Fire Insurance PDF

Fire Insurance
This book is a part of the course by Jaipur National University, Jaipur.

This book contains the course content for Fire Insurance.
JNU, Jaipur
First Edition 2013
The content in the book is copyright of JNU. All rights reserved.

No part of the content may in any form or by any electronic, mechanical, photocopying, recording, or any other
means be reproduced, stored in a retrieval system or be broadcast or transmitted without the prior permission of
the publisher.
JNU makes reasonable endeavours to ensure content is current and accurate. JNU reserves the right to alter the
content whenever the need arises, and to vary it at any time without prior notice.
Index
I. Content....................................................................... II
II. List of Figures...........................................................VI
III. List of Tables......................................................... VII
IV. Abbreviations........................................................ VII
V. Case Study.............................................................. 114
VI. Bibliography.......................................................... 123
VII. Self Assessment Answers................................... 126
Book at a Glance
I/JNU OLE
Contents
Chapter I........................................................................................................................................................ 1
Introduction to Fire Insurance.................................................................................................................... 1
Aim................................................................................................................................................................. 1
Objectives....................................................................................................................................................... 1
Learning outcome........................................................................................................................................... 1
1.1 Origin of Fire Insurance............................................................................................................................ 2
1.2 Fire Insurance Policy................................................................................................................................ 2
1.3 Scope of Fire Insurance............................................................................................................................ 4
1.3.1 Ordinary Scope......................................................................................................................... 5
1.4 Purpose of Fire Insurance......................................................................................................................... 7
Summary........................................................................................................................................................ 8
References...................................................................................................................................................... 8
Recommended Reading................................................................................................................................ 8
Self Assessment . ........................................................................................................................................... 9
Chapter II.....................................................................................................................................................11
Fire Insurance under Indian Insurance Law............................................................................................11
Aim................................................................................................................................................................11
Objectives......................................................................................................................................................11
Learning outcome..........................................................................................................................................11
2.1 Basic Principles of Fire Law................................................................................................................... 12
2.2 Laws Governing Fire Insurance.............................................................................................................. 12
2.2.1 Fire Insurance Contract........................................................................................................... 13
2.2.2 Essential Ingredients of Fire Insurance Contract.................................................................... 14
2.2.3 Risks Covered Under Fire Insurance Policy........................................................................... 16
2.2.4 Risks Not Covered by Fire Insurance Policy.......................................................................... 17
2.3 Characteristics of Fire Insurance Contract.............................................................................................. 17
Summary...................................................................................................................................................... 19
References.................................................................................................................................................... 19
Recommended Reading.............................................................................................................................. 19
Self Assessment . ......................................................................................................................................... 20
Chapter III . ................................................................................................................................................ 22

Types of Fire Policies.................................................................................................................................. 22
Aim............................................................................................................................................................... 22
Objectives..................................................................................................................................................... 22
Learning outcome......................................................................................................................................... 22
3.1 Introduction . .......................................................................................................................................... 23
3.2 Types of Fire Insurance Policies ............................................................................................................ 23
3.2.1 Valued Policy.......................................................................................................................... 23
3.2.2 Specific Policy........................................................................................................................ 24
3.2.3 Average Policy........................................................................................................................ 24
3.2.4 Floating Property Policy......................................................................................................... 25
3.2.5 Replacement or Re-instatement Policy................................................................................... 25
3.2.6 Consequential Loss Policy...................................................................................................... 26
3.2.7 Comprehensive Policy............................................................................................................ 28
3.2.8 Blanket Policy......................................................................................................................... 29
3.2.9 Declaration Policy................................................................................................................... 29
Summary...................................................................................................................................................... 31
References.................................................................................................................................................... 31
Self Assessment............................................................................................................................................ 32
II/JNU OLE
Chapter IV................................................................................................................................................... 34
Fire Underwriting and Procedures............................................................................................................ 34
Aim............................................................................................................................................................... 34
Objectives..................................................................................................................................................... 34
4.1 Introduction............................................................................................................................................. 35
4.2 Fire Insurance Underwriting................................................................................................................... 35
4.3 Fire Risk Assessment.............................................................................................................................. 36
4.3.1 Fire Risk Assessment Process................................................................................................. 36
4.4 Detailed Description of Fire Risk Assessment Process.......................................................................... 38
4.4.1 Step 1: Identify Fire Hazards.................................................................................................. 38
4.4.2 Step 2: Identify People at Risk............................................................................................... 39
4.4.3 Step 3: Evaluate, Remove, Reduce and Protect from Risk..................................................... 39
4.4.4 Step 4: Record, Plan, Inform, Instruct and Train.................................................................... 43
4.4.5 Step 5: Review........................................................................................................................ 45
Summary...................................................................................................................................................... 49
References.................................................................................................................................................... 49
Self Assessment............................................................................................................................................ 50
Chapter V..................................................................................................................................................... 52
General Fire Hazards................................................................................................................................. 52
Aim............................................................................................................................................................... 52
Objectives..................................................................................................................................................... 52
5.1 Introduction to General Fire Hazards..................................................................................................... 53
5.1.1 Originating or Inception Hazards........................................................................................... 53
5.1.2 Contributory Hazards.............................................................................................................. 54
5.2 General Hazards...................................................................................................................................... 54
5.2.1 Exposure Hazard..................................................................................................................... 55
5.2.2 Electrical Hazards................................................................................................................... 57
5.2.3 Fire and Explosion Hazards.................................................................................................... 57
5.2.4 Hazards of Dangerous Atmosphere........................................................................................ 59
5.2.5 Hazards of Metals................................................................................................................... 59
5.3 Fire Protection Systems.......................................................................................................................... 60
5.3.1 How Fires are Extinguished.................................................................................................... 60
5.3.2 Common Fire Extinguishing Appliances................................................................................ 61
5.3.3 Smoke Detectors..................................................................................................................... 62
5.4 Management and Housekeeping............................................................................................................. 62
5.4.1 Segregation............................................................................................................................. 62
5.4.2 Arrangement of Premises........................................................................................................ 63
5.4.3 Supervision............................................................................................................................. 63
5.4.4 Smoking.................................................................................................................................. 63
5.4.5 Disposal of Trade Waste......................................................................................................... 63
5.5 Loss Prevention Association of India..................................................................................................... 64
Summary...................................................................................................................................................... 65
References.................................................................................................................................................... 65
Self Assessment . ......................................................................................................................................... 67
Chapter VI................................................................................................................................................... 69
Fire Hazards of Specific Industries........................................................................................................... 69
Aim............................................................................................................................................................... 69
Objectives..................................................................................................................................................... 69
III/JNU OLE
6.1 Introduction............................................................................................................................................. 70
6.2 The Textile Industry................................................................................................................................ 70
6.2.1 Spinning Preparatory and Spinning Process........................................................................... 70
6.2.2 The Weaving Preparatory and the Weaving Process............................................................... 70
6.2.3 Chemical Processing of Cloth................................................................................................. 70
6.2.4 Auxiliary Departments............................................................................................................ 71
6.2.5 Fire Hazards and Loss Prevention Measures.......................................................................... 71
6.2.6 Other Hazards......................................................................................................................... 72
6.3 The Jute Industry..................................................................................................................................... 72
6.3.1 Jute Press................................................................................................................................. 72
6.3.2 Jute Mills................................................................................................................................. 73
6.3.3 Jute Warehouses...................................................................................................................... 76
6.4 The Rubber Industry............................................................................................................................... 76
6.4.1 Manufacturing Process of Rubber ......................................................................................... 77
6.4.2 Fire Hazards............................................................................................................................ 78
6.5 Paper Industry......................................................................................................................................... 78
6.5.1 Raw Material Process............................................................................................................. 78
6.5.2 Pulp Production....................................................................................................................... 78
6.5.3 Paper Making.......................................................................................................................... 78
6.5.4 Fire and Explosion Hazards and Loss Prevention Measures.................................................. 79
6.6 The Chemical Industry............................................................................................................................ 79
6.6.1 Sources of Ignition.................................................................................................................. 80
6.6.2 Chemical Processes................................................................................................................. 80
6.7 The Hydrocarbon Processing Industry.................................................................................................... 81
6.7.1 Characteristics of Hydrocarbons Leading to Fire and Explosion........................................... 82
6.7.2 Hazards in the Hydrocarbon Processing Industry................................................................... 82
6.7.3 Other Hazards Related to Process Units/Production Plants.................................................... 83
Summary...................................................................................................................................................... 85
References.................................................................................................................................................... 85
Self Assessment............................................................................................................................................ 86
Chapter VII................................................................................................................................................. 88
Fire Insurance Claim and Settlement ...................................................................................................... 88
Aim............................................................................................................................................................... 88
Objectives..................................................................................................................................................... 88
7.1 Legal Aspects of Fire insurance Claim................................................................................................... 89
7.1.1 The Doctrine of Proximate Cause........................................................................................... 89
7.1.2 Rules of Interpretation of Policies.......................................................................................... 91
7.1.3 The Amount of Claim Payable................................................................................................ 91
7.1.4 Types of Properties Affected................................................................................................... 92
7.1.5 Important Terms Relating to the Claim ................................................................................. 94
7.2 Procedural Aspects in Fire Claims.......................................................................................................... 95
7.3 Important Aspects of Survey................................................................................................................... 95
7.3.1 Process of Surveying and Loss Assessment........................................................................... 96
7.3.2 The Important Issues Involved in any Survey Job.................................................................. 96
7.4 Final Survey Report................................................................................................................................ 97
Summary...................................................................................................................................................... 98
References.................................................................................................................................................... 98
Self Assessment............................................................................................................................................ 99
Chapter VIII.............................................................................................................................................. 101

Fire Consequential Loss Insurance......................................................................................................... 101
IV/JNU OLE
Aim............................................................................................................................................................. 101
Objectives................................................................................................................................................... 101
Learning outcome....................................................................................................................................... 101
8.1 Fire - Consequential Loss Insurance..................................................................................................... 102
8.2 Basis of Profits Insurance..................................................................................................................... 102
8.2.1 The Measure of Indemnity.................................................................................................... 102
8.2.2 Indemnity Period................................................................................................................... 103
8.2.3 The Sum Insured................................................................................................................... 103
8.3 The Operative Clause of the Policy...................................................................................................... 103
8.4 Important Terms for Various Calculations............................................................................................ 104
8.5 Specification – Turnover Basis............................................................................................................. 105
8.5.1 Consequential Loss Insurance Premium Rate...................................................................... 107
8.6 New Business Clause............................................................................................................................ 109
8.6.1 Claims Procedure.................................................................................................................. 109
Summary.....................................................................................................................................................111
References...................................................................................................................................................111
Recommended Reading.............................................................................................................................111
Self Assessment...........................................................................................................................................112
V/JNU OLE
List of Figures
Fig. 1.1 Loss caused by fire............................................................................................................................ 3
Fig. 1.2 Fire by accident................................................................................................................................. 4
Fig. 4.1 Steps in risk assessment................................................................................................................... 37
Fig. 4.2 Identification of fire hazards............................................................................................................ 38
Fig. 5.1 Types of hazards.............................................................................................................................. 54
Fig. 5.2 Danger from exposure..................................................................................................................... 55
Fig. 5.3 Classification of exposures.............................................................................................................. 56
Fig. 5.4 Types fuel storage ........................................................................................................................... 58
Fig. 6.1 Processes in jute mill....................................................................................................................... 74
Fig. 6.2 Manufacturing process of rubber..................................................................................................... 77
Fig. 7.1 Types of properties covered under fir insurance.............................................................................. 92
Fig. 7.2 Important terms in fire insurance..................................................................................................... 94
Fig. 8.1 trading losses from stopping business........................................................................................... 102
Fig. 8.2 Reasons for the loss of gross profit............................................................................................... 105
VI/JNU OLE
List of Tables
Table 2.1 Basis for fixing sum insured......................................................................................................... 15
Table 3.1 Advantages and disadvantages of valued policy........................................................................... 24
Table 3.2 Advantages and disadvantages of reinstatement policy................................................................ 26
Table 3.3 Advantages and disadvantages of declaration policy.................................................................... 30
Table 4.1 Fire safety requirements for various building type and heights.................................................... 48
Table 8.1 Percentages of basic rates........................................................................................................... 108
Table 8.2 Rate of gross profit earned on the annual and standard turnover................................................ 109
VII/JNU OLE
Abbreviations
GIC - General Insurance Corporation of India
I.B.N.R. Claims - Incurred But Not Reported Claims
LOP - Loss of Profit
LPA - Loss Prevention Association
LPG - Liquefied Petroleum Gas
NOC - No Objection Certificate
PBR - Poly Butadiene Rubber
RIV - Reinstatement Value
SBR - Styrene Butadiene Rubber
TNT - Trinitrotoluene
VIII/JNU OLE
Chapter I
Introduction to Fire Insurance
Aim
The aim of this chapter is to:
• introduce the concept of fire insurance
• elucidate the origin of fire insurance
• explain the nature of fire insurance policy
Objectives
The objectives of this chapter are to:
• explain the scope of fire insurance
• discuss the loss caused by fire
• highlight the purpose of fire insurance
Learning outcome
At the end of this chapter, you will be able to:
• understand the types of fire insurance
• explain ordinary, special and comprehensive scope of fire insurance
• discuss what is covered under fire insurance and what is not
1/JNU OLE
Fire Insurance
1.1 Origin of Fire Insurance

Insurance in its modern form originated in Lombardy, Italy, in 1182 A.D., with Marine Insurance. Attempts to
organise fire insurance in the modern form were made only after the Great Fire of London in 1666.
In 1666, the great fire broke out in London, which continued for four days and nights and spread over 436 acres of
territory. This was an alarming and appalling calamity. Over 85 per cent of the buildings in London were destroyed,
while the property loss is estimated to have been about ten million pounds. In the absence of insurance, this was a blow
from which London was slow to recover, as is shown by the fact that in 1673, seven years later, about one thousand
buildings were yet to be replaced. Relatively, this London fire was the greatest in the history of the world.
Immediately after the fire, various plans for the protection of individuals against loss by fire began to be devised.
In 1667, the first regular system for insuring buildings against fire began.
A London builder, Dr. Nicholas Barbon, started the Fire Office in 1680. This company, for a given consideration,
engaged to pay the assured the amount of indemnity declared in the policy, or contract, should his house or building
be destroyed by fire, or to repair it, should it be only ‘damnified’ — i.e., damaged. No liability, it was noted, rested
upon the assured beyond the payment of the premium. Other Offices soon followed but their operations were
confined to the insurance of buildings. In 1681, a few years after this first company was established, an attempt was
made by the city of London to establish an insurance account, or business, and funds and property were put aside
and dedicated for that purpose.
In 1708, an office was established to insure goods and merchandise. By the beginning of the 19th century, there were
no less than 32 fire offices. These offices recognised the need for joint action to deal with common problems.
In 1832, the London offices formed one common fire brigade and action was initiated for the collection of loss
experience on a common basis for charging agreed rates. This led to the formulation of various tariffs such as the
Liverpool Warehouse Tariff, Cotton Mills Tariff, etc. Eventually, in 1858, an Association of English and Scottish
Fire Offices was formed which came to be known in 1868, as the Fire Offices Committee.
The Industrial Revolution brought about a great increase in material wealth in the form of factories, machinery
and merchandise, which had to be protected by fire insurance. With the introduction of complex manufacturing
processes in industry, the system of fire insurance rating became complicated. The market also introduced the loss
of profits policy in 1900, followed by insurances against special perils. Insurances on re-instatement value basis
were introduced during the inter-war period. On the technical side, the Fire Offices Committee established a Testing
Station for research purposes, in 1935. In 1946, this was converted into the Joint Fire Research Organisation.
1.2 Fire Insurance Policy

The term insurance has been used in describing the fund accumulated to meet uncertain losses. It is evident that in
a static state, all producers who are exposed to risk must accumulate such funds. While it is uncertain, whether the
accumulation of any individual producer will be enough to meet the loss the individual suffers; that of the entire
body of producers in any industry must be large enough to cover the losses of the group, as a whole. Otherwise, there
would be in the end, a great diminution in the amount of capital in hazardous industries, and a serious disturbance
of the static adjustment. Such a phenomenon is inconsistent with the notion of the static state.
For example: A fruit-dealer, who at irregular intervals, suffers loss through decay must add to the price of his fruit
enough to cover such uncertain loss.
Definition of Fire: The term fire in a fire insurance policy is interpreted in the literal and popular sense. Fire causes
when something burns. It has been held that there is no fire unless there is ignition.
For example: Stanley vs. Western Insurance Company. Fire produces heat and light but neither of them isolated,
can be called fire. Lighting is not fire. However, if lighting ignites something, the damage may be covered by a fire
policy. The same is the case with electricity.
2/JNU OLE
Loss caused by fire
Fig. 1.1 Loss caused by fire

(Source: http://www.isplonline.com/firefighter.htm)
Heating unaccompanied by ignition is not fire. Loss or damage through the uncontrolled medium of fire either by
ignition of the articles consumed or by damage either by ignition of the articles caused by ignition of that part of
the premises, where the article is. In one case there is loss, in the other case, a damage occasioned by fire. Thus, it
can be stated that no claim possible without flame.
In the following cases, the loss by fire is not considered:

• Loss of goods through excessive heat due to the closure of doors and ventilations.
• Damage to goods due to high humidity.
• Changes of solid particles (eg. Sugar) into liquid form due to sunshine.
• Evaporation of items through chemical reaction or heat.
• Damage of articles due to high climatic temperature.
• Damage through explosives; provided the explosion causes no actual ignition.
• Damage through lightning, provided it does not cause actual ignition.
• Loss or damage through earthquake, riot, military power or civil commotion.
• Damage to users of the articles as a result of smoke without flame.
• Loss or damage caused by electricity.
All these situations do not fall under the definition of ‘fire’ and therefore, the losses incurred in such circumstances
are not to be covered by the fire insurance policy. The losses by the following instances or losses subsidiary to fire
are as follows:
• Damage which occurs as a result of smoke or of putting out the fire would be covered by the fire risks.
• Any loss resulting from apparently necessary and bona fide efforts to put out a fire, whether it be by spoiling
goods by water or throwing articles of furniture out of the window, are covered by the fire risks.
• Even by damages to a neighbouring house by explosion done for the purpose of arresting fire, would be covered
by the fire risks.
• Every loss, directly or if not directly, at least consequently, resulting from the fire is insured in the policy (In
Stanley V/s Western Ins. Co., 1968).
• Loss theft during a fire is covered as a fire risk (In Stanley V/s Bailey, 1831).
• Even loss by fire caused by the insured’s negligence is covered by the policy (IN Harris V/s Poland, 1941).
• Any loss occurred while putting out the fire.
3/JNU OLE
Fire Insurance
Fire by accident
Fig. 1.2 Fire by accident

(Source: http://somersfirerescue.org/SomersWebPages/FirePrevention.html)
In case of fire insurance, the occurrence of fire is accidental, and only then, is it covered by the policy. In case the
fire is a deliberate act of the insured, the insurer is not liable to compensate. The fire which is used for ordinary
domestic purposes or even for manufacturing is not fire as long as it is confined within the usual or proper limits.
Thus, fire by accident means the production of light and heat by combustion, whilst the actual ignition and heating
unaccompanied by ignition is not fire.
According to S. 2(6A), the ‘fire insurance business’ means the business of effecting, otherwise than incidentally
to some other class of insurance business, contracts of insurance against loss through or by fire or other related
occurrence, is customarily included among the risks insured against in the fire insurance business.
According to Halsbury, it is a contract of insurance by which the insurer agrees for consideration to indemnify the
assured up to a certain extent and subject to certain terms and conditions against any loss or damage by fire, which
may happen to the property of the assured during the specific period.
Thus, fire insurance is a contract whereby the person, seeking insurance protection, enters into a contract with the
insurer to indemnify him against the loss of property, accidental or incidental to fire/lightning, explosion and so
on. This policy is designed to insure one’s property and other items from loss occurring due to complete or partial
damage by fire.
In its strict sense, a fire insurance contract is the one:

• whose principle object is insurance against loss or damage occasioned by fire.
• the extent of insurer’s liability being limited by the sum assured and not necessarily by the extent of loss or
damage sustained by the insured and
• the insurer having no interest in the safety or destruction of the insured property apart from the liability undertaken
under the contract.
Fire insurance policy

Standard fire policy that usually covers fire due to any cause subject to some exceptions which too may be covered
with additional premium. These policies may be extended further (by paying additional premium) to include collateral
damages or losses such as loss of income.
1.3 Scope of Fire Insurance

The scope of fire insurance is much wider. This can be understood from Section 2 of Indian Insurance Act, 1938.
According to this provision, the scope of fire insurance involves the following types of risks:
4/JNU OLE
• the risks directly involved by fire
• the risks indirectly involved (that have been traditionally included within the fire insurance policy)
1.3.1 Ordinary Scope

Before May 2000, three types of fire insurance policies (A, B and C policies) were issued in India. Therefore, the
scope of fire insurance policies is classified based on these criteria. After May, 2000, only a single type of fire
insurance policy is issued in India by the fire insurance companies, which is known as ‘Standard and Special Peril
Policy’. The policy covers the following types of perils:
Perils covered:
• Loss caused by fire
Excluding loss, destruction or damage caused to the property insured by:
It’s own spontaneous, fermentation of halting, or
It’s undergoing any heating or drying process
Burning of the property insured by the order of any Public Authority
• Explosion/Implosion: Excluding loss, destruction or damage caused to the property insured by bursting of
boilers (other than domestic boilers), economisers or other vessels in which steam is generated, machinery or
apparatus subject to centrifugal force.
• Aircraft Damage: Loss, destruction or damage caused by aircraft, other aerial or space devices and articles
dropped there from, excluding those caused by pressure waves.
• Riot Strike, Malicious and Terrorism: Visible physical loss, destruction or damage by external violence means
damage caused to the property insured but excluding those caused by:
Total or partial cessation of any process or operations or commission of any kind;
Confiscation, commandeering, requisition or destruction by order of the Government or any lawfully
constituted authority.
Permanent or temporary dispossession of any building or plant or unit or machinery resulting from the
unlawful occupation by any person of such building or plant or unit or machinery or prevention of access
to the same.
• Natural Disasters: Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation.
• Impact Damage: Impact by any rail/road vehicle or animal by direct contact not belonging or owned by:
The insured or any occupier of the premises, or
Their employees while acting in the course of their employment
• Subsidence and Land slide including Rock slide: Loss, destruction or damage caused by subsidence of part
of the site on which the property stands or land slide/rock slide excluding-
• the normal cracking, settlement or bedding down of new structures
• the settlement or movement or made up ground
• coastal or river corrosion
• defective design or workmanship or use or effective materials
• demolition, construction, structural alternative or repair of any property or ground works or excavations
• Physical exhaustion of capacity: Bursting and/or overflowing of water tanks, apparatus and pipes
• Warfare testing: Missile testing operations
• Leakage from Automatic Sprinkler Installations: Excluding loss, destruction or damage caused by:
Repairs or alterations to the buildings or premises;
Repairs, removal or extension of the sprinkler installation; and
5/JNU OLE
Fire Insurance
Defects in construction known to the insured.

