemnify physical, tangible corporate items based on fixed market replacement calculations. Because the financial value of intellectual property, innovative concepts, design drawings, and computer system records is highly subjective and difficult to physically appraise, adjusters exclude them completely, requiring firms to secure alternative cyber or digital data backing.

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.