ICFAI LAW SCHOOL

ICFAI UNIVERSITY, DEHRADUN

Subject: - Banking and Insurance Law

Project On: - Principles and Practices of Fire Insurance in India

Submitted By: -
Ayush Kumar Singh

BB.A. LL.B. (10th Semester)

Enrolments No.- 17FLICDDN01034

Submitted To: -
Stuti Tiwari
Assistant Professor (Law)
ICFAI Law School
 ACKNOWLEDGMENT

I, Ayush Kumar Singh would like to put on record, my appreciation and gratitude to all who
have rendered their support and input. Without them, it would not have been possible for me to
make this project.

I would like to thank my professor for her immense guidance. Her suggestions proved very
useful in completing my project. The efforts taken me in completing the project would not have
been possible without her kind support and help. I would like to convey my earnest thanks to
him.

I would like to thank my parents and all my family members for their kind cooperation and
appreciation and encouragement which helped me in the completion of this project I
wholeheartedly thank them all for sending me abundant love, encouragement, and support all the
way from home from their hearts. I dedicate all my success to each one of them.

Finally, I would also like to thank my colleagues who have willingly helped me with all their
abilities.

Thanking You,

Ayush Kumar Singh

Enrolments No.-150101174
 Index

Acknowledgment.............................................................................................................................2
Introduction......................................................................................................................................4
Actual Cash value v. Replacement Value........................................................................................5
Charecteristics of Fire Insurance.....................................................................................................5
Fire Hazards and Fire Prevention....................................................................................................6
Fire Safety....................................................................................................................................6
Key Element of a Fire Safety Policy...........................................................................................6
Fire Hazards.................................................................................................................................7
Fire Prevention.............................................................................................................................9
Burden of Proof...............................................................................................................................9
Conclusion.......................................................................................................................................9
Bibliography..................................................................................................................................10
Websites.....................................................................................................................................10
Books.........................................................................................................................................10
Articles.......................................................................................................................................10
 INTRODUCTION

Fire insurance is a contract under which the insurer in return for a consideration (premium)
agrees to indemnify the insured for the financial loss which the latter may suffer due to
destruction of or damage to property or goods, caused by fire, during a specified period. The
contract specifies the maximum amount, agreed to by the parties at the time of the contract,
which the insured can claim in case of loss. This amount is not, however, the measure of the loss.
The loss can be ascertained only after the fire has occurred. The insurer is liable to make good
the actual amount of loss not exceeding the maximum amount fixed under the policy.

A fire insurance policy cannot be assigned without the permission of the insurer because the
insured must have insurable interest in the property at the time of contract as well as at the time
of loss. The insurable interest in goods may arise out on account of (i) ownership, (ii) possession,
or (iii) contract. A person with a limited interest in a property or goods may insure them to cover
not only his own interest but also the interest of others in them. Under fire insurance, the
following persons have an insurable interest in the subject matter: -

 Owner
 Mortgagee
 Pawnee
 Pawnbroker
 The official receiver or assignee in insolvency proceedings
 Warehouse keeper in the goods of the customer
 A person in lawful possession e.g. common carrier, wharfing, commission agent.

The types of losses covered by fire insurance are:-

 Goods spoiled or property damaged by water used to extinguish the fire.

 Pulling down of adjacent premises by the fire brigade in order to prevent the progress of
flame.
 Breakage of goods in the process of their removal from the building where fire is raging
e.g. damage caused by throwing furniture out of window.
 Wages paid to persons employed for extinguishing fire.

The types of losses not covered by a fire insurance policy are:-

 Loss due to fire caused by earthquake, invasion, act of foreign enemy, hostilities or war,
civil strife, riots, mutiny, martial law, military rising or rebellion or insurrection.
 Loss caused by subterranean (underground) fire.
 Loss caused by burning of property by order of any public authority.
 Loss by theft during or after the occurrence of fire.
 Loss or damage to property caused by its own fermentation or spontaneous combustion
e.g. exploding of a bomb due to an inherent defect in it.
  Loss or damage by lightning or explosion is not covered unless these cause actual
ignition which spread into fire.

ACTUAL CASH VALUE V. REPLACEMENT VALUE

Most policies cover a fire loss with actual cash value or ACV instead of replacement cost. Actual
cash value pays the amount of the property less depreciation. This can be devastating if your
business relies upon high value equipment that has a long useful life, but would be prohibitively
expensive to replace. As examples: coolers, refrigerators, tow lifts, aircraft or anything that
would be prohibitively expensive to buy new. Replacement coverage pays the amount to replace
the property lost at whatever the replacement cost is today. Replacement coverage carries higher
premiums and can be purchased as a rider or endorsement.

 One’s business may be underinsured if it cannot replace critical facilities and

equipment at the depreciated value.
 Electronics such as computers frequently decline in real replacement cost such that
actual cash value may be a better option.
 Property valuations are frequent causes of conflict between insurers and insured. One
can avoid valuation problems by carrying replacement coverage.