• Bush Fire: Excluding loss, destruction or damage caused by forest fire
Following risks do not fall under purview of the fire insurance:

• losses due to by the acts of the god/natural calamity
• losses arising out of war attacks (declared war or otherwise)
• loss/damage out of poultry effects
• damage to goods stored in cold storage due to fluctuations in temperature, and so on
1.3.2 Special Scope

Certain special kinds of risks are also included in the fire policy. By paying extra premium, the insured can include
such special risks as given below within the scope of the fire insurance policy:
• The fees paid to the architect, surveyor or consultant engineer, if such fees exceed more than 3 percent of the
claim money.
• The expenses incurred in connection with removal of wastages from the construction site, if that amount exceeds
more than 1 per cent of the claim money.
• Loss to the goods kept in the cold storage due to fluctuations in electricity/power but within the causes stated
in the policy.
• Loss arising out of earthquakes, fire, through combustion
• Forest fire
• Loss incurred through the falling of goods from the forklifts, or from the own vehicle of the insured and so
on.
• Loss due to spontaneous combustion
1.3.3 Comprehensive Scope

Almost all the insurable risks are included in the comprehensive scope of fire insurance. It includes not only the
ordinary and direct risks, but also, the consequential losses. This way, the following risks are included within the
comprehensive scope:
• risks of standard policies
• special risks which can be insured by paying extra rate of premium
• excluded perils in the standard policy
• consequential losses or risks arising consequent to fire
Consequential losses: The consequential losses/risks are those that have been created by the fire. Such risks are also
known as ‘Loss of Profit’ loss. When fire takes place in a factory, not only are its assets/properties (machine, raw
material, finished goods, building, and so on) damaged or lost, but the production work in the factory is also held
up for a considerable time. Consequently, the profits from the factory are stopped, but the burden of fixed costs and
additional expenses also are to be borne. Thus, the following types of losses are included in consequential losses:
• loss of net profit

• loss of fixed expenses, e.g., salaries to employees, building rent, interest on loans, and so on
• increased cost on account of problems arising out of fire
• rent of the building taken on hire, till the time on getting the damaged building repaired or renovated, and so
on
All these types of losses can be included in the comprehensive scope of fire insurance policy; the premiums of such
policies are much higher than the ordinary policies.
6/JNU OLE
1.4 Purpose of Fire Insurance
The industry, trade and commercial articles have been developing and diversifying at a faster rate in India. Along
with the growth of industrial and commercial articles, the infrastructural fields like transport, communication,
finance, advertising, stock marketing and so on, have also been developing continuously, so as to cope with the
pace of economic development. The importance of foreign trade also has been very much for a developing country
like India. All these developments in various fields brought in much risks and uncertainties in business activities.
Insurance is the only field that provides security, against business risks. The role of the fire insurance has been
increasing day-by-day as a means against destruction or damage of business property caused by fire.
The significance of fire insurance can be discussed under the following points:
• As a source for minimising losses: Fire can destroy property in goods and fixed assets worth crores of rupees
or can create damage to the business property. Fire Insurance indemnifies losses or damages done to fire and
resources the mental worries of businessmen.
• Decreases in probabilities of fire losses: The increasing uses of energy petrol like electricity, gas and other
such items have increased the probability of losses or damages to goods and property. In order to minimize this
calamity, various type of fire extinguishing devices has been destroyed throughout the world. Moreover, the
fire insurance is another device to indemnify the losses, thus removing mental worries by extending financial
support.
• Increase in production of fire proof materials: Fire insurance cannot prevent occurrence of fire, but can reduce
the losses. Today various devices are produced in the country like fire extinguisher. Fire brigades are set up at
every cities and towns to extinguish fire by the government and local bodies.
• Decrease in social loss of fire: Social awareness has been created in the country to put out fire and to reduce the
effect of fire. The social organisations provide training to the people in the use of the fire extinguishing devices
and caution them in the use of such items which causes or produces fire liabilities.
• Asset valuation: Assets are valued for obtaining a fire insurance policy. It requires the insured to be more
cautious in protecting his property or goods.
• Loss preventing efforts and advice by the insurer: An insurer not only offers indemnity against fire losses,
but also advises the insured to reduce the incidence of fire. Fire Insurance companies establish, ‘salvage corps’,
to extinguish fire so that the extent of loss can be minimised.
• Helpful in business progress: Due to the facilities provide by the fire insurance companies, the business
enterprises undertake large scale production and invest in business and marketing activities without any
botheration. This lead to continuous progress in industrial and commercial activities, leading to economic
growth.
• Beneficial for new industries: The new industrial units usually face complex problems of production, finance,
competition and sales and so on. In such a situation, they cannot afford the losses/damages due to fire. The
fire insurance relieves such entrepreneurs from worries by indemnifying the loss/damages, if any, from the
occurrence of fire.
• Credit facility: Where the assets are secured by fire insurance, it becomes easier for such enterprises to get
credit from banks and other financial institutions. This will increase the credit worthiness of the enterprise.
• Distribution of risks: Fire insurance is an effective device to distribute the risks in a group, enabling the
individual or the institution to maintain its efficiency.
• Other important milestones: They include the following:
Development of small industries becomes easier.
Contribution towards timely completion of national plans.
There will be regularity in the national income and the ways for national development.
There can be continuity in the production program of business enterprises and the operating efficiency will
increase.
7/JNU OLE
Fire Insurance
Summary
• Insurance, in its modern form, originated in Lombardy, Italy, in 1182 A.D. Attempts to organise fire insurance
in the modern form were made only after the Great fire of London in 1666.
• Immediately after the fire, various plans for the protection of individuals against loss by fire began to be devised.
In 1667, the first regular system for insuring buildings against fire began.
• A London builder, Dr. Nicholas Barbon, started the fire insurance office in 1680.
• The industrial revolution brought about a great increase in material wealth in the form of factories, machinery
and merchandise that had to be protected by fire insurance.
• The market also introduced the loss of profits policy in 1900, followed by insurances against special perils.
• The fire offices committee established in 1935, a testing station for research purposes. In 1946, this was converted
into the Joint Fire Research Organisation.
• The term insurance has been used in describing the fund accumulated to meet uncertain losses.
• ‘Loss or damage’ occasioned by fire, means loss or damage either by ignition of the articles consumed or by
damage either by ignition of the articles caucused or by ignition of that part of the premises, where the article
exists.
• In the case of fire insurance, the occurrence of fire is accidental, and then only, it is covered by the policy.
• Fire insurance is a contract whereby the person, seeking insurance protection, enters into a contract with the
insurer to indemnify him against loss of property by or incidental to fire or lightning, explosion and so on.
• The scope of fire insurance involves the following types of risks: the risks directly involved by fire, and the
risks indirectly involved.
• Scope of fire is classified into three categories namely: ordinary, special and comprehensive.
• The role of the fire insurance has been increasing day-by-day as a means against destruction or damage of
business property caused by fire.
References
• Goel, K., 2011. Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/2/
OBJECTIVES>. [Accessed 9 June 2011].
• Ten, 2009. Fire insurance [Online video] Available at: < http://www.youtube.com/watch?v=J8oPCmebnmc&
feature=related>. [Accessed 9 June 2011].
• Authorstream.com, 2011. Fire insurance [Online] Available at: < http://www.authorstream.com/Presentation/
niru.007-752229-fire-insurance/>. [Accessed 9 June 2011].
• Jpht197, 2009. The great fire of London [online video] Available at: < http://www.youtube.com/
watch?v=b7vXcYmKFDQ>. [Accessed 9 June 2011].
Recommended Reading
• Shepard, S., 2009. Be fire safe: how to avoid fire, reduce loss, and recover from insurance if you have a fire.
Ronin Publishing.
• Darrach, H., 2008. The standard fire insurance policy. BiblioLife.
• Ketcham, E., 2010. Fire Insurance; The Essentials of the Fire Insurance Business. General Books LLC.
8/JNU OLE
Self Assessment
1. What are consequential losses/risks also known as?

a. “Loss of value”
b. “Loss of money”
c. “Loss of profit”
d. “Loss of property”
2. Fire insurance policy is designed to insure one’s property and other items from loss occurring due to __________
damage by fire.
a. complete or partial
b. complete
c. partial
d. minor
3. Heating unaccompanied by __________ is not fire.

a. ignition
b. damage
c. pollution
d. noise
4. Which of the following statements if FALSE?

a. Fire can destroy property in goods and fixed assets of core of rupees or can create damages to the business
property.
b. The importance of foreign trade also has been very much for a developing country like India.
c. In the case of fire insurance, the occurrence of fire is accidental, and then only it is covered by the policy.
d. Lighting is fire.
5. The increasing uses of _____________like electricity, gas and other such items have increased the probability
of losses or damages to goods and property.
a. solar energy
b. energy petrol
c. petrol
d. natural energy
6. Which of the following statements is TRUE?

a. It is evident that in a dynamic state, all producers who are exposed to risk must accumulate such funds.
b. Fire produces heat and light but either of them alone is not fire.
c. The fire which is used for ordinary domestic purposes or even for manufacturing is fire as long as it is
confined within the usual or proper limits.
d. Fire Insurance indemnifies losses or damages done by fire to the resources thus, relieving the material
worries of businessmen.
9/JNU OLE
Fire Insurance
7. Almost all the insurable risks are included in the __________scope of fire insurance.
a. comprehensive
b. ordinary
c. consequential
d. special
8. The term insurance has been used in describing the fund accumulated to meet:
a. uncertain losses
b. property loss
c. goods loss
d. life loss
9. The scope of fire insurance can be understood from:

a. Section 3 of Indian Insurance Act, 1938
b. Section 2 of Indian Insurance Act, 1939
c. Section 4 of Indian Insurance Act, 1937
d. Section 2 of Indian Insurance Act, 1938
10. Fire insurance is an effective device to _________the risks in a group, enabling the individual or the institution
to maintain its efficiency.
a. maintain
b. distribute
c. detail
d. reduce
10/JNU OLE
Chapter II
Fire Insurance under Indian Insurance Law
Aim
• introduce the concept of insurable property
• elucidate the basic principles of fire law
• explain the laws governing fire insurance
Objectives
• define fire insurance contract
• discuss the examples of insurable property
• explain essential ingredients of fire insurance contract
Learning outcome
• understand risks covered under fire insurance policy
• enlist the characteristics of fire insurance contract
• discuss the risks not covered by fire insurance policy
11/JNU OLE
Fire Insurance
2.1 Basic Principles of Fire Law

The need for fire insurance arises out of three basic facts:
• The existence of material property susceptible to damage or destruction by fire or other peril
• The fact that material property has intrinsic value measurable in terms of money recognised by the economic
beliefs of society.
• The fact that the occurrence of a fire will result not only in loss of or damage to material property but also other
consequential losses such as loss of production causing loss of profits.
The function of fire insurance is to make good the financial loss suffered as a result of fire. It is not the function of
fire insurance to replace the economic loss termed ‘Fire waste’ rather, fire insurance effects the equitable distribution
of this waste among all those who are insured. Distribution among the insuring public is achieved by assessing the
sum which each should pay in the form of premium so that, in the aggregate, a fund or pool is created from which
the losses of the unfortunate few are compensated. Thus, the cost of replacement of property destroyed is transferred
from the individual to the mass of insured members.
Insurable property: The fire insurance policy is meant to cover erected fixed assets and moveable assets whilst
lying in a particular location and declared accordingly for insurance.
Examples of insurable property are:

• Buildings
• Electrical installations in buildings
• Contents of buildings such as, machinery, plant and equipment, accessories, and so on
• Goods (raw materials, stock in process, semi finished, finished, packing materials, etc). in factories, godowns
• Goods in the open
• Contents in dwellings, shops, hotels, and so on
• Furniture, fixtures and fittings
• Pipelines (including contents) located inside or outside the compound
The Fire Insurance contract may be defined as an agreement between the insurers and the insured whereby the
insurers having received premium, undertake to make good the financial loss, (subject to the limit of a specified
amount) suffered by the insured as a result of damage or destruction of the insured property by fire or other specified
perils, during a stated period.
2.2 Laws Governing Fire Insurance

There is no statutory enactment governing fire insurance, as in the case of marine insurance which is regulated by
the Indian Marine Insurance Act, 1963. The Indian Insurance Act, 1938 mainly dealt with regulation of insurance
business as such and not with any general or special principles of the law relating fire of other insurance contracts.
So is the General Insurance Business (Nationalization) Act, 1872, in the absence of any legislative enactment on the
subject , the courts in India have, in dealing with the topic of fire insurance, have relied so far on judicial decisions
of the courts and opinions of English jurists.
In determining the value of property damaged or destroyed by fire for the purpose of indemnity under a policy of
fire insurance, it was the value of the property to the insured, which was to be measured. Prima facie that value
was measured by reference of the market value of the property before and after the loss. However, such method of
assessment was not applicable in cases where the market value did not represent the real value of the property to
the insured, as where the property was used by the insured as a home or, for carrying business. In such cases, the
measure of indemnity was the cost of reinstatement. In the case of Lucas vs. New Zealand Insurance Co. Ltd., where
the insured property was purchased and held as an income-producing investment, and therefore the court held that
the proper measure of indemnity for damage to the property by fire was the cost of reinstatement.
12/JNU OLE
2.2.1 Fire Insurance Contract
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 on account of:
• ownership
• possession
• 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 insurable interest in the subject
matter:
• owner
• mortgage
• pawnee
• pawn broker
• official receiver or assignee in insolvency proceedings
• warehouse keeper in the goods of customer
• a person in lawful possession e.g. common carrier, wharfinger, commission agent
The term ‘fire’ is used in its popular and literal sense and means a fire which has ‘broken bounds’. ‘Fire’ which is
used for domestic or manufacturing purposes is not fire as long as it is confined within the usual limits. In the fire
insurance policy, ‘Fire’ means the production of light and heat by combustion or burning. Thus, fire, must result
from actual ignition and the resulting loss must be caused by such ignition. The phrase ‘loss or damage by fire’ also
includes the loss or damage caused by efforts to extinguish fire.
Fire insurance applies to insurance against loss of or damage to property arising from the peril of fire in any contract
made in the province except:
• Insurance falling within the classes of aircraft, automobile, boiler and machinery, inland transportation, marine,
plate glass, sprinkler leakage and theft insurance.
• Where the subject-matter of the insurance is rents, charges or loss of profits.
• Where the peril of fire is an incidental peril to the coverage provided.
• Where the subject matter of the insurance is property that is insured by an insurer or group of insurers primarily
as a nuclear risk under a policy covering against loss of or damage to the property resulting from nuclear reaction
or nuclear radiation and from other perils.
Statutory conditions
• Misrepresentation: If any person applying for insurance falsely describes the property to the prejudice of the
insurer, or misrepresents or fraudulently omits to communicate any circumstance which is material to be made
known to the insurer in order to enable the adjudgement of the risk to be undertaken, the contract shall be void
as to any property in relation to which the misrepresentation or omission is material.
13/JNU OLE
Fire Insurance
• Property of others: Unless otherwise specifically stated in the contract, the insurer is not liable for loss or
damage to property owned by any person other than the insured, unless the interest of the insured therein is
stated in the contract.
• Material change:
Any change, material to the risk and within the control and knowledge of the insured, shall avoid the contract
as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local
agent; and the insurer when so notified may return the unearned portion, if any, of the premium paid and
cancel the contract, or may notify the insured in writing that, if he desires the contract to continue in force,
he must, within fifteen days of the receipt of the notice, pay to the insurer an additional premium; and in
default of such payment the contract shall no longer be in force and the insurer shall return the unearned
portion, if any, of the premium paid.
• Termination of contract:
This contract may be terminated by:
the insurer giving to the insured fifteen days notice of termination by registered mail, or five days written
notice of termination personally delivered;
the insured at any time on request.
2.2.2 Essential Ingredients of Fire Insurance Contract

The Fire Insurance contract must have the following essential ingredients in order to make it enforceable at law:
• Utmost Good Faith

In insurance contracts, the legal doctrine of utmost good faith applies. This casts on the insured the duty to disclose
all material facts which have a bearing on the insurance. A breach of this duty may make the contract void or voidable
depending upon the nature of the breach. The insured should give notice to the insurers if there are any material
alterations during the term of the policy. Hence, the duty of disclosure continues throughout the policy term.
The declaration clause in the proposal form will warrant the literal truth of the answers given in the form. Thus,
the common law duty of utmost good faith is converted into the contractual duty of utmost good faith and the
representations in the proposal form become warranties and have to be literally true. Where the premises are surveyed
by the insurers, they are deemed to be in possession of the material information concerning the risk and the insurer
cannot later penalise the insured for non-disclosure or misrepresentation. It is possible that after the inspection or
survey, the insured might carry out some changes in the risk. It is important that these changes are notified to the
insurer. The details of construction, occupation and communication need to be ascertained properly; if not, the rates
charged by the insurance company may not be correct.
The insured is expected to behave as if uninsured at all times and safeguard his property from all the perils that
are likely to affect the property. The insured is expected to salvage as much of the property as possible and ensure
proper fire fighting operations.
• Insurable Interest
The competency of a person to affect a contract of fire insurance is determined by his legal capacity to contract and
his legal pecuniary relationship to the property so that he would benefit by its safety or would suffer financial loss in
the event of loss/damage to the property. In fire insurance, persons who stand to gain financially from the safety of
a property or stand to lose financially by its destruction are said to have insurable interest on a property and thereby
can take an insurance policy. Examples of persons who can have insurable interest are as under:
Absolute ownership
A mortgagor as owner of the property can insure it for its full value but the mortgagee’s interest is limited
to the amount outstanding at the time of loss.
Insurable interest of a bank or financial institution that has advanced a loan is recognised by the Agreed
Bank Clause.
14/JNU OLE
In fire insurance, insurable interest should exist at the time of taking the policy, continue through its term
and should exist at the time of a loss.
Fire Insurance policies are personal contracts. Hence, if the property is sold or transferred, the policy is not
transferred automatically.
• Principle of Indemnity
The principle of indemnity is strictly adhered to in this branch of insurance. Though the reinstatement value policy
is a modification of this principle, it also seeks to maintain the principle of indemnity by stipulating that the sum
insured must represent the current new reinstatement/replacement value. In simple terms, the principle of indemnity
means putting the insured back to the same financial position he was in, before the occurrence of the loss. The person
is indemnified only to the extent of the loss; no profit or undue benefit is allowed.
• Reinstatement Value (RIV)

This is the value at which the damaged property can be reinstated or replaced by new property.
• Market Value
The term commonly refers to the amount at which property of the same age and conditions can be bought or sold. In
other words, it is the ‘Second-hand Value’. It is determined for insurance purposes, with reference to the present cost
of construction of a similar building after deducting from the cost, depreciation based on age, usage, maintenance,
and so on.
Similarly, for plant and machinery, market value for insurance purposes, is arrived at by deducting suitable depreciation
for age, usage, wear and tear and so on, from the current replacement cost. In all these cases, depreciation refers to
actual intrinsic, physical depreciation.
• Book Value
It is arrived at by applying depreciation on the original cost of the property. At some point of time, this value may be
nominal and not adequate for insurance purposes. Hence, this value should be ignored while fixing the sum insured.
The following are the basis on which sum insured is fixed.
Property Sum Insured
Building plant, Machinery and

Market value or reinstatement value
Accessories
Fixtures, furniture & fittings,

Market value
electrical installations
Market value, i.e., the cost at which the insured can purchase it in
Stocks: the market to replace the damaged raw material.
• raw material Market value, i.e., the cost of raw materials including the expenses
• semi finished goods (labour plus overheads) incurred up to the stage they have been
• finished goods processed.
Market value, i.e., the cost of raw material plus all the overheads
and labour expenses that have been incurred by the proposer till it
reaches the finished goods stage.
Table 2.1 Basis for fixing sum insured
15/JNU OLE
Fire Insurance
On the basis of the table above, the following points should be noted:
The sum insured is always to be fixed by the insured.
It is the limit of liability under the policy.
It is the amount on which the rate is applied to arrive at the premium under the policy
The sum insured should represent the actual value of the property.
• Subrogation
The principle of subrogation is a corollary of the principle of indemnity. If the loss suffered by the insured is
recoverable from third parties who are responsible for the loss, the insured’s rights of recovery are transferred or
subrogated to the insurers when they indemnify the loss.
• Contribution
The principle of contribution which is also a corollary of the principle of indemnity provides that if the same property
is insured under more than one policy, the insured cannot recover more than his loss; he can recover only a rateable
proportion of the loss under each policy.
2.2.3 Risks Covered Under Fire Insurance Policy

The date of conclusion of a contract of insurance is issuance of the policy which is different from the acceptance
or assumption of risk. Section 64-VB only covers broadly that the insurer cannot assume risk, prior to the date of
receipt of premium. Rule 58 of the Insurance Rules, 1939 speaks about the advance payment of premiums in view
of sub section of Section 64 VB which enables the insurer to assume the risk from the date onwards. If the proposer
did not desire a particular date, it was possible for the proposer to negotiate with insurer about that term. Precisely,
therefore the Apex Court has said that final acceptance is that of the assured or the insurer depends simply on the
way in which negotiations for the insurance have progressed. Though, the following are risks which seem to have
been covered in the Fire Insurance Policy but are not totally covered under the policy. Some of contentious areas
are as follows:
• Fire: Destruction or damage to the property insured by its own fermentation, natural heating or spontaneous
combustion or its undergoing any heating or drying process cannot be treated as damage due to fire. For example,
paints or chemicals in a factory undergoing heat treatment and are consequently damaged by fire is not covered.
Further, burning of property insured by order of any public authority is excluded from the scope of cover.
• Lightning: Lightning may result in fire damage or other types of damage, such as a roof broken by a falling
chimney struck by lightning or cracks in a building due to a lightning strike. Both, fire and other types of damages
caused by lightning are covered by the policy.
• Aircraft damage: The loss or damage to property (by fire or otherwise) directly caused by aircraft and other
aerial devices and/ or articles dropped there from is covered. However, destruction or damage resulting from
pressure waves caused by aircraft travelling at supersonic speed is excluded from the scope of the policy.
• Riots, strikes, malicious and terrorism damages: The act of any person taking part along with others in any
disturbance of public peace (other than war, invasion, mutiny, civil commotion etc.) is construed to be a riot,
strike or a terrorist activity. Unlawful action would not be covered under the policy.
• Storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation: Storm, cyclone, typhoon,
tempest, tornado and hurricane are all various types of violent natural disturbances that are accompanied by
thunder or strong winds or heavy rainfall. Flood or inundation occurs when the water rises to an abnormal level.
Flood or inundation should not only be understood in the common sense of the terms, i.e., flood in river or lakes,
but also accumulation of water due to choked drains would be deemed to be flood.
16/JNU OLE
• Impact damage: Impact by any rail/ road vehicle or animal by direct contact with the insured property is
covered. However, such vehicles or animals should not belong to or be owned by the insured or any occupier
of the premises or their employees while acting in the course of their employment.
• Subsidence and landslide including rockslide: Destruction or damage caused by subsidence of part of the
site on which the property stands or landslide/rockslide is covered. While subsidence means sinking of land or
building to a lower level, Landslide means sliding down of land usually on a hill.
• Bursting and/or overflowing of water tanks, apparatus and pipes: Loss or damage to property by water or
otherwise on account of bursting or accidental overflowing of water tanks, apparatus and pipes is covered.
• Missile testing operations: Destruction or damage, due to impact or otherwise from trajectory/ projectiles in
connection with missile testing operations by the insured or anyone else, is covered.
• Leakage from automatic sprinkler installations: Damage, caused by water accidentally discharged or leaked
out from automatic sprinkler installations in the insured’s premises, is covered. However, such destruction or
damage caused by repairs or alterations to the buildings or premises; repairs removal or extension of the sprinkler
installation; and defects in construction known to the insured, are not covered.
• Bush fire: This covers damage caused by burning, whether accidental or otherwise, of bush and jungles and
the clearing of lands by fire, but excludes destruction or damage, caused by forest fire.
2.2.4 Risks Not Covered by Fire Insurance Policy

Claims not maintainable/covered under this policy are as follows:
• Theft during or after the occurrence of any insured risks
• War or nuclear perils
• Electrical breakdowns
• Ordered burning by a public authority
• Subterranean fire
• Loss or damage to bullion, precious stones, curios (value more than Rs.10,000), plans, drawings, money,
securities, cheque books, computer records except if they are categorically included
• Loss or damage to property moved to a different location (except machinery and equipment for cleaning, repairs
or renovation for more than 60 days)
2.3 Characteristics of Fire Insurance Contract

