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Fire Insurance: Meaning, Claim for Loss (Conditions) and Elements of Fire Insurance Contract

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What is Insurance?

A contract or agreement under which one party agrees in return for a consideration to pay an agreed amount of money to another party to make a loss, damage or injury to something of value in which the insured has a pecuniary interest as a result of some uncertain event is known as Insurance and when the agreement/ contract is put in writing and is known as policy. Insurance provides certainty, protects against risks, shares risks, and assist in capital formation in the form of funds collected by the insurance companies known as premium. There are two types of insurance: Life Insurance and General Insurance. General Insurance is further divided into Fire Insurance, Marine Insurance, Health Insurance and Other Insurance. 
 

What is Fire Insurance?

A contract whereby the insurer, in consideration of the premium paid, undertakes to compensate the insured for any loss that may result due to the occurrence of fire, is known as Fire Insurance. The fire insurance policy is usually for one year and has to be renewed from time to time. The premium can be either paid in lump sums or instalments. The document which contains the terms and conditions of the contract is known as Fire Insurance Policy.
 

Claim for Loss by Fire (Conditions)

The claim for loss by fire must fulfil two conditions: 

  1. There must be actual loss.
  2. Fire must be accidental and non-intentional. This means that the property insured must be damaged or burnt by fire. It will not cover the damages under the word ‘fire’ if the property is damaged by heat or smoke without ignition and such loss will not be recoverable from the insurer. 

Elements of Fire Insurance Contract

Fire Insurance Contract is based on certain fundamental principles of Insurance.

  1.  Insured must have insurable interest: The insured must have an insurable interest both at the time of insurance and at the time of loss. The contract of insurance would be void in the absence of insurable interest. For example, a businessman has an insurable interest in his plants, machinery, building, etc.
     
  2. Utmost good faith (uberrimae fidei): Fire insurance contract must be based on utmost good faith. The insured must be honest and truthful to the insurance company and should disclose all material facts about the subject matter and the risks attached to it at the time of taking the policy. All the facts, conditions, etc., should also be disclosed by the insurance company to the proposer.
     
  3. Indemnity: The contract of Fire Insurance is based on the principle of strict indemnity. The actual amount of loss can be recovered from the insurer by the insured in the event of loss, which is subject to the maximum amount for which
    the subject matter is insured. The insured is not allowed to make profit out of the contract under any circumstances.

    For example, if Amit (insured) has taken a fire insurance policy for his factory for ₹ 5,00,000, and his factory is destroyed by fire. In this case, the insurance company (insurer) is not necessarily liable to pay that ( ₹ 5,00,000) amount, although the factory may have been totally destroyed by fire. But he will get the actual loss after deducting depreciation within the maximum limit of ₹ 5,00,000.The purpose being that a person should not be allowed to gain by insurance.
     

  4. Proximate Cause: The proximate cause of damage or loss must be fire. The insurer will be compensated by the insured only when the proximate cause of loss is fire.

     


Last Updated : 06 Apr, 2023
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