Cash, valuable papers, certain types of inventory, some electronics, jewelry, and other items will
require separate coverage or will be excluded from coverage. These are generally items that are
impossible for the insurer to confirm and are prone to fraud.1

CHARECTERISTICS OF FIRE INSURANCE

1. Fire insurance is a contract of indemnity. The insurer is liable only to the extent of the
actual loss suffered. If there is no loss there is no liability even if there is a fire.
2. Fire insurance is a contract of good faith. The policy -holder and the insurer must disclose
all the material facts known to them.
3. Fire insurance policy is usually made for one year only. The policy can be renewed
according to the terms of the policy.
4. The contract of insurance is embodied in a policy called the fire policy. Such policies
usually cover specific properties for a specified period.
5. Insurable Interest: A fire policy is valid only if the policy -holder has an insurable
interest in the property covered. Such interest must exist at the time when the loss occurs.
In English cases it has been held that the following persons have insurable interest for the
purposes of fire insurance -owner; tenants, bailees, including carriers; mortgages and
charge-holders.
6. In case of several policies for the same property, each insurer is entitled to contribution
from the others. After a loss occurs and payment is made, the insurer is subrogated to the
rights and interests of the policy -holder. An insurer can reinsure a part of the risk.
1
http://niilmuniversity.in/coursepack/Insurance/Principles_&_Practices_of_Fire_Insurance.pdf
 7. Fire policies cover losses caused proximately by fire. The term loss by fire is interpreted
liberally. Example: A women hid her jewellery under the coal in her fireplace. Later on
she forgot about the jewellery and lit the fire. The jewellery was damaged. Held, she
could recover under the fire policy.
8. Nothing can be recovered under a fire policy if the fire is caused by a deliberate act of
policy-holder. In such cases the policy-holder is liable to criminal prosecution.
9. Fire policies generally contain a condition that the insurer will not be liable if the fire is
caused by riot, civil disturbances, war and explosions. In the absence of any specific
expectation the insurer is liable for all losses caused by fire, whatever may be the causes
of the fire.
10. Assignment: According to English law a policy of fire insurance can be assigned only
with the consent of the insurer. In India such consent is not necessary and the policy can
be assigned as a chose-in-action under the Transfer of Property Act. The insurer is bound
when notice is given to him. But the assignee cannot be recovering damages unless he
has an insurable interest in the property at the time when the loss occurs. A stranger
cannot sue on a fire policy.
11. Payment of Claims: Fire policies generally contain a clause providing that upon the
occurrence of fire the insurer shall be immediately notified so that the insurer can take
steps to salvage the remainder of the property and can also determine the extent of the
loss. Insurance companies keep experts on their staff of value the loss. If in a policy there
is an international over valuation of the property by the policy-holder, the policy may be
avoided on the ground of fraud.

FIRE HAZARDS AND FIRE PREVENTION

FIRE SAFETY
Fire safety refers to precautions that are taken to prevent or reduce the likelihood of a Fire
that may result in death, injury, or property damage, alert those in a structure to the presence of
an uncontrolled fire in the event one occurs, better enable those threatened by a fire to survive in
and evacuate from affected areas, or to reduce the damage caused by a fire. Fire safety measures
include those that are planned during the construction of a building or implemented in structures
that are already standing, and those that are taught to occupants of the building.

Threats to fire safety are referred to as fire hazards. A fire hazard may include a situation that
increases the likelihood a fire may start or may impede escape in the event a fire occurs.

Fire safety is often a component of building safety. Those who inspect buildings for violations of
the Fire Code and go into schools to educate children on Fire Safety topics are fire department
members known as fire prevention officers. The Chief Fire Prevention Officer or Chief of Fire
Prevention will normally train newcomers to the Fire Prevention Division and may also conduct
inspections or make presentations.
KEY ELEMENT OF A FIRE SAFETY POLICY
 Building a facility in accordance with the version of the local building code
 Maintaining a facility and conducting oneself in accordance with the provisions of the
fire code. This is based on the occupants and operators of the building being aware of
the applicable regulations and advice.

Examples of these include:

 Not exceeding the maximum occupancy within any part of the building.
 Maintaining proper fire exits and proper exit signage (e.g., exit signs pointing to them
that can function in a power failure)
 Compliance with electrical codes to prevent overheating and ignition from electrical
faults or problems such as poor wire insulation or overloading wiring, conductors, or
other fixtures with more electric current than they are rated for.
 Placing and maintaining the correct type of fire extinguishers in easily accessible
places.
 Properly storing and using, hazardous materials that may be needed inside the
building for storage or operational requirements (such as solvents in spray booths).
 Prohibiting flammable materials in certain areas of the facility.
 Periodically inspecting buildings for violations, issuing
 Orders To Comply and, potentially, prosecuting or closing buildings that are not in
compliance, until the deficiencies are corrected or condemning it in extreme cases.
 Maintaining fire alarm systems for detection and warning of fire.
 Obtaining and maintaining a complete inventory of fires tops.
 Ensuring that spray fireproofing remains undamaged.
 Maintaining a high level of training and awareness of occupants and users of the
building to avoid obvious mistakes, such as the propping open of fire doors.
 Conduct fire drills at regular intervals throughout the year.
FIRE HAZARDS
Electrical hazards