• It is a means of security against risk of fire on any material or property.
• It is an indemnity contract.
• The insurer undertakes to indemnity the insured against actual loss subject to the maximum limit of sum
insured.
• It is a contract of utmost good faith, the insurer and the insured must disclose all material facts relating to the
subject matter of insurance.
• A fire insurance policy is usually issued for one year only with the option to the parties to renew it for a further
period on payment of stipulated premium.
• If the property is insured with more than one insurer and on loss by fire, all the insurers are called upon to
contribute towards the claim.
• The insurer is not liable for payment of the claim, if the fire is caused deliberately.
• In British law, the fire insurance policies can be assigned only with prior permission of the insurer, but under
17/JNU OLE
Fire Insurance
Indian law, the consent of the insurer is not necessary to make a valid assignment of policy, only a notice of
information is sufficient.
• On occurrence of fire, a notice of fire should be given to the insurer so that the insurer may take prompt steps
going ahead to safeguard his interests, in dealing with salvage and also, judge the cause and nature of the fire,
and the extent of the loss.
• It is the duty of the insured to act as a man of ordinary prudence to take necessary steps to save the property
from loss of fire, as in the absence of any insurance against the property.
• Sometimes, the insurer issues a ‘Cover Note’ or ‘Interim Policy’ to the insured. In the case of loss by fire before
the Absolute Policy is issued, the claim is paid in view of ‘Cover Note’.
• The risk commences as soon as the insurer accepts the proposal, but the insurer has the right to fix the date of
commencement of risk at a future date also.
• The rate of premium varies according to the degree of hazard or risk involved.
• It is becoming very common in fire insurance policies to insert a condition called the ‘average clause’ by which
the insured is called upon to bear a portion of the loss himself. The condition is called the pro-rata condition
of average.
• The insured must have insurable interest in the subject matter both at the time of affecting the policy and at the
time of the loss.
• The word fire refers to ‘loss by fire’.
• In consequential loss policy, the insured is indemnified for the loss of profits which he sustains through interruption
or cessation of his business as a result of fire.
• Should the loss by fire be more than once, then the indemnity can be claimed. However, the total claim shall
not be more than the sum assured.
• Fire Insurance is also based upon certain principles, viz, insurable interest, utmost good faith and principle of
indemnity etc.
• Fire insurance is different from life insurance and marine insurance. It is indemnity insurance where as life
insurance involves the elements of security and investment. In marine insurance, insurable interest must be
present at time of loss, but in fire insurance, insurable interest must be present at the time of affecting the policy
as well as at the time of loss.
18/JNU OLE
Summary
• The function of fire insurance is to make good the financial loss suffered as a result of fire.
• Distribution among the insuring public is achieved by assessing the sum which each should pay in the form of
premium so that, in the aggregate, a fund or pool is created from which the losses of the unfortunate few are
compensated.
• The fire insurance policy is meant to cover erected fixed assets and moveable assets whilst lying in a particular
location and declared accordingly for insurance.
• Examples of insurable property are: buildings, electrical installations in buildings, goods in open and so on.
• The fire insurance contract may be defined as an agreement between the insurers and the insured whereby the
insurers having received premium, undertake to make good the financial loss, (subject to the limit of a specified
amount) suffered by the insured as a result of damage or destruction of the insured property by fire or other
specified perils, during a stipulated period.
• There is no statutory enactment governing fire insurance, as in the case of marine insurance which is regulated
by the Indian Marine Insurance Act, 1963.
• The essential ingredients of fire insurance contract are: utmost good faith, insurable interest, principle of
Indemnity, reinstatement value (RIV), market value, book value, subrogation, and contribution
• The date of conclusion of a contract of insurance is issuance of the policy which is different from the acceptance
or assumption of risk.
• Risks covered under fire insurance policy are: fire, aircraft damage, riots, strikes, malicious and terrorism damages,
storm, cyclone, typhoon, tempest, hurricane, tornado, flood and inundation, impact damage, subsidence and
landslide including rockslide, bursting and/or overflowing of water tanks, apparatus and pipes, missile testing
operations, leakage from automatic sprinkler installations, and bush fire.
• Risks not covered by fire insurance policy are: theft during or after the occurrence of any insured risks, war or
nuclear perils, electrical breakdowns, ordered burning by a public authority, subterranean fire and so on.
• Characteristics of fire insurance contract means security against risk of fire on any material or property.
References
• Zandramari, 2010. Essentials of Fire Insurance Contract [online video] Available at:<http://www.youtube.com/
watch?v=Plqsw1u85U4>. [Accessed 9 June 2011]
• NPCCAR, 2008. 20-C, Fire Insurance, Cancellation [Online video] Available at: < http://www.youtube.com/
watch?v=ZG8iwifGsbE>. [Accessed 9 June 2011]
• Rutter & Russin, 2000. Fire Insurance Law [Online] Available at: <http://library.findlaw.com/2000/Oct/1/127239.
html>. [Accessed 9 June 2011]
• Balaji, T., 2010. Fire insurance of the Indian Act insurance [Online] Available at: <http://policybazaarinsurance.
blogspot.com/2010/12/fire-insurance-of-indian-act-insurance.html>. [Accessed 9 June 2011]
Recommended Reading
• Insurance Society of New York, 2010. The fire insurance contract: its history and interpretation. Nabu Press.
• Kitchin, F., 1904. The principles and finance of fire insurance. E. Wilson.
• Riegel, R., 1947. Fire insurance; from insurance principles and practices. 3rd ed., Prentice-Hall.
19/JNU OLE
Fire Insurance
Self Assessment
1. Flood or Inundation occurs when the water rises to an ___________ level.

a. abnormal
b. high
c. low
d. maximum
2. The function of fire insurance is to make up for ________ loss suffered as a result of fire.
a. material
b. physical
c. financial
d. economic
3. Which of the following statements is FALSE?

a. Fire insurance is same as life insurance and marine insurance.
b. The rate of premium varies according to the degree of hazard or risk involved
c. In insurance contracts, the legal doctrine of utmost good faith applies.
d. The declaration clause in the proposal form will warrant the literal truth of the answers given in the form.
4. What is the principle of subrogation a corollary of?

a. Principle of faith
b. Principle of identity
c. Principle of insurance
d. Principle of indemnity
5. Which of the following is arrived at by applying depreciation on the original cost of the property?
a. Market value
b. Book value
c. Reinstatement value
d. Contribution
6. Which of the following statement is TRUE?

a. A fire insurance policy is usually issued for whole life with the option to the parties to renew it for a further
period on payment of stipulated premium.
b. If the property is insured with more than one insurer and on loss by fire, all the insurers are called upon to
contribute towards the claim.
c. The insurer is liable for payment of the claim if the fire is caused deliberately.
d. If the loss by fire is more than once, the indemnity cannot be claimed.
7. The insurer undertakes to indemnity the insured against actual loss subject to the _________ limit of sum
insured.
a. minimum
b. given
c. maximum
d. depreciation
20/JNU OLE
8. Fire insurance policies are __________contracts.
a. personal
b. professional
c. mutual
d. original
9. The date of conclusion of a contract of insurance is issuance of the policy which is different from the:
a. acceptance or assurance of risk
b. acceptance or assumption of risk
c. application or assumption of risk
d. acceptance or development of risk
10. The rate of _________varies according to the degree of hazard or risk involved.
a. interest
b. risk
c. premium
d. depreciation
21/JNU OLE
Fire Insurance
Chapter III
Types of Fire Policies
Aim
• explain the important types of fire policies
• highlight the features of fire policies
• discuss the appropriateness of specific fire policies in specified circumstances
Objectives
• explain the nature and need of different types of fire policies
• discuss the factors and clauses involved in specific fire policy
• evaluate the types of fire policies
Learning outcome
• understand the conceptual basis of each type of fire insurance policy
• comprehend important terms and method involved in calculating the measure of indemnity and the sum
insured
• recognise the significance of each of the fire policies
22/JNU OLE
3.1 Introduction
Throughout history, protecting commercial structures from fire has been important. Fire poses risk in terms of safety
to occupants, building integrity, business interruption and the economic health of a community. Consequently there
is a great deal of fire insurance policies designated to cater the needs of the insured. Insurance companies have issued
different types of fire insurance policies to satisfy the insured in this competitive market of insurance. Different
types of risk are included in different types of fire insurance policies to satisfy the insured party.
3.2 Types of Fire Insurance Policies

The important fire policies are discussed below.
3.2.1 Valued Policy

• Valued policy (fire insurance) requires insurance companies to pay to the insured, in case of total loss, the full
amount of the insurance, regardless of the actual value of the property at the time of the loss. It is a departure
from the contract of indemnity and violates this principle.
• Under valued policy, the insured can agree to pay a certain fixed amount agreed to the time the policy is taken.
The insurer has to pay the specified amount irrespective of market or current value of the insured property at
the time of loss.
• Thus, in a valued policy, the company especially contracts to treat the sum insured as the value of the property in
case of a loss. The sum insured is only that amount beyond which the company cannot be called upon to pay.
• The insured is benefited when the market value of the property declines, but suffers loss when the market value
appreciates. It is not frequently issued or used due to this reason.
• It may be issued only on artistic work, antiques and similar rare articles whose value cannot be determined
easily.
• It should further be observed that in exceptional cases where the value of property is essentially a matter for
an expert’s opinion, the insurer may be prepared at the time of entering into the contract to undertake that an
agreed value shall be payable in the event of a total loss.
• It was recognised in Irving vs. Manning (1847), i H.L., Case 287, that under a valued policy the insured might
conceivably obtain more than an indemnity, and such insurance is not a perfect contract of indemnity.
• Whenever the insured desires to have a valuation named in his policy insuring any building or structure against
fire, he may require such building or structure to be examined by the insurer and the value of the insured’s
interest therein shall be fixed at that time by the parties.
Measure of Indemnity
• If an insured under a valued policy sustains a total loss, he can, in the absence of fraud or mistake, claim the
sum insured.
• For a partial loss, however, he must claim the actual amount of the damage sustained, subject to the sum insured
not being exceeded.
Features of valued policy

The following are the features of the valued policy:
• Valuation of property is made at the time of affecting policy.
• The amount of claim is not related to the actual loss caused by the fire.
• The insured is benefited when the market value of property declines but suffers loss when market value
appreciates.
• It becomes easier to evaluate loss at the time of the fire.
23/JNU OLE
Fire Insurance
Advantages and disadvantages of valued policy
Advantages Disadvantages
There can be no dispute in determining the The insured suffers loss where value of
indemnity amount as insurer has agreed to insured property appreciates at time of
pay a specific amount irrespective of loss. indemnity.
Insured need not suffer loss in case of
This policy violates principle of indemnity
decline in value of insured property.
The insurer need not pay more even if
value of property appreciates. Insurer suffers loss in case market value of
property declines.
The insured is certain about receipt of a
fixed amount.
Table 3.1 Advantages and disadvantages of valued policy
3.2.2 Specific Policy

• It is a policy which covers the loss to a definite amount which is specified in the policy. The actual value of
property is not taken into consideration while determining the amount of indemnity.
• The insurer is liable to pay a set amount lesser than the property’s real value. The average clause, which requires
the insured to bear the loss to some extent, does not play a role in this policy.
• In case the insurer inserts the clause, the policy will be known as an average policy.
Features of specific policy

• This policy is insured for a specific fixed sum.
• In case of loss by fire, the insurer is liable to the extent of this specific sum.
• The policy sum is usually less than the actual value of the property.
3.2.3 Average Policy

• Under a fire insurance policy containing the ‘average clause’ the insured is liable for such proportion of the loss
as the value of the uncovered property bears to the whole property.
For example, if a person gets his house insured for Rs. 4,00,000 though its actual value is Rs.6,00,000, if a
part of the house is damaged in fire and the insured suffers a loss of Rs. 3,00,000, the amount of compensation
to be paid by the insurer comes out to Rs. 2,00,000 calculated as follows:
Amount of claim =

=

= 2, 00, 000
• Whenever a sum insured is declared to be subject to average, if the property covered by it shall at the time of
breaking of fire be of greater cost than the sum insured then the insured person will be considered the insurer
for the difference and will have to bear out the loss by him only.
• If a policy is subject to average, the full amount of the loss will not be payable if the property has been left
partially uninsured even if the loss may be less than the sum insured by the policy.
24/JNU OLE
• In an average case only the particular proportion of the loss which the insurance bears to the value of the property
is payable. This rule applies whether the loss is large or small and whether within the amount of the policy or
exceeding it.
• If the full value of the property is insured, a policy subject to average has the same position towards a loss that
a policy does which is not subject to average. Any loss would be recoverable in totality up to the amount of
policy.
• The proportion an insured sum which is subject to average corresponds to the value of all the property
encompassed there under is the proportion which represents any part of that value.
• The contribution to a loss occurring in any part of the alleged property will be determined by this proportion
of the whole property. The influential factor of the value of all the property protected by an insured sum being
brought into consideration provides an adequate and reasonable method of apportioning the insurance amongst
any of the component parts of the said value.
• The second condition of average states that whenever the circumstances named therein are present, a primary
liability for the loss shall be attached to insurance.
• The enforcing circumstances come into play whenever the insurance provides protection of primary import to
a part only of the property to which insurance relates, and in the second place no property other than such part.
The insurance first mentioned would be the more specific one.
Features of average policy

The features of average policy are as follows:
• This policy contains average clause.
• The sum insured under his property shall be lesser than market value of property insured.
• The insurer shall be liable to compensate the loss in proportion of policy amount with market value of subject
matter when event took place.
• The insured is benefited where market value of property declines.
• The insurer gets more benefits under this policy. The insured is bound to make payment of claim on proportion
to the value of property.
3.2.4 Floating Property Policy

• A floating property policy is that which covers the fluctuating stocks of goods held in different lots for one
premium.
• The floating policy is ideally suited for businessman’s whose goods are lying in different locations as with each
transaction the quantity of goods kept at different place varies which makes it difficult for the owner to take a
policy for a specific amount.
• It is a policy which covers loss by fire caused to property belonging to the same person but located at different
places under a single sum and for one premium.
3.2.5 Replacement or Re-instatement Policy

• It is a policy in which the insurer inserts a re-instatement clause, whereby he undertakes to pay the cost of
replacement of the property damaged or destroyed by fire. Thus, he may re-instate or replace the property
instead of paying cash.
• In such a policy, the insurer has to select one of the two alternatives, i.e., either to pay cash or to replace the
property, and afterwards he cannot change to the other option.
• The company may, at their option, reinstate or replace the property damaged or destroyed, or any part thereof,
due to fire instead of paying the amount of the loss or damage in money or collaborate with other insures inv
doing so.
• Reinstatement is deemed to be effected when it is reasonably practicable and adequate taking into consideration
the fact that the former appearance and condition of the property may not be precisely restored.
25/JNU OLE
Fire Insurance
• If the company elect to reinstate or replace, the Insured shall have to provide them, when required, all such
plans and information as may be deemed necessary or convenient for the purpose.
• The option possessed by the company under this condition, of reinstating instead of paying in money, is one
the exercise of which lies entirely within their own discretion. They can consider exercising it or not. They are
not bound to reinstate, but may decide on consideration to perform reinstatement.
• At present reinstatement is very rarely resorted to as it involves several complications for example the cost of
reinstatement may prove to exceed such sum as payment of the loss in money would have amounted to.
• Another problem is that the reinstatement of movable property is unlike that of buildings as there are obvious
limits to replacing the goods destroyed for example some descriptions of movable property again are absolutely
irreplaceable, such as manuscripts, rare books, antique furniture and works of art.
• It is worth noting that with regard to movable property the company are not bound to reinstate upon the actual
scene of the fire if prevented by good reason from so doing. For instance, it may perhaps be that the setting of
machinery upon the premises where the fire occurred may not be possible but the company could claim to be
fulfilling their contract by proposing to set it up upon alternative premises that are suitable for the Insured’s
trade.
Features of reinstatement policy

The features of reinstatement policy are as follows:
• The market value of the insured policy is not calculated for indemnity, only value of replacement is
ascertained.
• In repairing the burned property the insurer tries to ensure that no significant change in size and value of the
insured property is made and the property is restored to a reasonable extent.
• It entails moral issues which necessitates that it is issued only to reputable companies.
Advantages and disadvantages of reinstatement policy
The insured has the advantage of Insurer has to expend more in
having the property of the same firm by replacement of damaged property.
replacement as it was time of insurance.
Due to uncontrolled rise in prices the
insurer frequently may find it difficult
The insured does not bear the increase in to estimate the amount of indemnity
prices at time of replacement correctly.
The insured has to pay higher rate of
premium.
Table 3.2 Advantages and disadvantages of reinstatement policy
3.2.6 Consequential Loss Policy

• Consequential loss (fire) insurance policy is complimentary to the traditional standard fire and specials perils
policy. This policy can be taken only in conjunction with fire policy or machinery breakdown policy.
• This policy is also known as business interruption policy or loss of profit policy. Test. The Fire Consequential
Loss Policy can be extended to cover loss of profit to the insured due to:
Accidental failure of public electricity/gas/water supply.
Damage to customer’s premises due to perils covered under Fire Policy.
Damage to Supplier’s premises due to perils covered under Fire Policy.
• Fire insurance, in its ordinary capacity, being strictly a contract of indemnity against direct loss or damage to
26/JNU OLE
the property actually affected by the fire, requires all loss of an indirect or consequential character to be made
the subject of a special policy.
• Such consequential loss comprises rent, rates, fixed charges such as debenture or other interest, salaries, and
all other outgoings which may continue notwithstanding the fire, whilst to these may be added loss of profits.
Thus, the subject matter of consequential loss insurance is the business of the insured, i.e., the earning capacity
of the property.
• If a major loss caused by fire occurs, it will possibly lead to an interruption in business operation which results
in reduction in turnover which ultimately causes loss of profits. However, standing or fixed charges continue to
accrue regardless of whether there is any production or not.
• Such loss cannot be covered under fire policy. Consequential loss policy compensates for the revenue loss suffered
by the enterprise in such case. Hence, consequential loss policy is very essential in addition to fire insurance
policy for providing complete protection to the business enterprise and its profitability.
Systems of covering the loss

• There are several systems in force for recovering this indirect loss, all of which are based upon and have a
condition precedent to liability hereunder namely a direct loss payment being or about to be made.
• The policy covering the indirect loss is dependent upon the policy covering direct loss and its stipulations are
influenced by the policy covering direct loss in that any liability cannot be claimed under the former if it does
not come into the purview of the latter.
• The two are interlinked and interdependent when the question of liability arises but if the question of liability
is undisputed the settlement of the same may proceed separately.
• The amount of indirect loss payable may also be based upon decreased output as the result of the fire. The sum
insured against indirect loss represents the profit, after all expenses upon the standard output over a certain
period, both, the amount of the said output and the extent of the said period being named in the policy, usually
three or six months.
• According to the deficiency in output, the share payable of the sum is insured, but it is proportioned to the time
during which the deficiency may continue, until the full period named in the policy has been reached, a statement
being usually drawn up at monthly intervals.
• By another method, a sum is insured against consequential loss in respect of a certain fixed period and output,
and the payment is in proportion to the number of days the work may be stopped.
• The system which is probably more employed involves two sums being usually insured against consequential
loss of which one represents rent, rates and taxes, and salaries to permanent staff, and the other debenture or
other interest or loss of profits, over a definite period named in the policy, usually six months.
Scope of cover
• The policy broadly covers loss of net profit caused by interruption of business, resulting due to material damage
to property by fire or any other insured peril under the standard fire and special perils policy.
• It also covers the standing charges incurred in the period of interruption and cost of working which is necessary
within reasonable limits for continuing business at the normal level in order to avoid or minimise the loss of
net profit and standing charges.
• Where this system has been adopted, the sum insured against indirect loss constitutes a certain fixed percentage
of that insured against direct loss, usually ten or fifteen per cent., and the settlements automatically follow one
upon the other.
Sum insured
• The estimated gross profit for the indemnity period selected is calculated and the sum for that amount is
insured.
• The indemnity period is the maximum period commencing from the occurrence of damage for which the gross
profit loss is to be covered and it should also indicate the maximum period expected for restoration of the
27/JNU OLE
Fire Insurance
damaged property. The maximum indemnity period permissible under the policy is 3 years.
• Gross profit can be insured on one of the following basis:
Turnover basis
Output basis
Difference basis
Revenue basis
Premium
• Basis rate depends on fire and special perils rate. Final rate is affected by the Indemnity Period chosen.
• The gross profit is decided upon estimated basis at the beginning and is subject to declaration of the actual
figures after expiry of policy based on final audited accounts.
• The rate of premium for the LOP policy basically consists of two components:
Basic rate
Percentage for the indemnity period.
• In the system of rating, the basis adopted is the full average fire rate on the contents of the process blocks of the
premises which reflect the material hazards considered from the view point of the fire insurers, and variation
is made for the degree of the interruption hazard which is reflected in the length of the maximum indemnity
period selected by the insured.
Main extension
• Policy can be extended to suppliers’ and customers’ premises or public utilities, on which the business is
dependent and cost of auditors fees, necessary for submitting claim on insurer.
Definitions of terms
• Turnover: Turnover is the money paid or payable to insured for goods sold and delivered and for services
rendered in course of business at premises.
• Indemnity period: Indemnity period is the period commencing with date of damage during which business is
affected by damage but limited to number of months selected by insured and inserted.
• Standard turnover: As its name implies, standard turnover is the standard against which comparison is to be
made in order to ascertain the shortage in turnover during the period in 12 months immediately before date of
damage which corresponds with indemnity period.
• Gross profit: This is the net profit added to the amount of the insured standing charges. If there is no net profit,
the amount of the Insured Standing Charges less such a proportion of the net trading loss as the amount of the
Insured Standing Charges bears to all the Standing charges of the business, will be the basis of Indemnity.
• Rate of gross profit: Rate of gross profit is defined as that earned during the financial year immediately before
the date of the damage. However, with most businesses, either they are making progress or they are losing ground.
Provision must therefore be made to allow adjustments to the results of the previous completed financial year.
Such adjustment proviso is bracketed against the rate of gross profit, annual turnover, and standard turnover,
which three definitions cover all the essential factors in calculating the loss.
3.2.7 Comprehensive Policy

• This policy covers the risks of the fire that arise out of any cause that is civil commotion, lightening, riots, thefts,
labour disturbances and strikes etc. It is also known as ‘all insurance policy’.
• It is also known as ‘all insurance policy’. The major advantage of this policy to the insured is higher rate of
premium and protection against losses from various kinds of perils.
28/JNU OLE
3.2.8 Blanket Policy
• This policy is issued to cover all the fixed and current assets of an enterprise by insurance.
• Thus, the blanket insurance provides several types of coverage’s under one policy and so the blanket insurance
is recommended for insurers with both buildings and personal property, or with multiple premises, either at the
same or separate locations, or a combination of any of these.
• The blanket policy has a higher premium as more conditions are included than in standard, however is more
cost effective eventually.
3.2.9 Declaration Policy

• In this policy, trader takes out a policy for the maximum value of stock which may be expected to hold during
the year. During each month at a fixed date, the insured has to make a declaration concerning the actual value
of stock at risk on that date.
• This declaration forms a basis for calculating the average amount of stock at risk in the year and this amount
becomes the sum assured.
• This policy is taken for covering the stock where great fluctuations in the value can happen throughout the
contract period. The insured specifies the maximum liability of insurance company in the policy.
• At the time of affecting the policy it is estimated that how much of the goods are to be covered by risk during
the tenure of policy, it is estimated that how much of the goods are to be covered by risk during the tenure of
the policy.
• On the basis of this estimate insurance is affected on maximum value of goods. The insurer shall be liable to
this limit only.
• At beginning, the insurer charges 3/4th of the premium on basis of maximum value of stocks. Thereafter the
insured declares after certain time interval the value of his actual stock.
• In case of loss by fire indemnity is calculated on basis of value of goods declared by the insured in above
manner.
• On maturity of policy, the average value of stock is ascertained and on basis of this average, the premium money
is determined. In case average premium is more than initial premium charged, the excess is claimed from the
insured.
• On the other hand, the initial premium charged is more than average premium determined at maturity of policy,
the excess amount is returned to the insurer.
• 50% of initially paid premium is retained by the company. This way the insured is affected by the maximum
value of stock and payment of premium is made on average stock.
Features of declaration policy

• In declaration policy, stock value declared at time of affecting the policy remains as insured sum.
• It is essential to declare the stock of premium at certain fixed intervals.
• The premium is calculated at the end of every year.
• The money to be indemnified shall be the same which was declared at beginning.
• This type of policy is suitable for such traders; commission agents and sale representatives whose sales are
affected even without placing supply orders.
• The policy is also suitable for traders of seasonal goods, whose stocks may fluctuate according to seasonal
variations.
29/JNU OLE
Fire Insurance
Advantages and disadvantages of declaration policy
Since the initial premium is charged on

The premium rate is payable on basis of basis of estimated value of maximum stock
risk involved only. there is a heavy burden on insurer who has
to pay a huge amount as premium.
The excess amount paid towards initial The insurer has to bear the risk of
premium is returned to insured maximum stock, while charging premium
Since the insured is affected not less than for average stock only. The floating policy
Rs. 1 crore the insured is secured against is ideally suited for businessman’s whose
larger risks. goods are lying in different locations
Table 3.3 Advantages and disadvantages of declaration policy
30/JNU OLE
Summary
• In today’s competitive market of insurance there have been issued various fire policies by companies to satisfy
the needs of the clientele which cover different types of risks to satisfy the insured party.
• The principle types of fire policies are Valued Policy, Specific Policy, Average Policy, Floating Policy,
Reinstatement Policy, Consequential Loss Policy, Comprehensive Policy, Blanket Policy, and Declaration
Policy.
• The procedure of taking out of the fire policy, the sum insured and method of calculating measure of indemnity
varies according to the type of the fire policy.
• An average policy is one which contains the average clause. This clause required the insurance company to
pay only that portion of the loss which is borne by the insured amount to the actual value of the subject matter
of the insurance.
• Under the reinstatement policy insurance company pays more than the actual value of the property destroyed
by fire in order to cover the cost of replacement of the said property. It is also called as “Replacement Policy”.
This type of policy is not very common in these days.
• The reinstatement policy is issued to void the conflict of indemnity. In this policy, insurance company does not
indemnity the loss but it re-instates the insured property lost by fire.
• Consequential loss policy is issued to cover up the loss caused by fire or other consequential happenings. This
policy indemnifies the financial loss of the insured. It compensates both the direct and indirect losses which
have been incurred due to the fire.
• The insured should take up any specific type of fire policy according to his discretion keeping in view
his requirements and factors such as risk and cost of premium and measure of indemnity, advantages and
disadvantages of a particular policy.
References
• Taylor, H., 1949. Fire insurance law [pdf] Available at: <http://www.archive.org/download/
fireinsurancelaw032035mbp/fireinsurancelaw032035mbp.pdf>. [Accessed 15 June 2011].
• Fire insurance [Online] Available at: <http://business.gov.in/manage_business/fire_insurance.php> [Accessed
13 June 2011].
• Goel, K., 2011. Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/5/TYPES-
OF-FIRE-POLICIES> [Accessed 13 June 2011].
• Consequential-Loss [Online] Available at: <http://www.icicilombard.com/app/ilomen/Businessproducts/
Consequential-Loss.aspx>. [Accessed 13 June 2011].
Recommended Reading
• Darrach, H., 2008. The Standard Fire Insurance Policy, Pranava Books.
• Ketcham, E. Fire Insurance; the Essentials of the Fire Insurance Business. Nabu press.
• Rochie H., 2010. Fire Insurance Law: An Authoritative Analysis of the Standard Fire Insurance Policy, of Its
Legal Aspects, and of the Standard Forms. Nabu press.
31/JNU OLE
Fire Insurance
Self Assessment
1. ________________ requires insurance companies to pay to the insured, in case of total loss, the full amount of
the insurance, regardless of the actual value of the property at the time of the loss.
a. Valued-policy
b. Consequential loss policy
c. Declaration policy
d. Blanket policy
2. Which of the following is a policy that covers loss by fire caused to property belonging to the same person but
located at different places under a single sum and for one premium?
a. Average policy
b. Floating property policy
c. Comprehensive policy
d. Declaration policy
3. Consequential loss policy is also known as _______________.

