Property and Liability Insurance chapter Six

CHAPTER SIX
PROPERTY AND LIABILITY INSURANCE
Property and liability insurance consists of those forms of insurance that are
designed to provide protection against losses resulting from damage to or loss of
property and losses resulting from a legal liability.
6.1. Workmen’s compensation /employee’s liability insurance
As the labor law stated this workmen’s compensation is a mandatory insurance.
Worker’s compensation insurance provide cover for the death, loss of income,
medical, and rehabilitation expenses that result from work related-accidents and
occupations disease(only for working hours). Insured workmen always retain the
right to claim damages. Employers’ liability claims become much more common
aided by Trade Unions.
If an employee is killed or injured at work as a result of an accident arising from
defective premises or equipment that a court may award damages against the
employer. Any employer is liable for an employee who suffers accidental bodily
injury or disease while working for him. The employee is thus entitling to
compensation for injuries that may be temporary or permanent. This
compensation being unforeseen expenditure, the employer finds it difficult to
compensation such losses especially when it involves a high amount. An employer
may therefore, take out an insurance policy insuring himself against such claims by
his employees.
The insurance which provide protection for the accidental death or injuring to
employees while at work, and as a result make the employer liable for the loss, is
called worker’s compensation insurance. In addition to buying insurance, the
insured (employer) can lower the loss claims by:
1. Providing a safe place of work to his employees.
2. Proper plant tolls, machinery and working implements, and
3. Hiring competent and sober fellow employees.
6.2 Personal Accident
This policy compensates the insured person in accordance with a scale of benefits
specified in the policy for bodily injury caused by accidental means. GPA is benefits
that are paid for death, permanent disability, temporary partial disability, and