 Damaged wiring
 Damaged plugs
 Damp or wet wires
 Overloaded motors
 Broken switches, outlets or sockets
 Problems with lighting fixtures
 Faulty heating elements
 Overloaded circuits
 Liquids near computers
 Computers without surge protectors

Housekeeping hazards
  Piles of scrap, waste materials, and trash
 Sawdust, metal or plastic powder that can form an explosive mixture with air
 Obstructed aisles
 Blocked emergency exits
 Material covering up fire extinguishers, exit signs, and alarms
 Blocked sprinkler heads

Friction hazards

 Hot bearings
 Misaligned or broken machine parts
 Choking or jamming materials
 Poor adjustment of moving parts
 Inadequate lubrication

Process or operation-related hazards

 Cutting and welding operations, which use open flames and produce sparks
 Molten metal, which can ignite combustibles or fall into cracks and start a fire that
might not erupt until after the work is done
 Processes that heat materials to high temperatures
 Drying operations where materials in dryers can overheat
 Grinding operations that produce sparks and dust
 Processes in which flammable vapors are released

Storage hazards

 Materials stacked too high blocking sprinkler heads (need 18-inches clearance from
head)
 Flammable or combustible materials stored too close to heat sources
 Flammable materials not stored in special containers and cabinets inadequate
ventilation in storage areas
 Materials that might react with one another stored together
 Materials stored in damaged containers
 Materials stored in unlabeled containers
 Containers not tightly sealed

Smoking hazards

 Ignoring "No Smoking" signs

 Smoking around flammable or combustible materials
 Throwing matches and cigarettes or cigars on tables or workbenches
 Tossing butts on the floor or grass without properly extinguishing them in an ashtray
or ash can
  Tossing lighted butts or matches out windows or doors
 Smoking in bed
 Leaving a cigarette/cigar unattended
 Smoking in areas where there is an accumulation of sawdust, plastic or metal powders
that may become explosives.
FIRE PREVENTION
Fire prevention is a function of many fire departments. The goal of fire prevention is to educate
the public to take precautions to prevent potentially harmful fires, and be educated about
surviving them. It is a proactive method of reducing emergencies and the damage caused by
them. Many fire departments have a Fire Prevention Officer. In the general sense of preventing
harmful fires, many aspects are discussed in the articles Fire protection and Fire safety. 2

BURDEN OF PROOF
Sections 101 to 103, Evidence Act, 1872 regulates the burden of proof of facts. According to S.
103 ‘, The burden of proof as to any particular fact lies on that person who wishes the court to
believe in its existence....’ Hence the burden of proof is on the insured to prove that the loss was
caused by an insured peril. 3The claim will fail if he fails to discharge the burden. 4 If conclusive
proof is not possible he should at least produce circumstantial evidence from which a reasonable
inference can be drawn regarding the same.5

CONCLUSION
The contract of fire insurance comes into play when a person seeking insurance enters into a
contract with the insurer to indemnify him against loss of property by or incidental to fire,
lightning, explosion etc. being a contract primarily it is governed by the general law of contract.
However, it has certain special features like insurance transaction, utmost good faith, insurable
interest, indemnity, subrogation and contribution etc. These features being common to all types
of insurance are governed by special laws.

Fire insurance in strict sense is concerned to give protection against fire and fire only. But in
practice, insurers include other perils against which protection is widely desired by the public
and designed some standard policies regarding the same. The standard fire policies, therefore,
expressly specify the risks covered and the risks excluded from the scope of the policy, so that
the insured may know the precise protection afforded by the policy.

2
http://niilmuniversity.in/coursepack/Insurance/Principles_&_Practices_of_Fire_Insurance.pdf
3
Marsden v. City and County case. Co. (1866) LR1/CP 232.
4
Austin v. Drewe, (1816) (fire).
5
Principes of Insurance Law by MN Srinivasan.
But the perils generally included can be added by payment of extra premiums. Such risks are
called special perils and are included by placing endorsements on the policy or by issuing
separate contracts

BIBLIOGRAPHY

WEBSITES
1) http://niilmuniversity.in/coursepack/Insurance/Principles_&_Practices_of_Fire_Insurance.pdf

2) http://www.insurance-times.net/article/history-fire-insurance

3) https://securenow.in/insuropedia/what-are-different-types-fire-policies-available-india

4) http://www.nios.ac.in/media/documents/VocInsServices/m4-1f.pdf

BOOKS

1) Principles of Insurance Law by MN Srinivasan.

2) Insurance Law and Practice by Madhu Tyagi and C.L. Tyagi

ARTICLES

1) Perpetual Fire Insurance by William M. Howard

2) Fire Insurance by Hannah Benner Ogden.