a. business interruption policy
b. all purposes policy
c. floating property policy
d. specific policy
4. __________ is a policy which covers loss by fire caused to property belonging to the same person but located
at different places under a single sum and for one premium.
a. Floating policy
b. Standard policy
c. Loss of profit policy
d. Adjusting policy
5. In declaration policy insurer takes out a policy for the _________ value of stock which may be expected to
hold during the year.
a. maximum
b. minimum
c. appreciated
d. depreciated
6. In ________ policy, the insurer has to select one of the two alternatives, i.e., either to pay cash or to replace
the property.
a. reinstatement policy
b. comprehensive policy
c. valued policy
d. specified policy
32/JNU OLE
7. In order to discourage under- insurance, fire insurance policies often include a _________ clause.
a. exclusion
b. operational
c. nuclear exclusion
d. average
8. ____________ is not an example of standing charges insured under consequential loss (fire) policy.
a. Purchase cost of raw materials
b. Salaries to permanent staff
c. Insurance premium
d. Office and general establishment expenses
9. Which of the following statements is true?

a. The estimated gross profit for the indemnity period selected is calculated and the sum for that amount is
insured.
b. The maximum indemnity period permissible under the policy is 4 years.
c. The amount of indirect loss payable may also be based upon decreased output as the result of the fire.
d. A floating property policy is that which covers the fluctuating stocks of goods held in different lots for one
premium.
10. Match the following

1. Reinstatement A. The sum insured under this policy shall be lesser than market
policy value of property insured.
B. Covers all the fixed and current assets of an enterprise by

2. Declaration policy
insurance.
C. Insurance company pays more than the actual value of the

3. Average policy
property destroyed by fire.
4. Blanket policy D. The premium rate is payable on basis of risk involved only.
a. 1-C, 2-B, 3-D, 4-A
b. 1-A, 2-D, 3-B, 4-C
c. 1-C, 2-D, 3-A, 4-B
d. 1-B, 2-D, 3-A, 4-C
33/JNU OLE
Fire Insurance
Chapter IV
Fire Underwriting and Procedures
Aim
• explain the concept of fire underwriting
• discuss the tariff and non-tariff scenario
• describe the process of fire risk assessment
Objectives
• identify the steps in risk assessment process
• explain the fire detection and warning systems
• evaluate the fire fighting equipments and facilities
Learning outcome
At the end of the chapter, you will be able to:
• learn escape routes and emergency plans
• understand the fire rules and regulations
• comprehend fire regulations for educational institutions, building, industries and so on
• analyse the importance of fire safety training
34/JNU OLE
4.1 Introduction
Insurance underwriting is the process of choosing who and what the insurance company decides to insure. This is
based on a risk assessment. It is pretty much the “behind the scenes” work in an insurance company where they
determine who is insured and how much in insurance premiums they will charge the insured person. Insurance
underwriting also involves choosing who the insurance company will not insure. Underwriting in the insurance
industry refers to the process used by insurance companies to determine how much of your liability to accept. This
measure of risk helps insurance companies make coverage decisions.
Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that
risk. The function of the underwriter is to acquire—or to “write”—business that will make the insurance company
money and to protect the company’s book of business from risks that they feel will make a loss. In simple terms, it
is the process of issuing insurance policies.
Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or
not the company should accept the risk. The information used to evaluate the risk of an applicant for insurance will
depend on the type of coverage involved. For example, in underwriting automobile coverage, an individual’s driving
record is critical. As part of the underwriting process for life or health insurance, medical underwriting may be used
to examine the applicant’s health status (other factors may be considered as well, such as age and occupation).
Insurance is based on risk. As a result, it’s important for insurance companies to be able to use data and statistics to
accurately determine risk. Underwriting is the component of insurance that deals with assessing risk. Underwriting
is used to ensure that insurance companies charge the right amount for insurance coverage. If they charge too much,
they will lose customers to their competitors who charge less for coverage. On the other hand, if an insurance
company charges too little for coverage, they will eventually run out of money after paying for large claims. In
addition to helping insurance companies accurately set prices, underwriting is also used to aid in the detection and
prevention of fraud.
Illustration: Jane went to her insurance agent to get a car insurance policy. After she told the insurance agent
that she had driven without a license and insurance for 5 years and was in jail for reckless driving three times, the
insurance agent said that their insurance underwriting department would not insure her because they feel she is too
much of a risk.
4.2 Fire Insurance Underwriting

• Underwriting of fire and explosion risks insurers generally offer the protection against fire, explosion, lightening,
act of God perils like earthquake, flood, storm, inundation, riot, strike and malicious damage and so on, as a
single package cover.
• Some insurers used to offer terrorism also as a package of fire cover, however this practice has been discontinued
as an aftermath of 11/9.
• Terrorism risk is covered as a separate cover or add-on cover under fire insurance subject to the acceptance and
conditions of reinsurers.
• Similarly, spontaneous ignition/combustion that may occur in areas like coal stores can be covered as part of
the cover or as add on cover to the normal fire insurance.
Tariff Scenario
• Tariff scenario in some countries like India, fire insurance is tariff driven and tariff offers discounts on the basic
premium that has been fixed for the cement industry based on the past claim experience of the insurers and the
risk potential assessed by the regulatory authorities.
• In such conditions, discounts are offered for the good features like provision and maintenance of certified fire
protection systems, past claim experience and so on.
• Loading is done on the basic premium if the claim experience exceeds the limits specified in the tariff.
35/JNU OLE
Fire Insurance
• Though past claim experience can be related to the maintenance of the systems indirectly, there exists a limit
on the optimisation of the insurance through better maintenance practices. This is due to the element called
probability of occurrence.
• Generally, fire insurance depends on the factor of uncertainty and global insurance practice suggests that all
property needs to be covered for fire insurance.
• However, the optimisation can be done by means of opting for a higher voluntary deductible based on predictive
maintenance systems, under the fire insurance.
Non Tariff Scenario

• In mature insurance markets like Europe, the fire insurance is not driven by tariff. Also, countries such as China
and India, which are major cement producers, are moving out of the tariff regime.
• Fire insurance underwriting is driven by market conditions and individual merit of the corporate to be covered
under insurance. As the cement industry is capital intensive, none of the local insurers will choose to retain the
risk of any major cement company.
• As they prefer to go in for reinsurance considering the risk potential, the quote by the reinsurer plays a crucial
role. Reinsurers check the favourable and adverse features of the cement company concerned and their past
claim experience.
• The logic of selecting the higher voluntary deductible based on the maintenance practices is more relevant in
the open insurance market scenario.
• The loss potential of the critical equipment of cement industry due to explosion can be reviewed to decide on the
special maintenance practices in addition to the routine inspections that are carried out as part of maintenance
schedule.
4.3 Fire Risk Assessment

• A fire risk assessment is an organised and methodical look towards the premises, the activities carried on there
and the likelihood that a fire could start and cause harm to those in and around the premises.
• The aims of the fire risk assessment are to:
Identify the fire hazards.
Reduce the risk of those hazards causing harm to as low as reasonably practicable.
Decide what physical fire precautions and management arrangements are necessary to ensure the safety of
people in your premises if a fire does start.
• Therefore, while deciding what fire precautions and management arrangements are necessary which will need
to define hazard and risk.
Hazard: Anything that has the potential to cause harm.
Risk: The chance of harm occurring.
• If an organisation employs five or more people, or a premises are licensed or an alterations notice requiring
it is in force, then the significant findings of the fire risk assessment, the actions to be taken as a result of the
assessment and details of anyone especially at risk must be recorded and it will probably find it helpful to keep
a record of the significant findings of fire risk assessment.
4.3.1 Fire Risk Assessment Process

• A fire risk assessment will help to determine the chances of a fire starting and the dangers from fire that the
premises present for the people who use them and any person in the immediate vicinity.
• It is important to carry out fire risk assessment in a practical and systematic way. It must take the whole of the
premises into account, including outdoor locations and any rooms and areas that are rarely used. If the premises
is small it can be assess it as a whole.
• In some premises one may find it helpful to divide them into a series of assessment areas using natural boundaries,
for example, assembly spaces, process areas (such as cooking facilities in village halls), offices, stores, as well
36/JNU OLE
as corridors, stairways and external routes.
• If the premises are in a multi-use complex then the information on hazard and risk reduction will still be
applicable. However, any alterations to the use or structure of individual unit will need to take account of the
overall fire safety arrangements in the building.
• The premises may be simple, with few people present or with a limited degree of activity, but if it forms part of
a building with different occupancies, then the measures provided by other occupiers may have a direct effect
on the adequacy of the fire safety measures in your premises.
• Under health and safety law, it is necessary to carry out a risk assessment in respect of any work processes at
workplace and to take or observe appropriate special, technical or organisational measures.
• It is necessary to appoint one or more competent persons to carry out any of the preventive and protective
measures needed to comply with the order.
The steps in fire risk assessment are as follows:
STEP I
Identify fire hazards (identify sources of ignition, fuel , oxygen and so on)
STEP II
Identify people at risk (people in and around the premises, and people
especially at risk)
STEP III
Evaluate (Evaluate the risk of a fire occurring, risk to people from fire)
Remove, reduce (fire hazards, risk to people
Protect from risk (detection and warning, lightning, maintenance)
STEP IV
Record significant finding and action taken
Prepare an emergency plan
Inform and instruct relevant people; co-operate and co-ordinate with others
Provide training
STEP V
Keep assessment under review
Fig. 4.1 Steps in risk assessment
37/JNU OLE
Fire Insurance
4.4 Detailed Description of Fire Risk Assessment Process

Five steps in fire risk assessment process are explained in detail as shown below:
4.4.1 Step 1: Identify Fire Hazards

For a fire to start, three things are needed:
Sources of
ignition
Sources of Sources of
oxygen fuel
Identify
fire
hazards
Fig. 4.2 Identification of fire hazards
Source of ignition
One can identify the potential ignition sources in the premises by looking for possible sources of heat, which could
get hot enough to ignite material found in your premises. These sources could include:
• cooking equipment, hot ducting, flues and filters
• smokers’ material, e.g., cigarettes, matches and lighters
• electrical, gas or oil-fired heaters (fixed or portable), room heaters
• hot processes, e.g., welding by contractors
• faulty or misused electrical equipment
• light fittings and lighting equipment, e.g., halogen lamps or display lighting
• hot surfaces and obstruction of equipment ventilation
• central heating boilers
• naked flames, e.g., candles or gas or liquid-fuelled open-flame equipment
• flares, fireworks and pyrotechnics
• arson
Sources of fuel
Anything that burns is fuel for a fire. It is necessary to look for the things that will burn reasonably easily and are
in enough quantity to provide fuel for a fire or cause it to spread to another fuel source. Some of the most common
‘fuels’ found in small and medium places of assembly are:
• flammable liquid-based products, such as paints, varnishes, thinners and adhesives
• flammable liquids and solvents, such as alcohol (spirits), white spirit, methylated spirit, cooking oils and
disposable cigarette lighters
• flammable chemicals, such as certain cleaning products and photocopier chemicals
• flammable gases such as liquefied petroleum gas (LPG) and acetylene
38/JNU OLE
• displays and stands
• costumes, drapes and hangings, scenery and banners
• packaged foodstuffs
• packaging materials, stationery, advertising material and decorations
• plastics and rubber, such as video tapes, polyurethane foam-filled furniture and polystyrene-based display
materials and rubber or foam exercise mats
• upholstered seating and cushions, textiles and soft furnishings and clothing displays
• litter and waste products, particularly finely divided items such as shredded paper and wood shavings, off cuts
and dust accumulation amongst lubricated areas
• fireworks and pyrotechnics
Sources of Oxygen
• The main source of oxygen for a fire is in the air around us. In an enclosed building this is provided by the
ventilation system in use.
• Some chemicals (oxidising materials), which can provide a fire with additional oxygen and so help it burn. These
chemicals should be identified on their container (and control of substances hazardous to health data sheet,) by
the manufacturer or supplier who can advise as to their safe use and storage.
• Oxygen supplies from cylinder storage
• Pyrotechnics (fireworks) which contain oxidising materials and need to be treated with great care.
4.4.2 Step 2: Identify People at Risk

As part of fire risk assessment process, it is important to identify those who are at risk if there is a fire. To do this,
one need to identify where we have people working, either at permanent locations (such as workstations) or at
occasional locations around the premises and to consider who else may be at risk, such as worshippers, customers,
other users of the facilities, including visiting performance companies, visiting contractors and so on and where these
people are likely to be found. It is necessary to consider all the people who use the premises, but special attention
is required particularly to people who may be especially at risk such as:
• Yourself and your helpers if you are ‘managing’ the premises but are unfamiliar with the location, e.g., organisers
hiring the venue.
• Employees who work alone and/or in isolated areas, e.g., cleaners and security staff
• Unaccompanied children.
• People who are unfamiliar with the premises, e.g., visitors and customers.
• People with disabilities (including mobility impairment, or hearing or vision impairment and so on).
• People who may have some reason for not being able to leave the premises quickly, e.g., people in a state of
undress (e.g., swimmers or performers), elderly customers, pregnant women or parents with children.
• Sensory impaired due to alcohol, drugs or medication.
• Other people in the immediate vicinity of the premises.
4.4.3 Step 3: Evaluate, Remove, Reduce and Protect from Risk

The management of the premises and the way people use it will have an effect on the evaluation of risk. Management
may have the responsibility alone or there may be others, such as the building owners or managing agents, who
also might have responsibilities.
Evaluate the Risk

• Evaluate the risk of fire: the chances of a fire starting will be low if your premises have few ignition sources
and combustible materials are kept away from them.
39/JNU OLE
Fire Insurance
In general, fires start in one of three ways:

Accidentally, such as when smoking materials are not properly extinguished or when mobile heaters are
knocked over;
By act or omission, such as when electrical equipment is not properly maintained, or when waste is allowed
to accumulate near to a heat source; and
Deliberately, such as an arson attack involving setting fire to external rubbish bins placed too close to the
building.
• Evaluate the risk to people: to evaluate the risk to people in the premises, it is necessary to understand the
way fire can spread. Fire is spread by three methods:
Convection: Fire spread by convection is the most dangerous and causes the largest number of injuries
and deaths.
Conduction: Some materials, such as metal shutters and ducting, can absorb heat and transmit it to the next
room, where it can set fire to combustible items that are in contact with the heated material.
Radiation: Radiation heats the air in the same way as an electric bar heater heats a room.
It is essential that the means of escape and other fire precautions are adequate to ensure that everyone can make
their escape to a place of total safety before the fire and its effects can trap them in the building. In evaluating this
risk to people one will need to consider situations such as:
• Fire starting within an assembly space, such as a church hall, where many people could be affected.
• Fire starting on a lower floor affecting the only escape route for people on upper floors or the only escape route
for people with disabilities.
• Fire developing in an unoccupied space that people has to pass by to escape from the building.
• Fire or smoke spreading through a building via routes such as vertical shafts, service ducts, ventilation systems,
poorly installed, poorly maintained or damaged walls, partitions and ceilings affecting people in remote
areas.
• Fire spreading rapidly through the building because of combustible structural elements and/or large quantities
of combustible goods.
Remove or Reduce the Hazards

This is an essential part of fire risk assessment and as a priority this must take place before any other actions. Ensure
that any actions taken to remove or reduce fire hazards or risk are not substituted by other hazards or risks.
For example, if we replace a flammable substance with a toxic or corrosive one, we must consider whether this
might cause harm to people in other ways. There are various ways through which we can reduce the risk caused by
potential sources of ignition like:
• Wherever possible replace a potential source by a safer alternative.
• Replace naked flame and radiant heaters with fixed convector heaters or a central heating system. Fire guard
naked flames and restrict the movement of portable heating appliances.
• Restrict and control the use of naked flames, e.g., candles.
• Operate a safe smoking policy in designated smoking areas, ensuring sufficient ashtrays are provided and cleaned
appropriately and prohibit smoking elsewhere.
• Ensure that sources of heat are kept away from flammable materials such as curtains, scenery and displays.
Remove or Reduce Sources of Fuel

There are various ways to reduce the risks caused by materials and substances which burn, for example:
• Ensure that all upholstered furniture, curtains, drapes and other soft furnishings, are fire-retardant, or have been
treated with a proprietary fire-retardant treatment designed to enhance their fire performance.
• Ensure that display materials (including artificial and dried foliage), scenery and stands, are fire-retardant, or
40/JNU OLE
have been treated with a proprietary fire-retardant treatment designed to enhance their fire performance.
• Reduce stocks of flammable materials, liquids and gases on display in public areas to a minimum. Keep remaining
stock in dedicated storerooms or storage areas, preferably outside, where the public are not allowed to go and
keep the minimum required for the operation of the business.
• Ensure flammable materials, liquids and gases, are kept to a minimum and are stored properly with adequate
separation distances between them.
• Do not keep flammable solids, liquids and gases together.
Remove or Reduce Sources of Oxygen

The potential source of oxygen supplied to a fire can be reduced by:
• Closing all doors, windows and other openings not required for ventilation, particularly out of working hours.
• Shutting down ventilation systems which are not essential to the function of the premises.
• Not storing oxidising materials (including pyrotechnics and fireworks) near or with any heat source or flammable
materials.
• Controlling the use and storage of oxygen cylinders, ensuring that they are not leaking, are not used to ‘sweeten’
the atmosphere and that where they are located is adequately ventilated.
• Controlling the use and storage of pyrotechnics and fireworks.
Remove or Reduce the Risks to People

It is necessary to reduce any remaining fire risk to people to as low as reasonably practicable, by ensuring that
adequate fire precautions are in place to warn people in the event of fire and allow them to escape safely.
The level of fire protection we need to provide will depend on the level of risk that remains in the premises after
we have removed or reduced the hazards and risks.
Therefore, the objective should be to reduce the remaining risk to a level as low as reasonably practicable. The
higher the risk of fire and risk to life, the higher the standards of fire protection will need to be.
Fire Detection and Warning Systems

• In many premises a fire may be obvious to everyone as soon as it starts (e.g., in a simple open plan village
hall).
• In these cases, where the number and position of exits and the travel distance to them is adequate, a simple shout
of ‘fire’ or a simple manually operated device, such as a gong, whistle or air horn, fairly audible when operated
from any single point within the building, may be all that is needed.
• Organisers or staff will need a managed fire evacuation plan to do this. Where an alarm given from any single
point is unlikely to be heard throughout the building, an electrical system incorporating sounders and manually
operated call points (break-glass boxes) is likely to be required.\
• However, where there are unoccupied areas, or common corridors and circulation spaces in multi occupied
buildings, in which a fire could develop to the extent that escape routes could be affected before the fire is
discovered, an automatic fire detection system with a control panel which is able to identify the zone or specific
location where the alarm has been raised may be necessary.
• The control panel (or a repeater) should be located near the entrance to the premises. Arrangements should be
made to brief the fire and rescue service when they arrive.
Fire Fighting Equipment and Facilities

• Fire fighting equipment can reduce the risk of a small fire, e.g., a fire in a waste-paper bin, developing into a
large one.
• The safe use of an appropriate fire extinguisher to control a fire in its early stages can also significantly reduce
the risk to other people in the premises by allowing people to assist others who are at risk.
• This equipment will need to comprise enough portable extinguishers that must be suitable for the risk.
41/JNU OLE
Fire Insurance
• Some premises will also have permanently installed fire fighting equipment such as hose reels, for use by trained
staff or fire fighters.
• All staff should be familiar with the location and basic operating procedures for the equipment provided, in
case they need to use it.
• Other fixed installations and facilities to assist fire fighters, such as dry rising mains and access for fire engines,
or automatically operated, fixed fire suppression systems such as sprinklers and gas or foam flooding systems,
should also be provided.
Escape Routes
• Once a fire has started, been detected and a warning given, everyone in the premises should be able to escape
to a safe place unaided and without the help of the fire and rescue service.
• However, people with disabilities or with special needs may need help from staff who will need to be designated
for the purpose.
• Escape routes should be designed to ensure, as far as possible, that any person confronted by fire anywhere in
the building should be able to turn away from it and escape to a place of reasonable safety, e.g., a protected
stairway
• The level of fire protection that should be given to escape routes will vary depending on the level of risk of fire
within the premises and other related factors.
• When determining whether the premises have adequate escape routes, we need to consider a number of factors,
including:
the type and number of people using the premises
escape time
the age and construction of the premises
the number and complexity of escape routes and exits
assembly points
assisted means of escape/personal evacuation plans
whether lifts can or need to be used
the use of delayed alarms (staff alarms)
• Emergency escape lighting: People in the premises must be able to find their way to a safe place if there is a
fire by using escape routes that have enough lighting. Where any escape routes are internal and without windows
or the premises are used during periods of darkness, then some form of back-up to the normal escape route
lighting (emergency escape lighting) may be required.
• Signs and Notices
Signs: Signs must be used, where necessary, to help people identify escape routes, find fire fighting equipment
and emergency fire telephones.
A fire risk assessment that determines that no escape signs are required (because, for example, trained
staff will always be available to help persons to escape routes), is unlikely to be acceptable to an enforcing
authority other than in the smallest and simplest of premises where the exits are in regular use and familiar
to staff and guests (e.g., in a small village hall).
Where the locations of escape routes and fire fighting equipment are readily apparent and the fire fighting
equipment is visible at all times, then signs are not necessary. In all other situations it is likely that the fire
risk assessment will indicate that signs will be necessary.
Notices: Notices must be used, where necessary, to provide the following:
− Instructions on how to use any fire safety equipment.
− The actions to be taken in the event of fire.
− Help for the fire and rescue service (e.g., location of sprinkler valves or electrical cut-off switch-
es).
All signs and notices should be positioned so that they can be easily seen and understood.
42/JNU OLE
Installation, Testing and Maintenance
• New fire precautions should be installed by a competent person. Management must keep any existing equipment,
devices or facilities that are provided in premises for the safety of people, such as fire alarms, fire extinguishers
and lighting, signs, fire exits and fire doors, in working order and maintain separating elements designed to
prevent fire and smoke entering escape routes.
• The regular checks, periodic servicing and maintenance must be carried out whatever the size of the premises
and any defects are put right as quickly as possible.
• A person should be nominated, to carry out certain checks and routine maintenance work. Further maintenance
may need to be carried out by a competent service engineer.
• Where contractors are used, third party certification is one method where a reasonable assurance of quality of
work and competence can be achieved.
4.4.4 Step 4: Record, Plan, Inform, Instruct and Train

In this step there are further four elements of the risk assessment that one should focus on to address the management
of fire safety in the premises. In some premises with simple layouts this could be done as part of the day-to-day
management; however, as the premises or the organisation get larger it may be necessary for a formal structure and
written policy to be developed.
Record the Significant Findings and Action Taken

