Property Insurance

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The Perils not covered by fire insurance policies are mentioned below:

  • Spontaneous combustion
  • Burning of property by order of any Public Authority
  • Property undergoing any heating or drying process
  • The explosion of boilers (other than domestic boilers)
  • Total or partial cessation of work
  • Permanent or temporary dispossession by order of Government
  • Normal cracking or settlement or bedding down of new structures
  • War or warlike operations, Nuclear perils
  • Pollution or contamination
  • Overrunning, excessive pressure, short-circuiting, etc.

Perils that are not covered by fire insurance unless add-on covers are bought for the specific risk:

  • Terrorism
  • Earthquake
  • Burglary, Housebreaking, theft, etc.

The additional premium must be paid for add-on covers.

To know about the assets which are excluded from the cover under fire policy see Which assets are not covered by the fire insurance policies?

Case on Perils Excluded in Fire Insurance Policy

Engineer and entrepreneur Rahul Singh has started his printing press recently and has bought a standard fire insurance policy for the unit.

Business is bustling with activity, and new orders are continuously coming, with some long-term and regular revenue-generating orders. Rahul feels content, but one night the burglars hit the unit, who break into the office and steal the cash paid by the customers a day before.

They also set fire to the office before running away. Rahul suspects that one of the employees involves in the act but is unsure of who. The loss is estimated at more than Rs. 20,000 from fire and Rs. 700,000 in stolen cash, plus the cost of a broken safe which is another Rs. 25,000.

The insurer, while covering the fire loss, informed Rahul that the policy also covers burglary and break-ins, with an add-on cover. Rahul rues the fact that had no information of the option earlier but agrees to include it in the plan.

Read More: What are different types of fire Policies available in India?

His premium goes up by 10%, but he is content that any future losses will recover, at least to some extent with this addition.

Sudhir is the owner of Sudheer Threads Pvt. Ltd. and uses cotton bales as raw material. Needs to store properly some raw material received in advance to avoid fire risks. Sudhir takes extra care while storing these bales which usually weigh around 170 KGs.

However, at times, despite all the caution, some bales suffer internal combustion. This is property cotton suffers from, as heat builds up internally and unless managed well, may even lead to the bale lighting up suddenly.

Sudheer has to bear the annual loss of approximately Rs. 58,000 due to this, and usually does not like to store the bales since the fire insurance did not cover the damage as well.


Other Exclusions in the Fire Policy Explained

Exclusions like the cessation of work due to a covered peril or dispossession under government orders are some losses that the fire policies do not cover. These can cover other, comprehensive, or miscellaneous policies for factories and businesses.

Misconceptions of Excluded Perils

Harit Jain has bought a fire policy for his warehouse. His warehouse usually stores paper rolls, paper printing, and packaging factories use nearby. After 18 months of running the fire policy, he has also started the storage facility for cotton bales and seeds by designating an area within the existing warehouse.

Unaware of the need to store cotton bales with special care so that they remain cool and do not combust, Harit stored the bales too close to each other to use the maximum space available.

Excess heat generated within one of the bales kept in a closed environment started the smoke and turned to fire after the workers pulled the bale out and it met the airflow.

The bale needed to discard and burn completely, along with two other bales which came in contact when the fire spread. Workers used the available fire extinguishers and water to douse the fire, it previously destroyed or spoiled two other paper rolls. Paper rolls have been for a much more expensive category raising the loss figures to Rs. 80,000 for Harit.

Harit filed a claim under his fire policy, and to his utter surprise, the claim was rejected. The insurer mentioned two factors for the rejection of the claim:

  1. The Insurer was unaware of changes in the storage pattern of the warehouse. And the insurance was only to cover standard losses to the warehouse.
  2. The fire insurance policy does not cover the Cotton Bales as they are prone to internal combustion.

The second reason came as a revelation to Harit, as no one had pointed that to him before.