BASIC PRINCIPLES:-
“Fire insurance business” has been defined in section 2 of Insurance Act, 1938 as “the business of effecting, otherwise than incidentally to some other class of insurance business, contract of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies”.
Ordinarily one may get inclined to think that it is an insurance policy which indemnifies secure a person from a harm, a loss, etc; compensate; exempt from a penalty] the insured against loss or damage to property caused by fire. But this understanding is not correct. The Fire Policy is far wider than its superficial meaning. It protects the assets against a host of perils – as many as twelve groups of perils. In view of the very wide scope of this Policy it is misnomer to call it a Fire Policy. So it has been renamed by the TAC as: STANDARD FIRE & SPECIAL PERILS POLICY (SFSP). Fire insurance contracts are governed by the general law of contract as embodied in the Indian Contract Act, 1872. According to this general law of contract a fire insurance contract must have the following essential ingredients in order to make it enforceable at law:- a) Offer and acceptance, b) Consideration, c) Agreement between the parties, d) Legal Competence of parties and Basic Principles like
i) Utmost Good Faith: To disclose all material fact which have a bearing on the insurance. The duty of disclosure of material fact ceases when the contract is concluded under common law. But in Fire Insurance the Insured should give notice, if there are any material alterations during the currency of the policy.
ii) Insurable Interest: The competency of a person to effect a contract of a fire insurance is determined by his legal capacity to contract and his legal pecuniary [adj: of or concerning money] relationship to the property. In fire insurance the insurable interest should exist at the time of taking policy, continue throughout its currency and should exists at the time of loss. Fire insurance policies are personal contracts. The moral hazard of the insured plays vital role. Hence if the property is sold the policy is not transferred automatically. Transferring the policy in the new owners name has to be agreed to, accepted and endorsed by the insurance company.
iii) Indemnity: The principle of indemnity secure a person from a harm, a loss, etc; compensate; is strictly adhered to in fire insurance. Fixing the SI is an important aspect and the responsibility is with Insured. If insurer agrees to the value it becomes “Agreed Value Policy”.
iv) Subrogation: The principle of subrogation is a corollary of the principle of indemnity. If loss suffered by the insured is recoverable from third party (ies), who is/are responsible for the loss, the insured’s right of recovery is transferred or subrogated to the insurer when they indemnify secure a person from a harm, a loss, etc; compensate;
v) Contribution: The principle of contribution is a corollary of the principle of indemnity, provided that the same property is insured under more than one policy. Insured cannot recover more than his loss; he can recover only a rateable portion of loss under each policy.
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“Fire insurance business” has been defined in section 2 of Insurance Act, 1938 as “the business of effecting, otherwise than incidentally to some other class of insurance business, contract of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies”.
Ordinarily one may get inclined to think that it is an insurance policy which indemnifies secure a person from a harm, a loss, etc; compensate; exempt from a penalty] the insured against loss or damage to property caused by fire. But this understanding is not correct. The Fire Policy is far wider than its superficial meaning. It protects the assets against a host of perils – as many as twelve groups of perils. In view of the very wide scope of this Policy it is misnomer to call it a Fire Policy. So it has been renamed by the TAC as: STANDARD FIRE & SPECIAL PERILS POLICY (SFSP). Fire insurance contracts are governed by the general law of contract as embodied in the Indian Contract Act, 1872. According to this general law of contract a fire insurance contract must have the following essential ingredients in order to make it enforceable at law:- a) Offer and acceptance, b) Consideration, c) Agreement between the parties, d) Legal Competence of parties and Basic Principles like
i) Utmost Good Faith: To disclose all material fact which have a bearing on the insurance. The duty of disclosure of material fact ceases when the contract is concluded under common law. But in Fire Insurance the Insured should give notice, if there are any material alterations during the currency of the policy.
ii) Insurable Interest: The competency of a person to effect a contract of a fire insurance is determined by his legal capacity to contract and his legal pecuniary [adj: of or concerning money] relationship to the property. In fire insurance the insurable interest should exist at the time of taking policy, continue throughout its currency and should exists at the time of loss. Fire insurance policies are personal contracts. The moral hazard of the insured plays vital role. Hence if the property is sold the policy is not transferred automatically. Transferring the policy in the new owners name has to be agreed to, accepted and endorsed by the insurance company.
iii) Indemnity: The principle of indemnity secure a person from a harm, a loss, etc; compensate; is strictly adhered to in fire insurance. Fixing the SI is an important aspect and the responsibility is with Insured. If insurer agrees to the value it becomes “Agreed Value Policy”.
iv) Subrogation: The principle of subrogation is a corollary of the principle of indemnity. If loss suffered by the insured is recoverable from third party (ies), who is/are responsible for the loss, the insured’s right of recovery is transferred or subrogated to the insurer when they indemnify secure a person from a harm, a loss, etc; compensate;
v) Contribution: The principle of contribution is a corollary of the principle of indemnity, provided that the same property is insured under more than one policy. Insured cannot recover more than his loss; he can recover only a rateable portion of loss under each policy.
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