If an organisation employs five or more people, the premises are licensed, or an alterations notice requiring doing
so is in force, we must record the significant findings of the fire risk assessment and the actions we have taken.
Significant findings should include details of:
• The fire hazards we have identified.
• The actions we have taken or will take to remove or reduce the chance of a fire occurring.
• Persons who may be at risk, particularly those especially at risk.
• The actions we have taken or will take to reduce the risk to people from the spread of fire and smoke.
• The actions people need to take in case of fire including details of any persons nominated to carry out a particular
function.
• The information, instruction and training we have identified that people need and how it will be given.
The record could take the form of a simple list which may be supported by a simple plan of the premises. More
complex premises may need a more detailed record; however, there is no one ‘correct’ format specified for this.
Keeping records will help to do this and will also form the basis of the subsequent reviews.
The findings of fire risk assessment will help to develop the emergency plan, the instruction, information and training
need to provide, the co-operation and co-ordination arrangements which will need to have with other responsible
people and the arrangements for maintenance and testing of the fire precautions.
Emergency Plans
• It is necessary to have an emergency plan for dealing with a fire situation. The purpose of an emergency plan
is to ensure that the people in the premises know what to do if there is a fire and that the premises can be safely
evacuated.
• The emergency plan should be based on the outcome of the fire risk assessment and be available for the employees,
their representatives (where appointed) and the enforcing authority.
• In premises with simple layouts the emergency plan may be no more than a fire action notice.
• In multi-occupied and more complex premises the emergency plan will need to be more detailed and compiled
after consultation with other occupiers and other responsible people, e.g., owners, who have control over the
building.
• In most cases this means that an emergency plan covering the whole building will be necessary.
43/JNU OLE
Fire Insurance
Inform, Instruct, Co-operate and Co-ordinate

• The clear and relevant information and appropriate instructions must be given to the staff and the employers
of other people working in premises, such as contractors, about how to prevent fires and what they should do
if there is a fire.
• If there is a child employed, then it is must to inform the parents of the significant risks that are identified and
the precautions taken for it.
• There should be co-operation and co-ordination with other responsible people who use any part of the
premises.
Information and Instruction

All staff should be given information and instruction as soon as possible after they are appointed and
regularly after that.
This also includes staff who work outside normal working hours, such as contract cleaners or maintenance
staff.
All other relevant persons are given information about the fire safety arrangements. Information should be
available for the public, e.g., fire action notices.
The information and instructions too are mentioned in a form that can be used and understood. It takes into
account of those with disabilities such as hearing or sight impairment, those with learning difficulties and
those who do not use English as their first language.
The information and instruction given are based on emergency plan and includes:
− The significant findings from the fire risk assessment.
− The measures that we have put in place to reduce the risk.
− What should staff do if there is a fire?
− The identity of people we have nominated with responsibilities for fire safety.
− Any special arrangements for serious and imminent danger to persons from fire.
Information and instruction may simply involve an explanation of the fire procedures and how they are to
be applied. This should include showing staff the fire-protection arrangements, including the designated
escape routes, the location and operation
Of the fire-warning system and any other fire-safety equipment provided, such as fire extinguishers. Fire action
notices can complement this information and, where. Used, should be posted in prominent locations.
Co-operation and Co-ordination

In premises that are not multi-occupied we are likely to be solely responsible. However, in buildings owned
by someone else, or where there is more than one occupier and others are responsible for different parts of
the building, it is important that we coordinate with them and inform them of any significant risks that we
have identified.
By liaising we can co-ordinate the resources to ensure that our actions and working practices do not place
others at risk if there is a fire and a co-ordinated emergency plan operates effectively.
Where two or more responsible persons share premises in which an explosive atmosphere may occur, the
responsible person with overall responsibility for the premises must co-ordinate any measures necessary to
protect everyone from any risk that may arise.
Employees also have a responsibility to co-operate with their employer to help the employer comply with
any legal duty.
Fire Safety Training

• The organisation must provide adequate fire safety training for the staff. The type of training should be based
on the particular features of the premises and should:
Take account of the findings of the fire risk assessment.
Explain the emergency procedures.
44/JNU OLE
Take account of the work activity and explain the duties and responsibilities of staff.
Take place during normal working hours and be repeated periodically where appropriate.
Be easily understandable by the staff and other people who may be present.
Be tested by fire drills.
• In simple premises this may be no more than showing new staff the fire exits and giving basic training on what
to do if there is a fire.
• In most premises, in particular where there is a high staff turnover and many shift patterns, the organisation of
fire safety training will need to be more formal, e.g., by an induction course.
• Some of the staff may have received some fire safety training as part of a national accreditation scheme (e.g.,
door staff and stewards).
• The training should include the following:
What to do on discovering a fire?
How to raise the alarm and what happens then?
What to do upon hearing the fire alarm?
The procedures for alerting members of the public and visitors including, where appropriate, directing
them to exits.
The arrangements for calling the fire and rescue service.
The evacuation procedures for everyone (including the public and contractors) in the premises to reach an
assembly point at a place of total safety.
The location and, when appropriate, the use of fire fighting equipment.
The location of escape routes, especially those not in regular use.
How to open all emergency exit doors?
The importance of keeping fire doors closed to prevent the spread of fire, heat and smoke.
Where appropriate, how to stop machines and processes and isolate power supplies in the event of a fire?
The reason for not using lifts (except those specifically installed or nominated, following a suitable fire
risk assessment.
The safe use of and risks from storing or working with highly flammable and explosive substances.
The importance of general fire safety, which includes good housekeeping.
4.4.5 Step 5: Review

• It is necessary to constantly monitor what measures are taken to implement the fire risk assessment, to assess
how effectively the risk is being controlled.
• If their is any reason to suspect the fire risk assessment is no longer valid or there has been a significant change
in the premises that has affected fire precautions and it is necessary to review the assessment and if necessary,
revise it.
• Reasons for review could include:
Changes to work activities or the way that we organise them, including the introduction of new
equipment.
Alterations to the building, including the internal layout.
Substantial changes to furniture and fixings.
The introduction, change of use or increase in the storage of hazardous substances.
The failure of fire precautions, for example, fire-detection systems and alarm systems, life safety sprinklers
or ventilation systems.
Significant changes to displays or quantities of stock.
A significant increase in the number of people present.
The presence of people with some form of disability.
45/JNU OLE
Fire Insurance
• If a fire or ‘near miss’ occurs, this could indicate that the existing assessment may be inadequate and we should
carry out a re-assessment. It is good practice to identify the cause of any incident and then review and, if
necessary, revise our fire risk assessment in the light of this.
• The fire risk assessment is not a one-off procedure. It should be continually monitored to ensure that the existing
fire safety arrangements and risk assessment remain realistic.
• The assessment should be reviewed if there is a significant change in the occupancy, work activity, the materials
used or stored, when building work is proposed or when it is no longer thought to be valid, we must remember
to include a reminder to keep records and documentation relating to all aspects of fire safety.
Fire Regulations for Educational Institutions

All educational institutions have to follow the fire safety measures irrespective of the building height. The existing
institutions should also have minimum fire safety devices as specified by the Delhi Fire Services Department. Some
of the requirements are as follows:
• For Ground Floor: One overhead water storage tank of 5000 litres shall be provided exclusively for feeding
water to the sprinkler system
• For Ground + Two Floors:
An overhead water tank having 2500 litres capacity (5000litres capacity in case of sprinkler system and /
or down comer system) shall be provided exclusively for fire fighting system.
If the total covered area is more than 5000 sq. m and up to 10,000 m2, an additional underground water
storage tank of 25000 litres capacity shall be provided. If the total covered area exceeds 10,000 m2, the
capacity shall be 50000 litres.
Fire Precautions in Buildings

The following are some of the precautions that have to be followed to prevent fire hazard, in high rise, industries,
temporary structures and in any buildings:
• Do not allow encroachments or storages in the courtyards of the building.
• Do not allow storages or obstructions in the common corridors, staircases and electric meter rooms.
• Do not allow the fire doors of the staircases to be kept open.
• In case of fire, do not use lifts for escape.
• Do not use the basement for any purpose other than permitted purpose.
• Seal the electrical ducts at each floor slab level.
• The A.C. ducts should not pass through one floor to another, sectionalise them.
• Never paint or coat fire detectors or sprinkler heads.
• Do not decorate walls and ceilings of common corridors with combustible material such as wooden panelling
etc.
• Do not allow fire fighting tanks to be misused or remain empty.
• Do not ‘switch off’ fire/smoke detection system.
• Do not carry out additions and alteration in the building.
• Acquaint yourself with the layout of the escape routes, staircases, refuge areas and the location of fire alarms.
• Always keep the doors of fire staircases closed.
• All the fire protection installations should be kept in a good state
• Ground all the lifts, including fire lift, in case of a fire.
Fire Precautions in High Rise Buildings

• All receptacles for waste should be emptied at regular intervals.
• Faulty electrical appliances should be repaired/ replaced immediately.
• Switches and fuses should conform to correct rating of circuit.
46/JNU OLE
• Welding /cutting jobs should be carried out under strict supervision.
• Keep smoke/fire check doors closed.
• Keep means of escape clear of obstructions.
• Fire Rescue drills should be carried out at regular intervals.
• Impart elementary fire fighting training to occupants.
• Don’t plug too many electrical appliances in one socket.
• Don’t paint fire detector/sprinkler heads.
Fire Precautions for Temporary Structures/Pandals

• The height of the ceiling of the pandal should not be less than 3 metres.
• The margins of at least 3 metres should be kept on all sides-away from any pre existing walls or buildings.
• Structure should be erected reasonably away from railway lines, electric substations, live electric line, furnaces
or other hazardous places and a minimum distance of 15 metres should be maintained.
• Exits on all sides of the pandal shall be kept sufficiently wide (minimum 1.5 metres).
• Kitchen must be segregated by providing separation walls of non combustible material (G.I. Sheets) from the
remaining area of the temporary structure.
Fire Precautions in Industries

• Store flammable liquids gases, solvents, chemicals in stable racks, correctly labelled.
• Keep chemicals in cool and dry place away from heat.
• Where hazardous chemicals are used/ stored, ensure adequate ventilation and prohibit smoking.
• Use fuses and circuit breakers of correct capacity.
• Before welding operation, all traces of flammable material must be removed to a safe distance.
• Welding/hot work should be carried out under proper fire watch.
• Keep all machinery clean and lubricate it to avoid friction and overheating.
• Regular fire drills should be carried out.
• Don’t place obstruction in means of escape.
• Don’t use damaged cords and avoid temporary connections.
Fire Rules and Regulations

• All metro cities in India has fire regulations and norms and it is mandatory to get No Objection Certificate (NOC)
for buildings and Delhi has the most comprehensive fire regulations of all cities.
• The following are some of the regulations under the “Delhi Fire Prevention and Fire Safety Act, 1986” to prevent
and minimize the effect of fire hazard.
• The table gives the details of the minimum fire safety requirements for various types of buildings.
47/JNU OLE
Fire Insurance
Type of Building Occupancy Requirements
Apartment building below 15 m height irrespective of floor area Nil
Wet risers and (or) Down

Apartment building exceeding 15 m in height
comer
Non-Apartment building 15 m and above in height irrespective of Wet risers and (or) Down
floor area comers
All basements, sub - basements having special risks like storage of High pressure water spray
hazardous explosive material in a building 15m and above or foam
Table 4.1 Fire safety requirements for various building type and heights
Fire Regulations for Restaurants

All restaurants with seating capacity of 50 persons and more have to follow the fire safety measures irrespective of
the building height. The existing restaurants should also have minimum fire safety devices as specified by the Delhi
Fire Services Department. Some of the requirements are as follows:
• An underground water tank of 50000 litres capacity.
• A terrace water tank of 5000 litres capacity for hose reel & 10000 litres capacity if sprinkler is not provided.
• If the covered area is more than 1500 sq.m or seating capacity is more than 1000 persons there should be a
sprinkler system.
48/JNU OLE
Summary
• Insurance underwriting is the process of choosing who and what the insurance company decides to insure. This
is based on a risk assessment.
• Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure
that risk.
• Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether
or not the company should accept the risk.
• Underwriting of fire and explosion risks insurers generally offer the protection against fire, explosion, lightening,
act of God perils like earthquake, flood, storm, inundation, riot, strike and malicious damage and so on, as a
single package cover.
• A fire risk assessment is an organised and methodical look towards the premises, the activities carried on there
and the likelihood that a fire could start and cause harm to those in and around the premises.
• A fire risk assessment will help to determine the chances of a fire starting and the dangers from fire that the
premises present for the people who use them and any person in the immediate vicinity.
• The organisation must provide adequate fire safety training for the staff. The type of training should be based
on the particular features of the premises
• All metro cities in India has fire regulations and norms and it is mandatory to get No Objection Certificate (NOC)
for buildings and Delhi has the most comprehensive fire regulations of all cities .
References
• BenmoreNi, 2010. Fire Risk Assessment [Video online] Available at: <http://www.youtube.com/
watch?v=3gKuyyvr1kE> [Accessed 27 June 2011].
• safetynut1, 2011. Fire Risk Assessment & the Fire Safety Order Explained [Video online] Available at: <http://
www.youtube.com/watch?v=lkXXzwRK3q8>. [Accessed 27 June 2011].
• Fire Risk Assessment [Online] Available at: <http://www.bedsfire.com/COMMUNITYSAFETY/
BUSINESSFIRESAFETY/Pages/FireRiskAss.aspx> [Accessed 27 June 2011].
• The Footwear & Leather Health & Safety Committee, 2007. Fire safety – fire risk assessment [Online] Available
at: <http://www.britfoot.com/documents/FIRE%2007.pdf> [Accessed 27 June 2011].
• Yung, D., 2009. Principles of Fire Risk Assessment in Buildings. Wiley.
• Hirschler, M., 1992. Fire Hazard and Fire Risk Assessment. Astm Intl.
Recommended Reading
• Reed, P., 1940. Fire Insurance Underwriting. McGraw-Hill Book Company.
• Dominge, C., 2010. Fire Insurance Inspection & Underwriting. Nabu Press.
• Robert B. Holtom, 2001. Commercial Fire Underwriting. 3rd. ed., Natl Underwriter Co.
49/JNU OLE
Fire Insurance
Self Assessment
1. Underwriting in the insurance industry refers to the process used by insurance companies to determine how
much of your __________to accept.
a. claim
b. sum insured
c. coverage
d. liability
2. Which of the following statements is false?

a. The fire risk assessment is a one-off procedure.
b. All educational institutions have to follow the fire safety measures irrespective of the building height.
c. The organisation must provide adequate fire safety training for the staff.
d. All staff should be given information and instruction as soon as possible after they are appointed and
regularly after that.
3. To evaluate the risk to people in the premises, it is necessary to understand the way:
a. fire can be extinguished
b. fire can spread
c. safety measures can be used
d. risk assessment process
4. __________heats the air in the same way as an electric bar heater heats a room.
a. Conduction
b. Convection
c. Radiation
d. Transmission
5. The higher the risk of fire and risk to life, the higher the standards of _________________will need to be.
a. risk assessment
b. fire insurance
c. fire protection
d. fire underwriting

a. It is not necessary to have an emergency plan for dealing with a fire situation.
b. In premises with simple layouts the emergency plan may be more than a fire action notice.
c. If there is a child employed, then it is not necessary to inform the parents of the significant risks that are
identified and the precautions taken for it.
d. The regular checks, periodic servicing and maintenance must be carried out whatever the size of the premises
and any defects are put right as quickly as possible.
50/JNU OLE
7. Underwriting involves measuring risk exposure and determining the _________needs to be charged to insure
that risk.
a. policy
b. premium
c. coverage
d. claim
8. Loading is done on the basic premium if the claim experience exceeds the limits specified in the _______.
a. policy
b. contract
c. claim
d. tariff
9. The management of the premises and the way people use it will have an effect on the ____________.
a. evaluation of risk
b. protection of people
c. identification of hazards
d. reduction of the risks
10. All restaurants with seating capacity of ______persons and more have to follow the fire safety measures
irrespective of the building height.
a. 60
b. 70
c. 50
d. 80
51/JNU OLE
Fire Insurance
Chapter V
General Fire Hazards
Aim
• introduce the general fire hazards
• explain the two categories of fire hazards namely: originating and contributory
• discuss the fire protection system
Objectives
• explain the concept of the originating hazards along with their causes
• discuss the usage of common fire extinguishing appliances
• evaluate the types of general hazards, namely, electrical, metal, exposure, dangerous atmosphere, and fire and
explosion
Learning outcome
• understand the concept of contributory hazards with the help of examples
• identify the means to extinguish fire
• evaluate the important aspects of fire extinguishers
• understand the Loss Prevention Association of India
52/JNU OLE
5.1 Introduction to General Fire Hazards
The term “Fire Hazard” includes not only the causes of fires which are sometimes called ‘Originating hazards’
but also those circumstances which increase the probability of a fire occurring, or which enable or permit fires, once
started, to spread and increase the loss, i.e., ‘Contributory hazards’.
The contributory hazards are frequently of greater importance than the originating hazards. In such a case the loss
directly attributable to the “cause of fire” would be negligible, but the features which spread the fire i.e., timber
partitions, the combustible stocks and the open stairs would have increased the negligible loss to a very substantial
one.
Besides originating and contributory causes, there are other hazards which result in further losses. Examples of
such losses are:
• collapse of a building involved in a fire
• breakage and spoiling of material, plant and machinery
• damage during fire fighting operation
• spoilage through smoke, heat and water
• consequential losses
5.1.1 Originating or Inception Hazards

The causes of originating or inception hazards are:
• Electrical: This is the leading cause of industrial fires. There is a danger that sparks will be produced during the
normal working of the equipment and secondly, a faulty condition may arise which may produce overheating or
sparking. The first hazard can be reduced by the careful selection of equipment and installations to suit working
conditions. The second hazard can be minimised by the use of good quality equipment and materials. Further,
high standard of workmanship is a must during the installation.
• Smoking: This is a potential cause of fire almost everywhere. A system of control and education will minimise
this hazard to a considerable extent.
• Friction: Friction due to hot bearings, misaligned or broken machine parts, choking or jamming of material,
poor adjustment of power drives, and conveyors leads to many industrial fires.
• Overheated materials: Abnormal process temperatures involving heated flammable liquids and materials in
driers cause these hazards. These can be prevented by careful supervision of competent operators, supplemented
by well maintained temperature controls.
• Hot surfaces: The hazard from this source arises due to heat from boilers, furnaces, hot ducts and flues, electric
lamps, irons and hot-process metal igniting flammable liquids and ordinary combustibles.
• Burner flames: Improper use of portable torches, boilers, driers, ovens, furnaces, portable heating units and
gas or oil burner flames is a common source of hazard. Spark Arrestors are used to reduce the hazard.
• Combustion sparks: Sparks and embers released from incinerators, foundry furnaces, various process
equipments, passing locomotives, and industrial trucks pose a fire hazard. Spark arrestors are used to reduce
this hazard.
• Spontaneous combustion: This hazard exists in oily waste and rubbish, deposits in driers, ducts and flues and
industrial wastes.
• Cutting and welding: Many fires are caused during cutting and welding by sparks, molten metal or hot electrode
stubs falling on combustible materials or by directly igniting from the blow pipe. Incorrectly connected electric
welding equipment and conduction of heat through materials being welded or cut, can also lead to fires.
• Incendiarism: These are the fires maliciously set by intruders, disgruntled employees and arsonists.
• Mechanical sparks: Many fires originate due to sparks from foreign metal in machines, particularly in cotton
mills, and in grinding and crushing operations. The hazard can be reduced by keeping stock clean and by
removing foreign material by magnetic or separators.
53/JNU OLE
Fire Insurance
• Molten substances: Fires are caused by metal escaping from ruptured furnaces or spilled during handling. These
fires can be prevented by proper material handling. In steel plants, leakage of molten metal from furnaces or
leakage during material transportation produces huge loss.
• Chemical action: Fires can also originate by chemical processes going out of control. Chemicals reacting with
other materials leads to the decomposition of unstable chemicals.
• Static sparks: Static electricity is rarely recorded as a source of ignition in reports of fires, probably, because
it is essentially associated with the movement of materials and machines after the fire, no trace of the cause is
left. The hazard can be prevented by grounding, bonding and humidification.
• Lightning: Fires have been known to originate from direct lightning strikes. These may be prevented by lightning
rods, arrestors and grounding.
5.1.2 Contributory Hazards

These hazards increase the probability of fires occurring or which enable or permit fires, once the fire has started
to spread and increase the loss. A small open fire can become dangerous when it starts to grow by consuming fuels
stored in the building premises for later use. This led to destruction of building materials and their contents.
Few examples of contributory hazards are:

• Combustible materials, if the building is constructed with much wood work having internal wooden partitions,
a storied building or a building having many floor openings
• Materials with high calorific value, materials stored in liquid or gaseous forms, materials stored in dust or sheet
(e.g. paper) form, etc. are also combustible.
• Other factors which influence fire growth are the spacing of the combustible materials, ignition source, wind
or draught direction and velocity, shape and dimensions of the enclosure or compartment, exposure to other
buildings in hazardous occupation and so on.
5.2 General Hazards

The types of the general hazards are discussed below:
Exposure
Hazards
Metal Electrical
Hazards Hazards
Types of
Hazrads
Dangerous Fire &

Atmosphere Explosion
Hazards Hazards
Fig. 5.1 Types of hazards
54/JNU OLE
5.2.1 Exposure Hazard
• The exposure hazard is a hazard occurred due to the contiguity or closeness of the exposed property (premises
or buildings) to adjoining or neighbouring premises or buildings from which a fire may spread and /or loss or
damage from fire, smoke, heat, water or breakage may be sustained.
• The exposure may spread across a yard, a street, a passage, an area, or over the roofs of intervening but lower
buildings. Exposure may even exit across, or over several buildings including open space.
• Fire from one building can very easily spread to adjoining buildings or nearby buildings by radiated heat, sparks,
brands (which are very light burning pieces), flames, and so on, from the burning building. This is called the
exposure hazard.
• The construction of the building is very important to stop the spread of fire. The height of the building, window
openings, occupation of the building and distance from the neighbouring buildings are the major factors for
fire spread.
• When buildings are situated very close, then the fire fighting operation may become very difficult as there may
be obstructions to reach the seat of the fire. Fire engines may not have proper access.
Danger from exposure

There are seven ways in which fire exposure can affect exposed property:
Radiation
Toxic/
Flammable Convection
gases
Danger
from
Smoke Exposure
Conduction
damage
Floor Physical
Leakage transmission
Fig. 5.2 Danger from exposure
• Radiation: Heat can move laterally in the form of radiation.