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medical expenses. The benefit is based on the salary of an employee’s mostly five
years’ salary but with a maximum.
GPA Policy covers Accidental bodily injuries resulting solely and directly from
accident caused by work related, external & violent means resulting into death or
disablement any time during the period of Policy.(24 hours cover)
6.3 Automobile (Motor) insurance
Most automobile insurance contracts are schedule contracts that permit the
insured to purchase both property and liability insurance under one policy. The
contract can be divided, however into two separate contracts one providing
insurance against physical damage to automobiles (own damage) and the other
protecting against potential liability (liability) arising out of the ownership or use of
an automobile.
The objective of automobile insurance is to indemnify the insured against accident
loss or damage to high auto and / or his liability at law for bodily injury or material
damage cause by the use of motor vehicle, subject to the terms and conditions and
to the cover granted.
The cover of motor insurance can be Third party cover or Comprehensive cover.
❖ Third Party Cover: There are two parties involved in an insurance contract,
the insurer and the insured. Accordingly, any other person who may become
linked in some way with the insurance is regarded as third party. A third party
only policy covers the insured’s legal liability (i.e. property damage, death, and
injury) towards other people in the event of an accident arising out of the use of
a motor vehicle.
A third party policy may be extended to include at an additional premium the
policy holder’s vehicle against the risks of fire and theft as follows:
● Third party, fire and theft.
● Third party and fire.
● Third party and theft.
❖ Comprehensive: this is the widest form of cover that and covers destruction
of or damage to the insured vehicles caused by other accidental causes such as
collusion or overturning and malicious acts(own damage) in addition to third
party and fire and theft loss discussed above.
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Classification of Risks:
There are various categories of automobile risks and a distinction is made in
accordance with the use of type of the vehicles. The main classifications are as
follows:
✔ Private Vehicles: A motor vehicle used solely for private (social,
domestic, pleasure, professional purpose or business calls of the insured)
purposes are classified as “private vehicles” and are insured under the
“private motor vehicles policy”. The term “private purposes” does not
include use for hiring, racing, and carriage of goods in connection with any
trade or business.
✔ Commercial Vehicles: A wide range of vehicles which carry goods and
passengers are classified under this heading and different rates of premium
are supplied depending on their use and type.
6.4 Pecuniary insurance
Pecuniary insurance provides a business with protection against purely financial
losses (e.g. from fraud or embezzlement, legal expenses or business interruption) rather
than physical damage to property.
6.5 Burglary and House Breaking Insurance
Theft/burglary is included in the pecuniary insurance and to protect risk to which
property, especially easily portable and valuable stocks is exposed. The subject
matter insured can be any of the following.
Stock and materials insured can be property held by the insured in trust or on
commission and all other contents within the insured premises such as machinery,
fixtures, fittings, furniture, etc.
This policy pays compensation for: losses/damage to the insured property while
within the Private residence or business premises by theft or any attempt threat
but only accompanied by actual forcible and violent breaking into or out of a
building.
6.6 Fidelity guarantee insurance
This policy is pecuniary insurance provides compensation to an insured for loss
suffered due to the fraud or dishonesty of his/her employees. This help the
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employer to protect himself from this risk of his staff especially those whose main
duty involves the handling of money or securities.
Cashiers and other who handle money, and other persons employed in positions of
trust, are frequently required by the employers to provide security as protection
against their personal dishonest usually in the form of fidelity guarantee policy.
The policy indemnifies the employer against losses from the dishonesty of his
employees. The employer himself often takes out the policy. He/she may insure a
number of employees either individually or in a group basis under a variety of
policies.
Unlike other policies, fidelity guarantee policies specify a time limit to discover the
loss and report it to the insurer after the resignation, dismissal retirement, or death
of the employee in question. Hence, while the insurer undertakes to make the
insured’s financial losses lighter, it is also a requirement that the insured should
⮚ Inform the insurer of such fraudulent act immediately upon discovery.
⮚ Either obtain admission of fraud or take appropriate legal action to establish
fraud, and
⮚ Cooperate with the insurer to bring the defaulter before the court of law.
In addition, before accepting the risk the insurer considers employers type of
establishment, methods of selecting employees, working conditions, emoluments
and benefits in relation to the responsibility assigned, supervision and control
measures effectiveness.
6.7 money insurance
Is one of the pecuniary insurance and Provide cover for the loss of money this
includes cash, bank notes, cheques, postal order, or money orders arising while in
transit of
✔ Bank to premises
✔ Premises to bank
✔ Cash in safe or storage room
6.8 Fire and lightening insurance:
The basic fire policy covers the insured property against loss or damage by fire or
lightning. Fire insurance is designed to indemnify the insured for loss of, or
damage to, buildings and personal property by fire, lighting windstorm, hail,
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explosion and a vast array of other perils. Coverage may be provide for both the
direct loss (that is actual loss represented by the destruction of the asset), and
indirect loss (defined as the loss of income and or extra expenses caused by the loss
of use of the asset protected). Originally, only fire was an insured peril, but the
number of perils insured against has gradually been expended.
Business may therefore, purchase fire insurance contracts covering their building
and its contents, to both the peril of fire and lightning. The standard fire policy
promises in its insuring clause to indemnify the insured for “direct loss by fire,
lightning and by removal from premises endangered by the perils insured against.”
Insurers, however, may offer protection against a very great number of perils other
than fire and lightning by extending the contract in relation to the interest of the
insured through additional premium payment. For additional premium the
standard fire policy maybe extended to cover any of the following perils:
windstorm, explosion, damage by aircraft, damage by vehicle, flood, earthquake,
fire and shock, bursting of pipes and water damage etc.,
Not all fires are covered under the fire insurance contract, but the exclusions are
few:
● Fires caused by war.
● Fires intentionally set by public authorities, and
● Fires set intentionally by the insured.
Types of Fire Policies:
There are different types of fire policies; some the important polices include the
following:
1. Valued Policy: This is a policy where the value of the property to be
insured against fire and allied perils is determined at the time the policy is
issued. Under valued policy also referred to as “ordinary fire insurance
policy.” The insurer pays to total value of damaged property irrespective of
the market value of the property at the time of destruction or loss.
2. Valuable (Automatic Reporting) Policy: Under this policy the
indemnity to be paid by the insurer is to be determined at the time of loss or
after the loss has taken place. This policy is often used for properties

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whether their value cannot be accurately determined at the inception of the