• Convection: Heat from burning building moves outward and upward by convection. On many occasions, storeys
well above an exposing fire have been affected by convicted heat.
• Conduction: Heat may spread through conductive material such as unprotected ducts and pipes.
• Physical transmission: Flying brands and burning embers transmitted by the wind can ignite combustible surfaces
far beyond the range of heat transfer by convection, conduction or radiation, e.g. a bamboo stack on fire.
• Floor leakage: Water discharged during fire fighting can leak through floors that are not watertight and may,
seriously, harm lower occupancies susceptible to water damage.
• Smoke damage: Smoke travels by convection. Smoke from an external fire may enter an exposed building
through any available openings. Once smoke enters a building, it may spread through air handling systems or
55/JNU OLE
Fire Insurance
by other means.
• Toxic/ Flammable gases: These gases travel the same way as smoke does.
Classification of Exposures
External
exposures
Types of
exposures
Internal
exposures
Fig. 5.3 Classification of exposures
External exposures
• Local external exposures: Local exposure is created by a fire in the immediate vicinity of a building under
consideration. In general, local external exposure fires are those that originate in the property within 80 to 100
metres of the exposed building.
• Conflagration exposure: It has been defined in many different ways. In broad terms, a conflagration exposure
is that exposure created by a fire in buildings or other property so situated that a fire originating there is likely
to involve many buildings and cover a wide area.
• Fire storm: In a fire storm, air moves towards the centre of a group of fires, and the air velocities reach at
hurricane speed. Fire storms generally result from war attack.
Internal exposure
• Internal exposure is the exposure created by occupancies in storeys above and below and in areas adjoining the
storey/area under consideration.
Identification of the exposure hazard

• The main factor is to make an analysis of the potential effects of an exposure fire on each side of the exposed
building.
• For example, the storage of highly flammable liquids in the vicinity of a plant; raw material or finished goods
warehouse communicating with the main factory building; open storage of scrap in the vicinity of the main
factory building etc.
• Thus the occupancy, layout and various exposure hazards must be identified.
Severity of exposures
After identifying what the exposures are, the next step is to calculate their severity. This requires the consideration
of many factors, including certain features of the exposing and exposed buildings.
• Factors related to an exposing building:
floor loads of combustibles
total mass of combustibles
type of construction of walls, roofs and floors of the exposing building
potential duration of the exposing fire
56/JNU OLE
wind direction
distance between the exposing and the exposed building
• Factors related to exposed building :
type of construction of walls, roof and floors
protection of wall openings
extent of installed protection systems
occupancy of the exposed building
• There are three main factors in the consideration of the exposure hazard viz.:
constructional features
distances from other buildings and
conditions existing between buildings
5.2.2 Electrical Hazards

• In the present day world, electricity has become an indispensable part of human life. It is used for lighting,
heating, power and certain types of chemical processes.
• Indeed the rapid progress of science and technology would have been greatly hampered without electricity.
• The growth in the use of electricity has been a mixed blessing. The fire statistics in most industrialised countries
in the world indicate that the number of fires caused by electricity goes on increasing from year to year as the
consumption increases.
• Indeed, in most countries, electricity has been found to be the greatest single cause of fires.
• The blame for the cause of fire outbreaks however, should not be attached to electricity. What leads to electrical
fires are the incorrectly designed equipment, poor installation methods and neglect of maintenance.
• Misuse of electricity causes fires because fires invariably need heat to start and the passage of current is
accompanied with a certain amount of heat.
• The principle of electrical fire safety is to so design, install and maintain the wirings and appliances, as to
keep the current confined to the conductors and to keep down the heat development at low level except in heat
producing equipment.
Basic causes of electrical fire

• Arcing: When an electrical circuit carrying a current is suddenly intercepted, an arc is produced. Its intensity
and duration depends primarily on the circuit voltage and current. The temperature of such an arc is very high
and so any combustibles in the vicinity are ignited. Arcs may also be caused by faults associated with failures
or the breakdown of insulation.
• Sparking: The principal reasons for sparking are - poor maintenance viz. loose contacts, uneven pressures
between contacts or dirty or corroded contacts. Such parking may cause fires if combustible dust or vapours
are present in the vicinity.
• Overheating: Normally, the heating on account of passage of electricity through properly designed conductors
and appliances is of a quite safe level. However, due to a variety of causes, the limiting current values, for which
circuit and appliances are designed, may be greatly exceeded causing not only excessive development of heat
but also the deterioration of the insulation material due to this additional heat.
5.2.3 Fire and Explosion Hazards

Fire hazards of boiler installations are due to:
• the use and storage of fuels
• the use of high heat producing furnaces
57/JNU OLE
Fire Insurance
Fuel storage
The principal fuel storages are:
Coal Storage
Oil Storage
Gas Storage
Fig. 5.4 Types fuel storage
Coal storage
It has been observed that large stacks of coal are very much susceptible to spontaneous combustion. Absorption of
oxygen or oxidation of finely divided particles is the main cause. To reduce the spontaneous combustion of coal
stacks, the following precautionary measures should be taken:
• No coal stack shall contain more than 100 tonnes or exceed 3 metres in height and a clear space of not less than
3 metres must be maintained all around each stack.
• The site should be thoroughly cleared of leaves, grass, weeds, and pieces of timber, cotton wastes or other
foreign matter.
• It is recommended that coal should not be stored in places where the ambient temperature may exceed
26.50oC.
• Coal for storage should be deposited in layers rather than in conical piles as storage in the latter manner doesn’t
allow enough ventilation through the piles to keep the temperature down.
• Alternate wetting and drying of coal stacks should be avoided. It is also dangerous to have a part of the stack
wet and another part dry.
• Coal sprayed with a high flash point mineral oil decreases the tendency of spontaneous combustion by protecting
the surfaces from oxidation.
Oil storage
The oil used for oil fired boilers is a flammable liquid although its flash point is relatively high, being of the order of
450- 650oC. However, as in large power stations, where very large quantities are required to be stored, it represents
a considerable fire hazard. Thus, the principal precautionary measures aretaken into consideration:
• The oil should preferably be stored in underground tanks. If this is not possible, it may be stored above ground
in steel tanks located at least 15 m away from all other properties.
• Above ground storage tanks must be provided either with a catch-pit or surrounded with masonry or concrete
dyke walls so that the entire content of the tanks may remain confined within it, in the event of rupture of the
tank(s).
• The tanks should be constructed either with mild steel or reinforced concrete. Metal tanks should preferably
be of welded construction.
• A vent pipe should be fitted to the top of each tank and the cross sectional area of the pipe should be at least
equal to the cross-sectional area of the fill-pipe.
• All tanks and associated piping must be bonded and earthed by two independent paths as precautionary measures
against the accumulation of static electricity.
58/JNU OLE
Gas storage
• As mentioned earlier, the principal gas which is used as fuel in boilers is natural gas. It is a highly flammable
gas which is associated with serious fire and explosion hazards.
• Generally speaking, this gas is received through pipelines and as such no large scale storage is involved. In
case, however the gas has to be stored in gas-holders/tanks the same should be located at least 15 m away from
all other properties.
• All electrical equipment within this distance should be of the ‘approved’ flameproof type.
• The gas holders/tanks along with their pipelines should be electrically bonded and earthed by two independent
circuits as precautionary measures against the accumulation of static electricity.
Causes of furnace explosions

Boiler furnace explosions are caused by the ignition of a combustible mixture of fuel and air within the confinements
of the boiler furnace. The most common situations which produce explosive conditions are:
• An interruption of fuel or air supply or ignition energy to burners, resulting in momentary extinguishment of
the flame, followed by restoration and subsequent ignition of accumulated combustible gases.
• Leakage of fuel into an idle furnace and subsequent ignition of the same when the furnace is fired.
• In order to reduce the possibilities of explosion, in furnaces of boilers and also in other industrial furnaces,
attention must be paid to design and installation, operation, and safety control systems, interlocks and alarms.
5.2.4 Hazards of Dangerous Atmosphere

• There are many locations, where the selection of proper electrical equipment is an important factor for fire safety
purposes. These areas are characterised by the presence of a hazardous concentration of flammable vapours,
gases or combustible dusts.
• The danger of fires and explosion in these areas may no doubt be reduced by adequate ventilation. However,
ventilation alone may not be quite adequate to tackle emergencies arising due to the spillage or leakage of
flammable fluids.
• The most generally applied precautionary measures under these conditions are to use flame-proof equipment.
The term “Flame Proof” equipment signifies equipment which will satisfy the following requirements:
The casing or enclosure must be strong enough to contain any explosion that may occur inside it;
The design of the apparatus must be such as to cool down sufficiently any hot gas or flame emerging out of
it (if an internal explosion occurs) so that they do not ignite the surrounding explosive atmosphere.
• The Indian Standard classifies four different flammable atmospheres for which separate specifications for flame-
proof apparatus are prescribed. These groups of atmospheres are as follows:
Group I: Atmosphere of methane gas i.e., meant for use in coal mines.
Group II: Fuel gases for example: natural gas, town gas, water gas, producer gas and so on.
Group III: Other industrial gases and vapours excepting those mentioned under Group IV.
Group IV: Hydrogen, acetylene, carbon disulphide, and so on.
• In the hazardous atmosphere, not only must the equipment be of the flame-proof type but all switches, starters,
control gears and accessories such as junction box, cut-outs etc. also be a within such enclosures.
• It is always advisable to have flame-proof and non-flame-proof operations in two independent blocks at least
6 ms away from each other.
5.2.5 Hazards of Metals

• The hazards of metals vary with the individual metals, the form or state of division, purity and other factors.
• Amongst the metals, the alkali metal viz., lithium, sodium and potassium are the most hazardous.
• They are highly water reactive and catch fire explosively in contact with water. Fumes evolved from the burning
metals are poisonous.
59/JNU OLE
Fire Insurance
Magnesium powder suspended in air can ignite explosively in the presence of the smallest of ignition
source. Aluminium is ordinarily not as hazardous as magnesium but in powder form it is almost equally
explosive.
A great disadvantage in fighting magnesium and aluminium fires is that neither water nor any of the
conventional extinguishing agents can be used as the metallic powder reacts dangerously with all of
them.
Only dry sand, salt and other dry inert material could be used in these cases. In recent times, however, a
special purpose dry chemical for fighting combustible metal fires is also being used.
5.3 Fire Protection Systems

• The importance and sophistication of the fire protection system has grown g rapidly. Portable extinguishers,
buckets and hose reels are first aid devices which are handy for immediate use on fires in their incipiency.
• Good fire protection calls for ample hand appliances distributed throughout the plant and maintained properly.
Employees should also be trained in the use of fire extinguishers.
• Extinguishers must be in good operating condition whenever fire strikes. Mechanical failure can have serious
consequences.
• Maintenance and recharging must be carried out systematically by competent personnel.
• The following aspects are important in the practical use of fire extinguishers:
Effectiveness of portable extinguishers: Portable extinguishers are effective only when fires are in the
incipient stages. Extinguishers are only as good as the operators using them, and hence training of the
employees in fire fighting is essential.
Location and distribution of extinguishers: Extinguishers should be distributed as recommended for
the specific type of fire. Extinguishers are to be located where they are not likely to be blocked or hidden
by stock or damaged. It is generally best to hang them on building columns or walls with their tops 1 to 2
metres above the floor. Extinguishers for fires other than in ordinary combustibles should be located near
the hazard to be protected
Selection of extinguishers: Selecting the proper extinguisher to protect a particular situation involves
many factors. Fires vary in sizes, intensity, speed of travel and approachability. Each type of extinguisher is
designed to do a certain job and cannot be expected to perform efficiently if used beyond its limitations.
5.3.1 How Fires are Extinguished

• Extinguishers put out fires by:
cooling the burning material to bring it below its ignition point
reducing the quantity of available oxygen so that combustion cannot continue and
inhibiting the combustion chain reaction
• Another method of extinguishing a fire is to separate or remove the fuel. In a gas or flammable liquid fire, this
might be done by closing a valve in the fuel supply pipe and in a dip-tank fire by draining the contents to an
emergency salvage tank.
• Few of the things used for extinguishing fire are as follows:
Water extinguishes fire mainly by its cooling action; the steam formed when water is applied to burning
material helps to exclude oxygen. Water is the most common extinguishing agent for ordinary combustible
materials.
Foam extinguishes fire by excluding oxygen. It has little cooling effect. Primarily intended for flammable-
liquid fires, it floats on the surface of the burning liquid to form a clinging blanket that smothers the fire.
Carbon dioxide extinguishes a fire by reducing the oxygen content of the surrounding air until combustion
can no longer continue. It also has a slight cooling effect. It is used principally on fires in flammable liquids
and electrical equipment.
Dry chemicals extinguish a fire by a combination of several actions. A physical blanketing effect by the
60/JNU OLE
powder, interrupting the vapour-oxygen molecular combustion reaction, dilution of oxygen in the air and
the direct absorption of heat by the fine solid particles.
5.3.2 Common Fire Extinguishing Appliances

The composition and use of the common fire extinguishing appliance is given below in detail:
Soda–acid extinguisher
• The soda-acid extinguisher contains a charge of sodium bicarbonate dissolved in water. A glass bottle held in
a cage above this liquid contains concentrated sulphuric acid.
• The bottle has a loosely fitting head of porcelain stop, which drops out when the extinguisher is inverted.
• Mixing of the acid and the sodium bicarbonate solution generates carbon dioxide gas, the pressure of which
expels the liquid contents through a 1/8 inch nozzle at the end of a short hose.
• Use: It is recommended for fires in ordinary combustible materials such as wood, paper, or cloth, where a
cooling and wetting action is required.
• Advantages: The stream has a long range and good pressure, which enable it to get into overhead locations.
The extinguishers can be used effectively on small fires involving oily floors or wood work.
Foam extinguishers
• The main tank of a foam extinguisher holds a solution of sodium bicarbonate to which a foam stabiliser and
sometimes a preservative is added.
• The inner container is a long metal tube with a solution of aluminium sulphate.
• A foam extinguisher is operated by inverting it. With the 10, 20 and 38- gallon extinguishers, the stopple of
the inner container must be lifted by a hand-wheel above the cap before the extinguisher is inverted. When the
smaller extinguishers are inverted, a loose lead stopple drops from the inner chamber, allowing the solutions to
mix and produce the foam, which is expelled by carbon dioxide gas.
• The foam, a thick and tenacious blanket filled with bubbles of carbon dioxide gas, spreads over the surface of
the burning liquid and extinguishes the fire by excluding oxygen. The volume of foam produced is about 7 ½
to 8 times that of the original solution.
• Use: It is recommended for fires in flammable liquids of the oil and gasoline types.
• Advantages: The foam spreads over the liquid surface and effectively excludes oxygen. The tough blanket
persists for quite some time on these liquids and therefore prevents re-ignition by the heated sides of the tank
or other hot metal surfaces.
• Limitations: Foam is not suitable for fires in electrical equipment.
Carbon dioxide extinguishers

• Carbon dioxide extinguishes fire by its smothering action (exclusion of oxygen). The cooling effect is limited
unless the object becomes coated with carbon dioxide.
• The carbon dioxide extinguisher consists of a high pressure cylinder containing liquid carbon dioxide, a siphon
tube, and a valve and discharge horn.
• Advantages: Carbon dioxide is non-corrosive and leaves no residue. It will not conduct electricity, freeze
or deteriorate with age. It is for these reasons that carbon dioxide extinguishers are used chiefly for fires in
electrical equipment or flammable liquids. They are particularly suited for extinguishing fires in alcohol and
other flammable liquids.
• Limitations: Carbon dioxide extinguishers have no wetting action and are not considered suitable for fires in
ordinary combustible material.
Few other types of extinguishers are:

• dry-chemical extinguishers
61/JNU OLE
Fire Insurance
• vaporising liquid extinguishers
5.3.3 Smoke Detectors

• The primary function of a smoke detector is to detect one or more changes in the environment indicative of the
development of a fire condition.
• Usually mounted on ceilings, air ducts, covered cable trenches, etc., detectors are actuated mainly by smoke,
radiation or heat.
• These conditions can be easily identified with important stages in the development of a fire viz.:
After ignition has occurred and invisible products of combustion are being released.
When visible smoke is being produced.
When the fire is producing flame and a degree of illumination.
When the temperature in the vicinity of the fire rises rapidly or reaches a predetermined value.
• The type of detectors designed to operate at each one of these particular stages are:
Ionisation detector
Smoke detector
Radiation detector
Heat detector
• The final choice of the type of detector has to be based on the risk to be protected and the individual circumstances
of each case.
5.4 Management and Housekeeping

• The prosperity of a manufacturing concern depends largely upon the management of the factory.
• If the management is bad, the profits are not as large as they should be and in the worst example, the business
would fail.
• In this respect alone the fire insurance underwriter would be interested in the efficient management of a
factory.
• On the other hand, a well managed factory gives evidence of prosperity and the absence of a moral hazard. The
signs of a well-managed factory are:
Good layout, whereby the raw material enters at one end of the factory, travels straight through the factory
during the course of its conversion by machining or trade processes into the finished product, and emerges
at the other end ready for packing and conveniently placed for dispatch and conveyance. A good layout
saves time and expenses. The work will flow smoothly and the costs of carrying work in process will be
minimised.
Work people do not have to move unnecessarily long distances within the factory.
Convenient position of the stores.
Good factory systems for recording jobs, drawing materials from stores, checking and the temporary storage
of partly finished goods.
Discipline and control of work people.
Good lubricating methods and machinery maintenance.
Clearance and disposal of waste and salvage.
Good housekeeping.
5.4.1 Segregation
The following are examples of hazardous processes or storage of hazardous goods, commonly met in industry and
which are usually capable of segregation:
• Woodworking by hand or power
62/JNU OLE
• Spray Painting
• Grinding and Machinery work
• Rubber spreading
• Drying timber by artificial heat
• Working with celluloid
• storing patterns made of wood
• storing oils and paints
• Storing petrol
• Storing upholsterers filling materials
5.4.2 Arrangement of Premises

• The warehouse, or stock room, especially if the goods are combustible, should be separate from the factory
building.
• The storage of any combustible material in bulk in a building constitutes a hazard because a fire may, thereby,
spread rapidly throughout the storage parts of the building and perhaps involve the whole plant including the
area where expensive machinery is accommodated.
• The following features should be observed:
Stocks should be so kept (in a building set apart for the purpose) that they are wholly accessible.
Individual stocks and piles should be as small as possible with clear spaces and gangways around them.
There should be no accumulation of packing material such as straw, cardboard, wooden planks etc.
Heavy machinery should preferably be on the lowest floor to obviate the risk of it crashing through a
fire-weakened floor. If it must be on upper floors, they should be strong enough to bear the weight of the
machinery.
5.4.3 Supervision
• Today, an important feature of factory management is the comfort and welfare of the employees. Well disciplined
staffs help to prevent fire.
• Adequate lighting and ventilation make for a good work place and facilitates careful operation by the work
people.
• When the staff is controlled by good management and the proper enforcement of rules, it is quite certain that
routine duties such as the regular filling of fire buckets and the closing of fireproof doors, keeping of packing
material in proper bins, keeping supplies of inflammable materials in their proper store places and putting oily
rags in metal bins would be done on a regular basis.
5.4.4 Smoking
• Smoking is directly or indirectly the cause of innumerable fires. In workrooms or factories where combustible
waste is generated, smoking should be strictly prohibited.
• It is desirable, however, that smoking should be permitted at certain specified times and in suitable places, such
as mess rooms or canteens.
• The total prohibition of smoking may lead to greater hazards from illicit smoking.
5.4.5 Disposal of Trade Waste

• In factories where combustible trade waste is likely to be generated and warehouses where such accumulations
are likely to be found on the floors, there should be arrangements for all waste and refuse to be swept up at
frequent and regular intervals.
63/JNU OLE
Fire Insurance
• Further, it should be removed as soon as possible from the building to places where it can be kept without
endangering anything until it can be safely disposed of, either by carting or by burning.
5.5 Loss Prevention Association of India

• The Loss Prevention Association of India (LPA) is a non-profit organisation established in 1978 by the GIC
and the four public sector insurance companies, with the main objectives of promoting safety and loss control
through education, training and consultancy.
• The LPA’s work involves both educational and engineering aspects of safety. The primary objective is to train
personnel in industry and commerce on various aspects of safety and loss prevention.
• Some of the programmes developed are:
Fire prevention and protection in industries
LPG safety in industries
Electrical safety in industries
Fire fighting basic course
• The coverage of the programmes is industry specific and relevant to the materials, processes and equipment in
the particular industry.
• The LPA has recently started Comprehensive Risk Management Services for industry. An important area of LPA
activity is in the investigation and study of major fire losses. The LPA maintains and operates a Salvage Corps
which assists the fire brigade in salvage operations and for the minimisation of damage.
• The Corps is on duty on a 24 hour basis and services are available free of charge. The LPA maintain a close
liaison with organisations such as – The Central Building Research Institute, The National Safety Council,
Factory Advice Service Institutes, The Directorate of Fire Services etc. and International bodies such as The
British Safety Council.
64/JNU OLE
Summary
• The term “Fire Hazard” includes not only the causes of fires which are sometimes called ‘Originating hazards’
but also those circumstances which increase the probability of a fire occurring, or which enable or permit fires,
once started, to spread and increase the loss i.e., ‘Contributory hazards’.
• Few of the causes of the originating hazard are: electrical, smoking, friction, hot surfaces, burner flames and
so on.
• Contributory hazards increase the probability of fires occurring or which enable or permit fires, once the fire
started to spread and increase the loss. Few examples are: combustible materials, material with high calorific
value, and so on.
• Common types of general hazards: electrical, metal, exposure, dangerous atmosphere, and fire & explosion
hazard.
• The exposure hazard is a hazard due to the contiguity or closeness of the exposed property (premises or buildings)
to adjoining or neighbouring premises or buildings from which a fire may spread and /or loss or damage from
fire, smoke, heat, water or breakage may be sustained.
• Electrical hazards are caused by the fire caused by electricity which may occur due to sparking, overheating,
and sparking..
• Fire and explosion hazards occur due to the use and storage of fuels and the use of high heat producing
furnaces
• Hazards of dangerous atmosphere: There are many locations, where the selection of proper electrical equipment
is an important factor for fire safety purposes. These areas are characterised by the presence of a hazardous
concentration of flammable vapours, gases or combustible dusts.
• The hazards of metals vary with individual metals, the form or state of division, purity and other factors. Amongst
the metals, the alkali metal viz., lithium, sodium and potassium are the most hazardous
• The important aspects in the practical use if fire extinguishers are: effectiveness of portable extinguishers,
location and distribution of extinguishers, and selection of extinguishers.
• Extinguishers put out fires by: cooling the burning material to bring it below its ignition point, reducing the
quantity of available oxygen so that combustion cannot continue and, and inhibiting the combustion chain
reaction
• The common fire extinguishing appliances used are: soda-acid extinguisher, foam extinguisher, and carbon
dioxide extinguisher
• The Loss Prevention Association of India (LPA) is a non-profit organisation established in 1978 by the GIC
and the four public sector insurance companies, with the main objectives of promoting safety and loss control
through education, training and consultancy.
References
• Nfpadotorg, 2008. Hidden Electrical Hazards [Online video] Available at: <http://www.youtube.com/watch?v
=LJm8w25KgM8&playnext=1&list=PLD3432488038BB5F0> [Accessed 13 June 2011].
• BVS training, 2010. Fire Safety 1: Hazards and Prevention Training Teaser from BVS [online video] Available
at: < http://www.youtube.com/watch?v=K2Ml2GJJ9Dc> [Accessed 13 June 2011]
• Price, A., 2011. 8 Common Fire Hazards in Your Home [Online] Available at: <http://www.streetdirectory.com/
travel_guide/61015/home_security/8_common_fire_hazards_in_your_home.html> [Accessed 13 June 2011].
• Fire Hazards (Fire Prevention Tips) [Online] Available at: <http://www.fire-extinguisher101.com/hazards.html>
[Accessed 13 June 2011].
65/JNU OLE
Fire Insurance
Recommended Reading
• Gagnon, R., 1997. Design of Special Hazard & Fire Alarm Systems. Delmar Cengage Learning.
• Cheremisinoff, N., 1999. Fire and Explosion Hazards Handbook of Industrial Chemicals. William Andrew.
• Thomson, N., 2001. Fire Hazards in Industry. Butterworth-Heinemann.
66/JNU OLE
Self Assessment
1. Which of the following is the leading cause of the industrial fire?

a. Smoke
b. Electricity
c. Molten substances
d. Combustion sparks
2. The construction of the building is very important to stop the ________of fire.
a. start
b. coverage
c. spread
d. cause

a. Smoking is directly or indirectly the cause of innumerable fires.
b. An important feature of factory management today is the comfort and welfare of the employees.
c. Carbon dioxide is corrosive and leaves no residue.
d. The soda-acid extinguisher contains a charge of sodium bicarbonate dissolved in water.
4. When an electrical circuit carrying a current is suddenly intercepted, an/a _____is produced.
a. arc
b. fire
c. spark
d. smoke

a. The contributory hazards are frequently of lesser importance than the originating hazards.
b. Fires are caused by metal escaping from ruptured furnaces or spilled during handling.
c. Fires have been known to originate from indirect lightning strikes.
d. Heat may spread through conductive material such as protected ducts and pipes.
6. Heat can move __________ in the form of radiation.

a. horizontally
b. vertically
c. easily
d. laterally
7. Smoke travels by ____________.

a. convection
b. conduction
c. radiation
d. combustion
67/JNU OLE
Fire Insurance
8. Carbon dioxide extinguishes a fire by reducing the _______content of the surrounding air until combustion can
no longer continue.
a. carbon
b. oxygen
c. sodium
d. nitrogen
9. Fumes evolved from the burning metals are _____________.

a. dangerous
b. poisonous
c. unhealthy
d. useful
10. The LPA’s work involves both, educational and ____________aspects of safety.
a. engineering
b. practical
c. important
d. management
68/JNU OLE
Chapter VI
Fire Hazards of Specific Industries
Aim
• explain the work process of textile industry along with the types of hazards faced by the industry
• discuss fire as well as the process hazards of the jute
• evaluate the process of rubber formation and the hazards in the process
Objectives
• enlist the hazards that come in the process of paper making
• state the characteristics of hydrocarbons leading to fire and explosion
• explain the fire hazards of the chemicals
Learning outcome
• understand fire hazards and the prevention measures of various industries
• know the fire hazards and loss prevention measures in the textile industry
• identify the sources of ignition in chemical industry
69/JNU OLE
Fire Insurance
6.1 Introduction
An industrial fire is a type of industrial disaster involving a conflagration which occurs in an industrial setting. They
are most likely to occur in facilities where there is a lot of flammable material present. Such material can include
petroleum, petroleum products such as petrochemicals, or natural gas. Processing flammable materials such as
hydrocarbons in units at high temperature and/or high pressure makes the hazards more severe. Facilities with such
combustible material include oil refineries, tank farms (oil depots), natural gas processing plants, and chemical plants,
particularly petrochemical plants. Such facilities often have their own fire departments for fire fighting. Sometimes
large amounts of dust or powder are vulnerable to combustion and their ignition can cause dust explosions. Severe
industrial fires have involved multiple injuries, loss of life, costly financial loss, and/or damage to the surrounding
community or environment.
Here we will study some specific industry related fire hazards.
6.2 The Textile Industry

Ever since the first textile factory was established in India in 1854, the textile industry has made rapid progress and
today it is one of the largest industries in our country. The textile industry is essentially a conversion industry i.e.,
unlike other industries; raw material exists in the same form but undergoes only a structural change. Thus, cotton
or synthetic staple fibre is stretched into yarn and woven into cloth. The former process is called ‘spinning’ and the
latter is called ‘weaving’.
6.2.1 Spinning Preparatory and Spinning Process

The spinning process converts cotton/staple fibre into yarn. The conversion has to pass through the following
sequences:
• Blowing and mixing
• Carding and combing
• Drawing, slubbing and interframes
• Ring spinning
6.2.2 The Weaving Preparatory and the Weaving Process

In the above processes, textile fabrics are produced from the spun yarn. They are mostly composed of a number of
yarns crossing at right angles. The yarn travelling lengthwise through the entire fabric is called the warp, while the
other yarn running across the fabric is called the weft. The version has to pass through the following sequence-
• Winding and Doubling
• Warping or Beaming
• Sizing
• Drawing-in and
• Weaving
6.2.3 Chemical Processing of Cloth

• The chemical processing of woven cloth covers the gradual transition of fabric delivered by the weaving section
into the final shape of a finished fabric. This is achieved by chemically treating the cloth on different machines
to produce an acceptable and marketable product. The chemical processes can be described in brief under the
following headings:
bleaching
finishing
dyeing
printing
• Polymerisation: After printing, the fabric is dried, heat cured to polymerise the resins (print) in order to fix the
70/JNU OLE
colour. The volatile material must be driven off the cloth before passing it through a curing machine. After the
curing process, the finished fabric is folded, bundled and baled for marketing.
6.2.4 Auxiliary Departments

The auxiliary departments are categorised into two, namely:
Humidification plants
The processing of cotton and staple fibres requires the control of temperature and relative humidity in textile mills.
Humidification plants are needed to give artificial humidity which is very necessary for man-made and cotton fibres.
There are three different methods of providing humidity mostly followed by textile mills, namely:
• central station plant or carrier plant
• unit type and
• plants with all air system
Thermic fluid boilers

In chemical processing of cloth through stenters and so on, very high temperatures in the range of 250 to 300 degrees
centigrade are required. These temperatures are attained by the circulation of heated thermic fluid. In a thermic fluid
boiler, the fluid is heated and circulated through various machines. After circulation, the fluid comes back to the
heater where it is heated again and recirculated.
6.2.5 Fire Hazards and Loss Prevention Measures

The following are the causes which mainly contribute to fire hazards in various departments or warehouses of a
textile mill:
• Mechanical friction
• Fluff
• Electrical short circuit
• Electrostatic charge
• Bad housekeeping
• Human negligence
• Improper stacking and storage
• Faulty construction
• Use of flammable materials like petrol, gas, kerosene and so on
Cotton warehouses
Fires in cotton warehouses may be caused due to the following reasons:
• Sparks caused at the time of stacking bales, if the iron hoops collide with each other.
• Due to inadequate ventilation and improper stacking of bales in the vicinity of electrical wiring.
• Human negligence – such as throwing cigarette butts.
• Prismatic effect of North-light roofing.
• Fires in cotton warehouses are almost spontaneous and take everybody unawares.
The following loss prevention measures are suggested:

• The warehouse must be a single storey building built of non-combustible material
• Limit the number of bales to a single pile
• Separate piles by 8 ft. wide main aisles and 6 ft. cross aisles and 4 ft. from walls
• Provide automatic sprinkler protection in the warehouse or smoke detectors
• Electrical installation, if any, should be carried out by using armoured cable or conduit wiring
71/JNU OLE
Fire Insurance
• The warehouse should be located at least 6 metres away from the other buildings
• Main control switches for electrical installations should be kept outside the building
6.2.6 Other Hazards

Humidification plants
• Humidification plants and systems are basically non-hazardous as the entire process of humidification is a wet
process.
• However, a conspicuous hazard arises in the return air system where all the dirt and fluff will be sucked in from
the departments and the entire return air path will be full of such refuse.
• It is necessary to clean the return air path once a week. The return air path should be sprinkle red. It is necessary
to install fireproof shutters in ducts, when these pass from one department to the other.
Thermic fluid and thermic fluid heaters

• Thermic fluid, if heated in excess of the maximum recommended temperature for some time, may lead to
decomposition and form hard deposits on metal heat transfer surfaces. This results in local overheating and a
possible failure.
• A continuously increasing leakage of the fluid into the hot fire box is likely to result in big explosions and
fires.
Fluff
• Fluff is the worst enemy of the textile industry. In textile mills, fluff exists almost in all departments and especially
more in mills with coarse and medium counts.
• The most preventive measure to avoid the risk of fire due to fluff is to maintain a high order of
housekeeping inside the departments. Fluff from the departments should be removed once a week.
6.3 The Jute Industry

The Indian Jute Industry is one of the major industries in our country employing millions of people and earning
crores of rupees by way of foreign exchange. The principal constituents of Jute fibre are Alpha Cellulose (60%),
Semi- Cellulose (approx. 25%), Lignine (approx. 11%). In addition it contains 1% or less fat, wax and also equal
amounts of nitrogenous matter and mineral matters. Its ignition temperature is 193 degrees C and specific heat is
0.324.
Jute increases in volume rapidly with the absorption of water and decomposes when in contact with water for long
periods, releasing methane. As the reaction is exothermic, considerable heat is generated. If the moisture content
of jute is more than 17%, the fibre is susceptible to bacterial damage. Jute risks can be distinctly divided into two
classes, the assorting, pressing premises, commonly known as Jute Press and Jute Mills.
6.3.1 Jute Press

Process
• Jute assorting and pressing premises can be subdivided into two classes; that in which pressing is done by means
of a hand press and that in which pressing is done by a power operated machine. Hand pressed bales are known
as kutcha bales and power pressed bales as pucca bales.
• The processes carried out in the jute press are simple, consisting of weighing, hackling, assorting and of course
baling.
• The hackles use of hackling or combing consists of a series of metal spikes about 9 inches in height, set in a
heavy wooden base.
• The barky or hard portions at either end of the jute are cut off before the hackling process is carried out. These
cut off portions are called cuttings.
• Assorting means selecting or sorting according to the quality of the fibre. Next, jute is pressed either by hand
72/JNU OLE
press or by the power driven hydraulic press.
Hazards
• Jute is highly combustible, especially in the loose form; it gives off a considerable amount of fly and dust during
handling. These materials, being very light, are carried by air and deposited on structural framework. They also
settle on the floor.
• Even a very small source of ignition can create a fire because of the hazardous nature of the fibres. Fires in jute
press premises usually take place in the assorting sections of the warehouses and sometimes in the pucca bale
warehouses. But incidences of fires are much less in the press house itself, as compared to warehouses.
• Poor housekeeping in jute press premises is also one of the main factors for fire losses. Sometimes, jute as also
other materials is stored outside the warehouse in the open. Because of the fluffy nature of the jute fibre, fire
spreads very quickly along the surface of the jute bales.
6.3.2 Jute Mills

• The manufacture of jute products consists of spinning and weaving but the raw fibre has to pass through various
operations preparatory to spinning and weaving which commence with the opening of the fibre of the bales, the
subsequent processes being batching, hackling, carding etc. to render the fibre thoroughly split up and combed
for spinning.
• After weaving, the operation which is carried out is known as finishing.
73/JNU OLE
Fire Insurance
Processes
Bale Opening
Batching and
Softening
Carding
Drawing
Roving/Spinning
Watse recovery
(dust shaker)
Winding
Beaming and
dressing
Weaving
Finishing
Fig. 6.1 Processes in jute mill
74/JNU OLE
Fire Hazards and Loss Prevention Measures
Manufacturing departments
• Jute is the main raw material processed in jute mills which in any form, being of a combustible fibrous nature,
is a swift fire carrier and fire therefore is an ever present hazard.
• Thus, because of the very nature of jute fibre both the “initiating” and “contributory” fire hazards in the industry
are high. Waste is the most important factor which is responsible for many large fire losses in jute mills.
• The lighter waste which is known as “Fluff” is the most dangerous in this regard. In jute mills, fluff exists
almost in all the sections.
• Even a small spark due to friction or an electrical fault is sufficient for the fire to spread across the fluff covered
surface. As the fluff burns, it drops and ignites the stocks on the floor.
• Waste is produced in the mills continuously and such waste is normally reprocessed by treating it mainly in
dust shaker machines. The so called waste is created by various means.
• Removal and collection of this waste efficiently is related to the standard of housekeeping. Where sweeping is not
practicable, the most satisfactory method of removing overhead waste is to blow it down by jets of compressed
air. Since the fibres are clinging virtually in felt form to one another, the felt falls readily to the floor.
• The incidence of fire arising out of the use of jute cards is reported. The basic reason for this is that the jute
at the beginning of the carding process was dirty and a small stone or iron particle going through the machine
could strike a fire.
• Fire hazards in the carding department are also caused due to the friction between metallic belts and the pulley.
Also electric sparks due to a broken or faulty starter or switch may give rise to a fire.
• The normal dressing process is not a hazardous one because only moderate heat is required. Weaving is not that
hazardous and fire arises only because of mechanical defects in the machinery.
• The processes subsequent to spinning are not so hazardous as a finer substance is handled in these operations
and also because the yarn does not have the light open fluffy state of jute which instantly ignites in contact with
the smallest spark or a small source of ignition.
• Tramp metals in the machines or overheating of bearings are common causes of outbreak of fires in spinning and
weaving. There are a number of steps which may be taken to minimise the incidence of fires in manufacturing
departments in a jute mill. The following guidelines should be implemented in respect to the process equipments
in order to prevent fires:
All softeners, cards, drawing frames and dust shakers should be cleaned at least twice a week and all other
equipment at least once a week.
Waste emulsion drains of softeners should be regularly cleaned to prevent choking.
The required clearance is to be maintained so that rollers or cylinders on cards do not jam.
Lubrication of each machine should be done according to a planned schedule.
The bearing temperature must be periodically checked. Every machine should be stopped and attended to
if the bearing shows signs of overheating.
• The following procedure should be adopted in respect of electrical installations and equipment:
Report all damaged cables and electrical equipment and ensure their early repair.
Insist on periodic checking of all motors for signs of overheating.
Ensure that all electrical equipment are of metal clad construction, dust tight and of adequate capacity.
Arrange for periodical cleaning of switchboards, panels, switches, controllers and starters.
Clean the under floor cable trenches at least once a month or more frequently if necessary.
Ensure that lighting wiring is of iron conduits or cables.
75/JNU OLE
Fire Insurance
6.3.3 Jute Warehouses

• In case of warehouses containing baled raw jute, an aggravating factor is the burning characteristic of the
material. The losses arising out of fires in jute warehouses are enormous and much more than the fire losses in
the manufacturing departments.
• Jute fibre has also a tendency to shed water and rapidly dry up during a fire. It is, therefore, not unusual to find
water soaked fibres re-igniting after a few minutes.
• Because of these features, it usually takes hours to extinguish a jute warehouse fire and in the process, thousands
of gallons of water are required. The fact that jute emits a dense and acrid smoke while burning constitutes a
major hazard and is a great handicap in fighting a fire.
• Research conducted in India and abroad has proved that jute is not susceptible to spontaneous combustion unless
it is contaminated with oil, grease and similar substances.
• Since most of the warehouses do not use artificial lighting, the largest cause of fire in warehouses is believed to
be due to the careless disposal of smoking material, if not arising out of malicious causes.
• The prohibition of smoking has long been the rule within the jute mill premises, but inevitably some surreptitious
smoking always takes place.
The following loss prevention measures should be implemented for loss control:
Designing of sprinkler systems capable of dealing with high piled storages.
The water damages due to the indiscriminate use of water jets, however, are more important. Such damages
may be appreciably reduced if it is made easier for the fire services personnel to locate the site of fire and
enter the warehouse.
6.4 The Rubber Industry

Rubber is classified into natural rubber and synthetic rubber. Since India was a producing country for natural rubber,
synthetic rubber was not in much use. However, due to the increasing demand for rubber, many new factories
manufacturing synthetic rubber have been set up in India.
Synthetic rubber is hydrocarbon based and is manufactured in hydrocarbon processing plants. Styrene Butadiene
Rubber (SBR), Poly Butadiene Rubber (PBR), Neoprene, Butyl and so on, is the different types of synthetic rubber.
The industry is dominated by tyre manufacture with some 65% of natural rubber produced going into tyre and
associated products. The rest of the rubber product is absorbed over a wide range of industrial products.
76/JNU OLE
6.4.1 Manufacturing Process of Rubber
Processing of
Latex into Rubber
• Preparation of rubber
Processes in Composition
Rubber Works
• Forming the articles
• Vulcanising them
Cracking
Compounding
Masticating
Calendaring
Extruding
Moulding
Cementing
Dripping
Spreading
Vulcanisation
Fig. 6.2 Manufacturing process of rubber
77/JNU OLE
Fire Insurance
6.4.2 Fire Hazards

• Fire hazards in the rubber industry are sharply differentiated between storage and process.
• Rubber storage is characterised by a high fire load and in general a low inception hazard.
• In processing, the fire loads are low but small quantities of flammable material may burn fiercely for some time.
Inception hazards operate from low to very high.
6.5 Paper Industry

The pulp and paper industry requires cellulose based raw materials. Unlike the largest paper producing countries
which use predominantly wood, India has critical material procurement problems which spread over a number of
sources such as bamboo, bagasse, grass, rags and waste paper and so on. The non-availability of traditional raw
material has forced us to import waste paper and pulp. Paper production requires a disintegration of the bulky fibrous
material to small agglomerate fibres. This is called pulping. The ideal fibre for high grade paper should be long,
high in cellulose content and low in lignin content.
6.5.1 Raw Material Process

The logs of wood from the storage area are conveyed to the barking drums. The bark is removed by revolving the
logs in drums, causing the logs to repeatedly strike one another.
• Chipping process: This process is used in the case of wood and bamboos. The debarked wooden logs or
bamboos are fed into a chipper hopper. The chipper consists of a large rotating disc fitted with series of sharp
knife blades rotating at a speed. This reduces the wood or bamboos to small chips of a required size. The chips
are transferred by continuous belt conveyors either to chip storage bins, silos or directly to the digesters.
• Bale opener: The process is used for all raw materials which are in the baled form except wood and
bamboos.
6.5.2 Pulp Production

Pulp is commercial cellulose derived from wood, bamboo, bagasse and so on, by mechanical and chemical
methods.
• Mechanical process: Wood or bamboo chips are mechanically shredded or ground between metal shearing
discs of a machine called the Refiner. The discs are rotated at a very high speed. The process yields a higher
quality of pulp and is suitable for the production of newsprint, cheap paper back books where strength and ease
of bleaching are not the limiting factors.
• Chemical process: The cellulose from the raw material is freed from lignins and other non-cellulose ingredients
by reactions with chemical reagents. The pulp obtained by this process can be bleached. The yield is less but
the pulp is of good quality. The two important processes are:
Sulphate (Kraft) process
Sulphite Process
6.5.3 Paper Making

The commercial method for paper making is to prepare a suitable fibre suspension in water which is fed to a paper
machine where fibres are matted and dried.
Process
• Preparation of fibre suspension: pulps are water slurried to mechanical disintegrators of various designs.
These usually consist of rotating drums with knife attachments or rotating stationary disks to produce viscose
shear. Such operations are called beating and refining. Fillers are added to the slurry to increase brightness,
flexibility, softness and so on.
• Formation of paper: Paper machines are complex and expensive, usually specially designed for each installation.
The two types commonly used are the foundrinier machine and the cylinder machine.
• Foundrinier machine: The machine exceeds 300 inches (25ft) in width and is up to hundreds of feet in length.
78/JNU OLE
Conversion of the fibre suspension into paper incorporates the following three principal steps
Forming the wet web
Pressing the wet sheet
Drying the sheet
• Cylinder machine: In the cylinder machine, screened pulp is formed into a uniform layer on the wire-cloth
surface of a cylinder mould that revolves, partially submerged in a vat of thin paper stock. Suction within the
cylinder mould attracts the fibres to the wire. As the cylinder revolves, water drains to the mould interior. The
pulp sheet is removed from the cylinder by an endless felt and is carried by the felt through a series of squeeze
and drier rolls in the same manner as in the Foundrinier machine.
6.5.4 Fire and Explosion Hazards and Loss Prevention Measures

• In the general sense, the principal hazard in the industry is of the presence of combustible material at various
stages, i.e., raw material, manufacture and the finished product stage.
• In other industries, the average fire load is 20 kg per square metre, whereas in paper mills the average fire load
is 4000 kg per square metre, i.e., 200 times greater than the general industry figure.
• The areas of hazard in the paper mill fall into three categories; viz., storage of raw materials, process and the
finished product storage.
Process hazards and prevention measures

• The debarking and chipping processes produce large quantities of combustible residues in the form of bark and
wood dust, which may catch fire due to sparks of welding or friction.
• In case of conveyors connecting the above blocks to the digester house, material on the conveyors may catch
fire by the generation of static electricity due to the friction of conveyors on jammed idler rollers or due to
sparks of electrical equipment.
• In case of bale openers, any metallic parts such as rivets, rails, etc. might pass along with bales and when they
strike the spiked lattices, sparks may be produced and the fibre in loose form might catch fire.
The fire/loss prevention measures

• Debarking/Chipping/Bale opener sheds must be preferably located 6 metres away from all other blocks and
constructed from non-combustible material.
• Sprinklers must be provided inside the bale opener machine.
• The entire electrical installation must have double earthing.
• Rollers of conveyors must be properly lubricated and kept moving freely.
• Emergency stopping devices must be provided along the entire length of the conveyors.
6.6 The Chemical Industry

The chemical industry includes probably a far larger number of products and processes than any other sector. There
are giant factories like fertilisers, petroleum refineries and petrochemicals which are basically hydrocarbon processing
industries, processing thousands of tons of hydrocarbons per day. The hazard potential of fire and explosion in the
chemical industry is probably much greater than in any other industry, since flammable / combustible materials are
inherent in so many phases of manufacture and use. Losses from fire and explosion in the chemical industry per
plant are more than in any other industry, as also the average loss per fire is the largest in any industry.
Over one million different organic compounds and about 30,000 inorganic products are produced in chemical plants
today. About another three million chemicals are listed. The available information on chemicals states that roughly
2500 chemicals are hazardous and 1700 are extra hazardous.
79/JNU OLE
Fire Insurance
6.6.1 Sources of Ignition

Amongst the various sources of ignition, viz., electrical, smoking, spontaneous combustion and so on, electrical
appliances and installations were found to be the largest single cause of fires and spontaneous combustion features
prominently in industries employing highly reactive materials in the process.
• Material first ignited: An analysis of different types of material as the originating cause of fire revealed that
a quarter of the fires involved the ignition of various types of flammable liquids. The next largest group was
insulation and lagging, while packaging material and dusts/powders also figured prominently.
• Location of fire origin: A study of the commencement of fires revealed that about three quarters of all fires
started in the production /process and maintenance areas. This figure is five times that of fires which originate
in storage and loading areas.
Fire hazards of chemicals: When assessing the possible fire hazard of a chemical process, it is necessary to carefully
evaluate the hazards associated with different types of chemicals used. The hazards associated with different types
of chemicals are as under:
• Explosives: These chemicals under certain conditions of chemical action, temperature, shock, can decompose
rapidly with explosive violence causing fires and explosion. Examples: TNT, Nitro-glycerine, Nitrates and so
on.
• Flammable chemicals: Practically all organic chemicals are flammable. With flammable liquids, the relative
hazard increases as the flash point decreases. Chemicals having a flash point below 32 degree C are most
hazardous. The propagation of fires in flammable solids is comparatively slower than in liquids. Gas vapour or
dust fires propagate so rapidly that they are often accompanied by explosion. Examples: Methanol, Ethylene
oxide, Benzene and so on.
• Oxidising agents: These chemicals are a source of supply of oxygen and can supply oxygen even in the absence
of air. Therefore, these materials are a potential fire risk. Examples: Concentrated acids, Peroxides, Nitrates,
Per-chlorates and so on.
6.6.2 Chemical Processes

Chemicals processes are divided into two, as described below:
Unit operations
Unit operations are those where only physical changes are taking place. Operations such as distillation, heat transfer,
size reduction (grinding or pulverisation), mixing and blending , mass transfer, drying and evaporation, momentum
transfer (pumps, compressors and so on) and phase separation are a few examples of unit operations.
Fire hazards of unit operations

Unit operations are comparatively less hazardous than unit processes. However, in case of unit operations like
distillation, extraction, etc., a large quantity of material is handled and if the material handled is of the flammable/
combustible nature, then it possesses a severe fire hazard. Operations like pulverising, spray drying etc. pose hazards
of dust explosions. The hazards of a few common unit operations are detailed below:
• Heat transfer: This is the most widely used single operation in the processing of chemicals. Liquid metals like
mercury, molten salt mixtures, cooling water and ethylene glycol are different media for heat transfer.
• Size reduction: In this process, fire or explosion is the main hazard. The possibility of a spark can be prevented
by removing any stray iron pieces by a magnetic separator or a screen. The grinding system must be suitably
earthed to prevent the accumulation of a static charge. Dust particles mixed with air can also explode.
• Mixing – Blending: When a gas is mixed with a liquid, attention should be paid to the possibility of combustible
foams being formed. Such foams can also go out of hand.
• Mass transfer: Columns operating at high temperatures, particularly those which use some steam in processing,
should be designed to prevent any accidental injection of liquid water into the tower. This has caused several
accidents in petroleum refineries.
• Drying evaporation: Drying equipment can be of various types. Care has to be taken to prevent overheating of
80/JNU OLE
the dryer, which may result in fire or explosion. Spray dryers are subject to the possibility of a dust explosion
if the material being dried is combustible.
• Evaporation and crystallisation: Evaporators can be fouled, like heat exchange by scale formation, which
must be removed at regular intervals. Crystallisers are normally like agitated vessels, cooled by chilled water
or brine. Agglomerates of crystals can also deposit on the valves, reducing the cooling efficiency.
• Momentum transfer: In the chemical industry, pumps are used very frequently. Problems with pumps arise
from corrosion, cavitation, water hammer etc. The Waterhammer is caused if water is flowing in a pipe and it
is suddenly stopped, releasing a lot of kinetic energy. Cavitation is caused, if the pressure of the fluid around
the impeller of the pump falls below its vapour pressure.
• Phase separation: This includes filtration, centrifugation, screening or sedimentation. Care should be taken to
avoid fires or excessive exposure of personnel to toxic materials. A centrifuge rotates at a very high speed and
a mechanical fault leading to a spark can cause ignition. If there is an explosion hazard, the centrifuge should
be blanketed with an inert gas, such as nitrogen.
Unit processes
Unit processes are those where chemical changes take place due to chemical reactions. Many chemical reactions
are exothermic i.e., accompanied by the liberation of heat.
Endothermic reactions such as cracking etc. are less hazardous. The hazard posed by exothermic reactions depends
on the amount of heat liberated per unit of material during the reaction.
The hazards of a few unit processes are enumerated below:
• Sulphonation: Sulphonation is done with concentrated sulphuric acid, oleum, stabilised sulphur trioxide or
chlorosulphonic acid. These agents are very corrosive by themselves to human exposure. If they come in contact
with water, there is a violent reaction producing a lot of heat and fumes. It is therefore necessary that reactors
(generally of cast iron) are of sound construction and are tested for punctures in walls.
• Nitration: Nitration is done with dilute or concentrated nitric acid or mixed acid or acetyl nitrate. Nitric acid
is very corrosive and causes serious burns of skin. Nitration of some compounds is accompanied by intense
heat evolution and if proper temperature is not maintained and if the rate of additions are not controlled, the
temperature may shoot up which may lead to explosions in heat sensitive materials.
• Amination: Amination with ammonia is done under very high pressure and for safety, the autoclave must be
checked at intervals and safety valves and rupture discs more often to avoid failures due to pressure build up.
• Hydrogenation: Hydrogenation is an exothermic process and there is a possibility of hydrogen build up and
consequent explosion in the reactor.
6.7 The Hydrocarbon Processing Industry

Petroleum was formed from the organic matter of fossil deposits millions of years ago. This organic matter was being
continuously subjected to conditions of extreme pressure and temperature, which caused its gradual decomposition
into petroleum. The resulting petroleum or crude oil or rock oil accumulated in places favoured by geological
conditions and was pressurised through ages. Petroleum consists of a multitude of substances, exclusively of carbon
and hydrogen popularly known as ‘Hydrocarbons’ or fossil fuels.
Composition of petroleum
• Petroleum usually consists of a mixture of several hydrocarbons with a different number of carbon atoms.
• The mixture of hydrocarbons can be classified as Paraffins (i.e., straight chain compounds), Cyclic compounds
like Cyclohexane, Cyclopentane and so on and Aromatics (i.e., ring compounds like Benzene, Toluene, Xylene
and so on).
Processing of crude oil