contract, example a building in process.
3. Floating Policy: Under this policy the insurer covers the interest of the
insured on assets in different locations.
4. Specific Policies: Under these policies the insured would get protection to
a given type of property in a given location for a specified value of property.
5. Comprehensive Policy:This form of fire insurance policy give full
protection, not only against the risk of fire but all related perils such as riot;
theft; damage by vehicles, animals or articles from the air, including aircraft
and the like.
6.9 MARINE INSURANCE:
The marine cargo policy covers all types of goods transported by sea, air or island
water ways including land transit by road or rail incidents. It can also cover
sending by ordinary or registered mail, airmail and parcel post. The cover in this
policy is normally for agreed value.
Marine insurance is designed to protect against financial loss resulting from
damage to, or destruction of owned property, due to the peril primarily connected
with transportation. It is a contract of transport insurance whereby the insurer
undertakes to indemnify the insured in the manner and to the extent thereby
agreed, against losses and damages involved in being transported. In consideration
of the payment of a certain sum called the “premium” the insurer (underwriter),
agrees to indemnify the insured (the client) against loss or damage cause by certain
specified peril termed “maritime perils” (heavy weather, stranding, collision, etc.,)
or inland-transit accident (such as collision, overturning of the carrying
conveyance, explosions, fire, theft, non-delivery of the goods etc.,).
Marine insurance is divided into two classes:
✔ Ocean Marine and
✔ Inland Marine.
❖ Ocean Marine Insurance:
Contracts concerned primarily with water transportation are considered to be
ocean marine insurance. For a considerable time ocean marine insurance was the
only kind of modern insurance.
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Insurance has been developed and has attained a high degree of refinement in
modern-day commerce. As world trade grew and values at risk became larger, the
needs for coverage become more apparent. Larger ships and more refined
instruments of navigation made long voyages possible, and with this development
insurance protection was looked upon almost a necessity.
Types of Coverage:
The four chief interests to be insured in an ocean voyage are:
✔ The vessel, or the hull
✔ The cargo
✔ The shipping revenue or freight received by the ship owners.
✔ Legal liability for proved negligence.
If a peril of the sea causes the sinking of a ship in deep water, one or more of these
losses can result. However, each of these potential losses can be covered under
various insurance policies. No policy period
▪ Hull Policies:
Policies covering the vessel itself or hull insurance are written in several different
ways. The policy may cover the ship only during a given period of time, usually not
to exceed one year. The insurance is commonly subject to geographical limits. If
the ship is laid up on port for an extended period of time, the contract may be
written at a reduced premium under the condition that the ships remain in port.
The contract may cover a builder’s risk while the vessel is constructed.
▪ Cargo Policies:
Contract insuring cargo against various types of loss may be written to cover only
during a specified voyage, as in the case of hull contract, or on an open basis.
Under the open contact, there is no termination date, but either party may cancel
upon giving 30 days written notice to the other, otherwise the insurance is
continuous. All shipments, both incoming and outgoing, are automatically
covered. The shipper reports to the insurer at regular intervals as to the values
shipped or received during the previous period.
Cargo policies written on a voyage basis cover that single voyage, but open policies
usually cover all shipments made on and after a certain date. If an open policy is

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cancelled, the coverage continues on shipments made prior to the cancellation

date.
▪ Freight Coverage:
The money paid for the transportation of the goods, known as freight, is an
insurable interest because in the event that freight charges are not paid, some one
has lost income with which to reimburse expenses incurred in preparation for a
voyage. The earning of freight by the hull owner is dependent on the delivery of
cargo unless this is altered by contractual agreements between the parties. If a ship
sinks, the freight is lost and the vessel owner loses the expenses incurred plus the
expected profit on the venture. The carrier’s right to earn freight may be defeated
by the occurrence of losses due to perils ordinarily insured against in an ocean
marine insurance policy. The hull may be damaged so that is uneconomical to
complete the voyage, or the cargo may be destroyed, in which case, of course, it
cannot be delivered. Also the owner of cargo has an interest in freight arising from
the obligation to pay transportation charges. Freight insurance is normally made a
part of the regular hull or cargo coverage instead of being written as a separate
contract.
▪ Legal Liability for Proved Negligence:
In ocean marine insurance policies the hull owner is protected against third party
liability claims that arise form collisions. Collisions loss to the hull itself is
included in the peril clause as one of the perils of the sea. The liability insurance is
intended to give protection in case the ship owner is held liable for negligent
operation of the vessel which is the proximate cause of damage to certain property
of others. The vessel owner or agent of that owner who fails to exercise the proper
degree of care in the operation of the ship may be legally liable for damage to the
other ship and for loss of freight revenues.
Loss Settlement: If the cargo is totally destroyed, the insurer must pay the face
value of the policy. If the cargo is only partially damaged the insured and the
insurer must agree on the percentage of damage. If they cannot agree, the damaged
cargo is to be sold for the account of the owner and the amount received compared,
with what would have been received had the cargo been in sound condition. In

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either case, the liability of the insurer is determined by applying the percentage of
damage to the amount of insurance.
❖ Inland Marine Insurance:
Inland marine cargo insurance covers shipments primarily be land or by air.
Although the trucker, railroad, or airline maybe common carrier with the extension
liability (called liability exposures), the shipper may still be interested in cargo
insurance because:
⮚ It is usually more convenient to collect from an insurer than a carrier.
⮚ A common carrier is not responsible for perils such as an act of war, exercise
of public authority, or inherent defects in the cargo.
No one cargo insurance contract exists. Instead, different insurers may issue
different contracts, and a given insurer will tailor the contract to the insured’s
needs. A convenient way to classify the contracts is according to the type of
transportation covered. One or more of the following modes of transportation
maybe covered – railroad, motor truck, or air. Shipments by mail are covered
under separate first – class mail, parcel port, or registered mail insurance.
6.10 Aviation insurance:
Aviation insurance is an insurance that provides protection against losses or
damages to the different types of passengers, cargo planes and associated losses.
Like automobile insurance, aviation insurance includes both property insurance,
on the planes and liability insurance.
Types of Policies:
The most common types of policies under aviation insurance are:
● Aircraft Comprehensive Policy.
● Freight Liability Policy which includes airmail liability policy.
❖ Aircraft Comprehensive Policy: This policy covers against three types of
potential losses:(included in marine or provide alone)
A. Accidental damage to the aircraft, where protection is provided for damage
to the aircraft by accidents except those that are specifically excluded on the
policy.

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B. Third party legal liability, where the insurer assumes the responsibility to
indemnify the insured for death of or bodily injuries to third parties
(excluding passengers) and ground damage.
C. Legal liabilities of the insured in respect of death of, or bodily injuries to
passengers, passenger’s baggage and personal effects, which are registered,
are also covered by the insurance.
❖ Freight Liability: In addition to passengers and crew an aircraft carries
cargo and mail. The airline operating the aircraft is liable if the cargo or mail is lost
or damage. The freight liability policy provision requires the insurers to indemnify
the insured against all sums which the insured may become legally liable to pay to
owner of cargo as a result of loss or damage or mishandling of the cargo. The limit
to the amount of indemnity is generally stated in the freight liability policy.
(Included in marine insurance)
6.11 Machinery (engineering) Insurance
It is developed to cover the insured against any sudden and unforeseen physical
loss of or damage to the property insured from any cause other than those
specifically excluded under the policy, in respect of contractors workers,
construction plant and equipment, construction machinery, erection of machinery
plant and steel structure of any kind etc. is applicable. This includes Contractors all
risk (CAR), Erection all risks (EAR), Machinery (M), Electrical equipment (EE),
Deterioration of stoke (DOS), and machinery loss of profit (MLOP)

✔ Contractors’ All Risks(CAR)

Covers buildings and civil engineering works under construction
✔ Erection All Risks(EAR)
Covers plants, machinery, equipment and steel structures like bridges in the
course of erection
✔ MLOP insurance indemnifies the actual loss of gross profit sustained as a
result of a business interruption caused by an accident covered under
machinery insurance.

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6.12 public liability insurance

Public liability insurance was developed with employee’s liability insurance. Once,
public opinion had accepted the morality of being able to insure one’s liability, and
the availability of such insurance became known, the business grew rapidly.
The policy provides compensation for legal liability for death, injury, or disease to
people other than employees (which should be covered by employer’s liability
policy). Public liability insurance provides what is popularly termed “third party
cover”. It indemnifies the insured in respect of his legal liability for accidents to
members of the public, or for damage to their property, occurring in circumstances
set out in the policy.
Under public liability insurance, policies are available to cover liabilities attaching
to:
A. Pedal Cyclists.
B. Private individuals: The so called “personal liability” policy is available to
protect private persons from claims arising due to injury caused by such
things as polished floor, a loose roof tile or by pet animal. A pedestrian, for
example, can incur heavy liabilities by causing a serious road accident.
C. Product Liability: Liability arising out of defects of goods produced or sold.
D. Professional men such as doctors, dentists, solicitors, and bankers may take
out policies to protect themselves from claims arising out of negligence or
mistake committed in the exercise of their professional duties.
It should be noted that this form of cover might include or be included with other
risks. For example, a householder’s policy covering loss or damage to the building
and / or contents can be extended to cover the personal liability of the owner and
his family towards the public. Whereas liability arising from the use of motor
vehicles is always exclude, and must be covered by a separate motor policy.
6.13 plate glass insurance
Provide cover for accidental breakage of glasses as the result of accident or
misfortune.
6.14 All risks insurance
To indemnify the insured subject to the term and conditions of the policy against
loss or damage by fire, theft, or any other accident other than specifically excluded

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under the policy. Cover shall not be provided for properties other than personal
effect, belongingness and household goods. Cover shall be provided clients who has
business package other than alone. Under this cover, items mainly comprising of
gold and silver articles, jewelry shall be covered.
6.15 Bonds insurance: There are bid, performance, supply and maintenance
bonds. There the insurer assumes the position of a surely guaranteeing the faithful
performance by a "contractor" of his obligation to an employer.

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