• Crude oil is processed in refineries by fractional distillation, which separates the different hydrocarbons by a
method based on their boiling points.
• By variation of the distillation pressures, the boiling point of the products can be altered.
81/JNU OLE
Fire Insurance
• Usually, several distillation columns are arranged in series, operating at different pressures. In these columns,
several million tonnes of crude oil are separated into ‘fractions’ or ‘cuts’ i.e., the products which have similar
boiling points.
6.7.1 Characteristics of Hydrocarbons Leading to Fire and Explosion

• Flash point: It is the lowest temperature at which a flammable liquid would give off enough vapours to form
a flammable mixture with air when an ignition source is brought near the liquid surface. Obviously, lower the
flash point, higher is the hazard possessed by a particular liquid. Many hydrocarbon liquids such as crude oil,
naphtha, etc. have flash points at or below the ordinary room temperature and normally are covered by a layer
of flammable vapours that will ignite immediately if a source of ignition is brought nearby.
• Flammable liquid: It is any liquid with a flash point upto 930C. The Indian Petroleum Rules divide flammable
liquids into three classes as follows:
Class A: Having a flash point below or up to 32oC
Class B: Having a flash point above 32oC and up to 65oC
Class C: Having a flash point above 65oC and up to 93oC
• Flammable vapours: Vapours from flammable liquids are heavier than air and expressed in terms of vapour
density.
• Vapour density: It is a measure of relative density or weight (compared with air expressed as unity) of a vapour
or gas with no air present. Obviously, gas or vapour with a density less than one is lighter than air and will rise
when released.
Example: Ammonia (0.59), Hydrogen (0.069), Methane (0.06)

• apours or gases with densities greater than one, will settle down when released.
V
Example: Propane (1.56), Butane (2.05), Benzene (2.8)
6.7.2 Hazards in the Hydrocarbon Processing Industry

The hydrocarbon processing industry is generally of a gigantic size as compared to the normal chemical industry.
The industry is susceptible to the risk of catastrophic financial losses because of the:
• Enormous concentration of capital investment.
• Magnitude of earnings.
• Inherent fire and explosion hazards of hydrocarbon processes and products.
From the fire and explosion hazard point of view, a hydrocarbon processing plant/ complex can be divided broadly
into five identifiable areas as under:
Hazards in process units and production plants

The process unit, as the name indicates, processes various combinations of hydrocarbons. The inputs are also called
raw material or feed stock (for example, crude oil in a refinery). The three salient features of a process unit are:
• High quantities of hydrocarbons.
• Very critical conditions of temperature and pressure.
• The rapid movement of these hydrocarbons in various phases like gases, liquids, solids.
Hazards in unit processes

Since, the unit processes essentially involve chemical changes, the nature of their reactivities vary considerably.
This is quantified by what is known as the “Reactivity Factor”. The reactivity factor amongst the various unit
processes will be the lowest for the endothermic (heat absorbing) reactions such as cracking, reforming and so on.
The reactivity factory for exothermic (Heat releasing) reactions will be obviously higher. This can be further sub-
divided as per the complexity of the reaction and the severity of the exotherm. The reactions can be grouped in the
increasing order of reactivity as under:
82/JNU OLE
• Reactions such as hydrogenation, sulphonation, esterification, isomerisation and so on
• Alkylation, condensation, oxidation by air or oxygen, polymerisation and so on
• Halogenation
• Oxidation using chlorates, permanganates, inorganic peroxides and so on
• Nitration
The hazard posed by reactivity is further aggravated by severe pressure and temperature conditions as well as material
factors of various materials handled.
Hazards in unit operations

Unit operations essentially involve physical changes. Since no chemical reaction takes place, the Reactivity factor
is zero. So they pose fewer hazards as compared to unit processes. However, a unit operation carried out under
severe conditions of temperature and pressure, handling of materials with higher material factors may pose a higher
hazard as compared to the unit process.
Hazards of flare and flare stacks

The vapours of flammable liquids are generally heavier than air. Hence, if waste and surplus hydrocarbon gases
released by safety valves and pressure relief valves of various equipments cannot be released to the atmosphere,
they will settle down and may strike any hot surface in the plant leading to fire and explosion. These gases are,
therefore, collected by a network of pipelines and joined to a header which leads to a knock-out drum for separating
any liquid from the flare gas. A water sealed vessel is provided to prevent the flame from backing up from the flare
stack where the gas is safely disposed off by burning. In the fertilizer industry, only gases like hydrogen and methane
which are lighter than air are released. These can be safely vented off without burning. The hazards involved in flare
and flare stacks are the following:
• Hazards of internal explosion inside the flare system due to the ignition of the combustible mixture
• Liquid carry-over from flare stacks
• System obstructions
• Entry of low boiling hydrocarbons
6.7.3 Other Hazards Related to Process Units/Production Plants

Fired Heaters
The fired heater is equipment where the liquid to be heated is passed in tubes and heat is supplied by burning fuel
externally on the shell side. Due to the presence of the live and naked flame obtained by the controlled combustion
of a variety of fuels, fired heaters are the most hazardous pieces of equipment in a plant. The operational hazards
of fired heaters can be listed as under:
• Explosion due to simple faults like leakages in fuel flow controlling valves.
• Mechanical rupture of tubes carrying the material to be heated.
• Improper temperature control
Compressors: Compressors are used to compress huge quantities of hydrocarbon gases. The compressors should
be located downward and sufficiently far away from heaters. The operational hazards of compressors can be listed
as under:
• An internal explosion is possible if air is drawn into the system through leakages in packing glands, fittings
etc.
• Gas may also escape because of human failure or equipment rupture by over pressure.
• Inadequate lubrication leading to operational failure.
Pumps: pumps are required to render the service of transporting hydrocarbons round the clock and for years together.
This necessitates preventive measures and adequate maintenance of pumps which otherwise pose the following
hazards:
83/JNU OLE
Fire Insurance
• Leakage of flammable hydrocarbons through glands, packing and so on

• Improper location of pump compounds
• The high pressure charge pump must be isolated from major process equipment or other pumps.
Piping: Piping for a hydrocarbon processing industry is what blood vessels are for a human body. All the equipment
is interconnected by piping in an integrated process unit. Critical piping circuits such as transfer lines from fired
heaters, condensing vapour lines etc. need to be identified and have adequate space provided. The hold-ups of
hydrocarbons in piping therefore cannot be neglected and nor can the hazards associated with piping be ignored.
Some of the hazards are as follows:
• Choking of pipelines leading to heat and material build-up in a particular section of the process units which in
turn will lead to fire and explosion.
• Leakages in the piping system at hazardous locations, untraceable leakages and leakages at inaccessible locations
in the complex piping network may lead to vapour cloud formation and accumulation of flammable liquids and
vapours in the form of pockets at particular locations in the plants. Ignition of this unconfined vapour cloud
would pose the severest fire and explosion hazard.
• A majority of the hydrocarbon fluids when flowing through pipes can build up large static electricity potentials.
If not adequately earthed, the accumulations of static electricity charges round the clock in the piping systems
may lead to disastrous fires and explosions.
84/JNU OLE
Summary
• The causes which mainly contribute to fire hazards in various departments or warehouses of a textile mill:
mechanical friction, fluff, electrical short circuit, electrostatic charge, bad housekeeping, human negligence,
improper stacking and storage, faulty construction and use of flammable materials like petrol, gas, kerosene
and so on
• Few other hazards faced by textile industry are: the conspicuous hazard arises in the return air system where all
the dirt and fluff will be sucked in a humidification plant, the thermic fluid and heaters may lead to overheating
and leakage which may result into big explosions and fires
• The Indian Jute Industry is one of the major industries in our country employing millions of people and earning
cores of rupees by way of foreign exchange. The principal constituents of Jute fibre are Alpha Cellulose (60%),
Semi- Cellulose (approx. 25%), Lignine (approx. 11%).
• Jute increases in volume rapidly with the absorption of water and decomposes when in contact with water for
long periods, releasing methane. Jute risks can be distinctly divided into two classes, the assorting, pressing
premises, commonly known as jute press and jute mills
• Fires in jute press premises usually take place in the assorting sections of the warehouses and sometimes in
the pucca bale warehouses. But incidences of fires are much less in the press house itself, as compared to
warehouses.
• Jute is the main raw material processed in jute mills which in any form, being of a combustible fibrous nature,
is a swift fire carrier and fire therefore is an ever present hazard.
• The rubber industry is dominated by tyre manufacture with some 65% of natural rubber produced going into
tyre and associated products. The rest of the rubber product is absorbed over a wide range of industrial products.
Rubber is classified into natural rubber and synthetic rubber.
• The principal hazard in the paper industry is from the presence of combustible material at various stages i.e.,
raw material, manufacture and the finished product stage.
• The hydrocarbon processing industry is generally of a gigantic size as compared to the normal chemical industry.
The industry is susceptible to the risk of catastrophic financial losses because of the: enormous concentration
of capital investment, magnitude of earnings and inherent fire and explosion hazards of hydrocarbon processes
and products.
References
• Industrialfirefight, 2011. Industrial Fire Brigades: Tank Hazard Control from Action Training Systems [Video
Online] Available at: <http://www.youtube.com/watch?v=4RR6dw_hO2M> [Accessed 14 June 2011].
• Industrialfirefight, 2011. Industrial Fire Brigades: Ventilation Procedures from Action Training Systems [Video
Online] Available at: <http://www.youtube.com/watch?v=3rz_gKTVoe8> [Accessed 14 June 2011].
• Kumar, A. & Rohit, 2011. Industrial hazards due to fire accidents, mechanical and electrical equipments,
chemicals and pharmaceuticals [Online] Available at: <http://www.scribd.com/doc/47446597/INDUSTRIAL-
HAZARDS-DUE-TO-FIRE-ACCIDENTS-MECHANICAL> [Accessed 14 June 2011].
• Types of major chemical/industrial hazards – Fire [Online] Available at: <http://www.ekdrm.net/e5783/e17327/
e27015/e27713/> [Accessed 14 June 2011].
Recommended Reading
• National Fire Protection Association, 1990. Industrial Fire Hazards Handbook, 3rd ed., NFPA.
• Cheremisinoff, N., 1999. Fire and Explosion Hazards Handbook of Industrial Chemicals, William Andrew.
• Thomson, N., 2007. Controlling Fire Hazards, NGT Publishing Limited.
85/JNU OLE
Fire Insurance
Self Assessment
1. The process of stretching a cotton or synthetic staple fibre into a yarn is known as __________.
a. weaving
b. spinning
c. processing
d. polymerisation
2. ________is the worst enemy of the textile industry.

a. Thermic fluid
b. Humidification
c. Prismatic effect
d. Fluff

a. Tramp metals in the machines or overheating of bearings are common causes of outbreak of fires in spinning
and weaving.
b. Weaving is hazardous and fire arises only because of mechanical defects in the machinery.
c. Even a small spark due to friction or an electrical fault is sufficient for the fire to spread across the fluff
covered surface
d. Jute fibre has a tendency to shed water and rapidly dry up during a fire
4. Hydrogenation is a/an __________ process and there is a possibility of hydrogen build up and consequent
explosion in the reactor.
a. exothermic
b. electrical
c. chemical
d. mechanical

a. The pulp and paper industry requires glucose based raw materials.
b. Fire hazards in the rubber industry are sharply differentiated between storage and operations.
c. Paper production requires a disintegration of the bulky fibrous material to small agglomerate fibres.
d. Rubber storage is characterised by a low fire load and in general a low inception hazard.
6. Which of these chemicals are a source of supply of oxygen and can supply oxygen even in the absence of
air?
a. oxidising agents
b. flammable chemicals
c. explosives
d. nitration
7. Rubber is classified into __________rubber and synthetic rubber.

a. man-made
b. chemical
c. natural
d. processed
86/JNU OLE
8. Jute increases in volume rapidly with the absorption of water and decomposes when in contact with water for
long periods, releasing ______________.
a. oxygen
b. nitrogen
c. methane
d. ethane
9. What does SBR stands for in rubber industry?

a. Styrene Butadiene Rubber
b. Styrene Butyl Rubber
c. Silicon Butadiene Rubber
d. Sulphur Butadiene Rubber
10. Paper production requires a disintegration of the bulky fibrous material to small agglomerate fibres and this
process is known as _________.
a. polymerisation
b. spinning
c. pulping
d. oxidising
87/JNU OLE
Fire Insurance
Chapter VII
Fire Insurance Claim and Settlement
Aim
• discuss the legal aspects of fire insurance claim
• explain the procedural aspects in fire claims
• clarify the rights of the insures
Objectives
• enlist the important aspects of survey
• discuss the issues involved in the survey job
• highlight the terms related to fire insurance claim
Learning outcome
• identify the types of properties that are covered under the claim
• know the crucial aspects of survey
• understand the doctrine of proximate cause
• comprehend the process of survey and loss assessment
88/JNU OLE
7.1 Legal Aspects of Fire insurance Claim
The processing and settlement of claims requires a sound knowledge of:
• the general and special law of contract
• the terms , exceptions and conditions of
the fire and special perils policy
the extensions of the policy
the special policies and clauses
Duties of the insured

• It is the duty of the insured to observe good faith not only at the pre-insurance stage but also during the currency
of the policy and especially after the occurrence of a loss. The insured has to act as if uninsured.
• Apart from notifying the fire brigade, the insured must take immediate steps to extinguish the fire, to prevent
it from spreading and wherever practicable to remove the property insured to a place of safety, to protect the
salvage and so on.
• The other important duties of the insured are to:
Give notice of loss to insurer.
Submit proofs and particulars of loss, both as regards cause of loss and extent of loss, on there own expenses.
The onus of proof of the cause of loss lies on him; so also the burden of proving the amount of loss.
Onus of proof
• Where the loss is caused by an insured peril e.g., fire, the onus of proving that the loss was so caused is upon
the insured.
• According to generally recognised rule, the onus of proof is on the insurers that the loss was caused by an
excepted peril.
• However, this onus of proof may be shifted back to the insured by policy conditions. Where a breach of condition
is alleged, the onus of proving it is on the insurers.
7.1.1 The Doctrine of Proximate Cause

• When the loss arises, the insured has to prove that the loss he has suffered is the loss provided for in the
policy.
• But there may be complicated situations in which the insured peril is only one of several events all of which
have simultaneously or successively produced the loss.
• The liability in such circumstances has to be determined in the light of the legal maxim – cause proxima non
remota spectatur (the immediate and not remote cause should be regarded).
• The classic definition of proximate cause is:
the active efficient cause
that sets in motion a train of events
which brings about a result
without the intervention of any force started and working actively from new and independent sources.
• It concerns with the most powerful, dominant, effective and active cause to the exclusion of all other causes
which are considered remote. The insurance policy will pay the claim only if the loss is proximately caused by
an insured peril.
• A peril insured against would produce prima facie damage when the actual instrument of destruction is the natural
and necessary consequence of the peril; in other words, apart from the peril the loss could not have happened.
• Thus, the loss may be attributable to smoke arising from the fire or to the falling of walls in consequence of
structural weakness resulting from a fire. These are payable under the policy as they are deemed to the proximately
caused by the fire.
89/JNU OLE
Fire Insurance
• In the English case Johnstone v. West of Scotland, the court held that the wall which created the damage fell
in consequence of the injury it had sustained by the fire and therefore, although the wall was the instrument of
damage, the fire was the proximate cause.
• In the English case Gaskarth v. Law Union, the wall which was damaged by fire, remained standing for several
days and thereafter was blown down during a violent storm, causing damage to the adjoining property. The Court
held that the proximate cause of the damage done to the adjoining property was not the fire but the storm.
• Thus, losses incurred by the insured to check the progress of a fire or to save property are attributable to the
fire, provided the steps taken are reasonable and bonafide.
• Property may be damaged by water used for the purpose of extinguishing the flames; or houses may be blown
up by the fire brigade to prevent the fire from spreading. In both cases, fire must be regarded as the proximate
cause of the loss.
• Similarly, where the insured removes the property from the building in which the fire is raging for the purpose
of placing the property in safety so as to minimise the loss, any loss caused to such property by reason of such
removal is considered to be a loss by fire.
Excepted perils
• If the loss is proximately caused by an excepted peril, there is no liability under the policy.
Rights of insurers
• Insurers make a complete investigation both into the details of the claim and into the circumstances of the fire
and this require taking over and keeping possession of the salvage as also the premises until investigation is
complete.
• These rights are all the more necessary as not all claimants are honest. Hence wider powers are reserved for
insurers under the policy conditions.
• Under the condition, the insurers on the happening of loss have certain rights. The condition also provides that
no claim under the policy shall be payable if the provisions of this condition have not been complied with.
• If some property is saved from loss i.e., salvage, the value of such salvage is deducted from the amount of the
claim.
Warranties
• A warranty is an undertaking by the insured that:
Some particular thing shall or shall not be done or
That some condition shall be fulfilled or
Whereby he affirms or negates the existence of a particular state of facts.
• In non-insurance commercial law, a warranty is only a stipulation, breach of which does not go to the root of
the contract but merely gives rise to damages.
• In insurance law, a warranty is a condition precedent and must be complied with literally if the insured wishes
to recover his claim.
• Warranties have to be distinguished from representation. A representation must be substantially true and should
be made in good faith. A misrepresentation will avoid the contract only if it is material.
• Although, insurers are entitled to avoid a claim if there is breach of warranty. Insurers will usually waive a
breach of warranty if it is merely of a technical nature and does not contribute to or aggravate the loss.
• In such circumstances, claims are treated as non-standard claims and settled for a lesser amount say up to 75%
of the loss.
Ex-gratia payments
• These are claims which are paid as a matter of grace where the loss is outside the scope of the policy or the
liability under the policy.
90/JNU OLE
• In strict legal terms, is doubtful. Whenever ex-gratia payments are effected, it is the practice not to pay the full
amount of the loss and such claims are paid ‘without precedent’. Three other features of ex-gratia payments
must be noted:
Subrogation rights do not arise
The Reinsurer will automatically follow the action of the ceding Company
The right to make ex-gratia payments is vested in the Board of Directors of the Companies.
Without prejudice
• The words have the effect of leaving open the question of ultimate liability under the policy. For example, the
following actions taken by the insurer are without prejudice to their right to deny liability if they are legally
entitled to do so:
Issuance of a claim form
Receipt of documents relative to the cause of loss or amount of loss
Conduct of survey and investigation to determine the cause and amount of loss and so on.
7.1.2 Rules of Interpretation of Policies

• When there is any dispute as to the meaning of words used in the policy, the courts adopt the following rules
which are known in legal language, as rules of construction. The most important rule is: “The intention of the
parties to the contract must prevail and the intention is to be looked for in the policy itself, read as a whole”.
The other rules are:
If clauses and endorsements are attached to the policy, they will override the printed matter in the body of
the policy; typewritten matter will override printed matter and hand-written will override all other matter.
The words used in the policy are to be given their plain, ordinary and popular meaning. However, technical
terms have to be construed according to their technical definitions.
The ordinary rules of grammar and punctuation will apply.
Whenever there is any ambiguity in the policy or any doubts as to the meaning and effect of the words
used, the courts give the benefit of the doubt to the insured. The Insurer must suffer, if there is doubt or
ambiguity in the policy.
7.1.3 The Amount of Claim Payable

A contract of fire insurance is a contract of indemnity. The insurers undertake, by the payment of a sum of money,
as nearly as possible, to place the insured in the same position as he was immediately before the fire. The extent of
indemnity is therefore subject to two main limitations:
• Market Value of the property affected. The value is calculated taking into account the following factors:
The value at the time of loss.
The value at the place of loss.
The real or intrinsic value excluding any sentimental value.
Depreciation or betterment.
Prospective profits or other consequential and indirect losses are excluded.
• The sum insured under the policy for the affected item.
The policy will pay the sum insured or market value whichever is less, in case of total loss; the condition of average
will apply for partial loss/damage. Value may be defined as the worth of anything in terms of something else for
which it can be exchanged either in other goods or in money.
Insurance is concerned with the actual, real or intrinsic value of the property. The term ‘Market Value’ in insurance
practice has different meanings in different situations but the objective in all cases is to give effect to the principle of
indemnity in a practical manner. The basis adopted must enable the insured to recover the real value of the property
91/JNU OLE
Fire Insurance
involved in the loss. Within the framework of the policy terms and conditions, the insurer attempts to provide a
fair indemnity to the insured.
7.1.4 Types of Properties Affected

The types of properties which are covered under the fire insurance claim are:
Stock in Trade Manufacturer’

Furniture, s Stocks: raw
Fixtures & material, stock in
Fittings process, finished
goods
Machinery
Contract Price
Types Household
goods and
Buildings of personal
properties effects
Fig. 7.1 Types of properties covered under fir insurance
Buildings
• In respect of buildings, indemnity is provided on the basis of cost of reinstatement or reconstruction of the
building.
• This cost is determined with reference to the cost of labour and materials at the time and place of the loss plus
other professional and incidental charges.
• However, the new structure will be better than the old one. Therefore, deduction for depreciation on the cost
of material is made.
• The factor of depreciation is important in the assessment of building losses, especially if old structures are
involved.
• The causes of deterioration in building materials are decay, corrosion, metal fatigue, wear and tear and so on.
Machinery
• If the machinery damaged is relatively new, the cost of replacement less depreciation is not difficult to decide.
Complications could arise where:
i. The machinery, although old, still performs well for the purpose for which it was designed, or
ii. The machinery destroyed is old and out of date in industries where the rates of obsolescence and
technological improvement are high.
• In the case of (i) above, indemnity is the provision of new machinery which will perform similar functions,
subject to deductions for depreciation and the insured’s contribution towards betterments.
• Situations under (ii) above are more difficult. Hence, the practice for such obsolete machinery is agreed value
92/JNU OLE
insurance based on average usage, future life span and utility and so on. In either case, a fair basis of settlement
would be the cost of replacement less depreciation and allowance for any betterment if any.
• Where machinery is to be replaced, the insurers are liable for the cost of transporting the new machinery to the
site and the costs of erection or installation, if applicable.
• Wear and tear, rust, corrosion and metal fatigue are the common causes of deterioration in machinery. Some
machines have an extremely limited life because new and more efficient machines are continuously available.
The use to which the machinery is put influences its depreciation.
• Machinery which is operated for three shifts will have greater wear and tear than the machinery operated only
for one shift. Electrical installation is subjected to a greater wear and tear than other plant and equipment.
• Boilers, pipes, pumps and similar items of a plant suffer from rusting or corrosion. Machine parts which are
subject to constant stress may develop metal fatigue.
Furniture, fixtures and fittings

These may include any of the following:
• furniture, tables chairs, desks, cabinets, safes and so on
• counters, showcases and so on
• mechanical fixtures, scales, lighting fixtures, fans, air conditioning systems
• furnishing, draperies, venetian blinds, carpets and so on
• typewriters, adding, calculating and other business machines, computers and so on
The indemnity provided for these classes of property is replacement cost less depreciation.
Stock in trade
• The market value at the time and place of the loss will be provided as indemnity. The basis for settlement would
be the cost of replacement and not the price at which they would be sold.
• To the invoice price is added the cost of transporting the goods to the place of loss but credit must be given for
any trade or cash discount or other concession enjoyed by the insured in the normal course of his business.
Manufacturer’ s stocks
The stocks at the manufacturer’s premises may consist of:
• Raw material: Indemnity is represented by the landed cost at which such material is available at the place of
fire.
• Stock in process: The basis for settlement would be the cost of raw materials consumed up to the time of the
fire and all direct labour costs and overheads for processing up to that stage. Thus, the costs of processes yet to
be incurred are excluded.
• Finished goods: The traditional view holds that indemnity is represented by the net manufacturing cost at the
time of fire, that is to say, the manufacturer’s ex-factory price less his net profits. Simply, it means that the
indemnity should be confined to the cost of raw materials and direct and indirect costs of production, i.e., the
cost price to the manufacturer.
Thus, it will be obvious that unearned or anticipated or prospective profits are not included in whatever basis of
valuation that is taken in respect of stocks, whether belonging to the retailer, wholesaler or manufacturer.
Contract price
• Insurance of imported goods which are sold under a contract which is cancelled either wholly or to the extent
of loss or damage is subject to the contract price clause and the indemnity is based on contract price.
Household goods and personal effects

• The terms include furniture, cooking utensils, domestic appliances, television and so on. The term personal
effects would include wearing apparel, books and so on.
93/JNU OLE
Fire Insurance
• Where the goods are a total loss, the cost of replacement less deduction for depreciation is an adequate basis
for indemnity.
• If such property is damaged, the cost of repairs less deduction for depreciation on the value of parts replaced
will be the basis for indemnity.
7.1.5 Important Terms Relating to the Claim

Given below are few important term and concepts of claim:
Salvage
Pro-rata
average Excess
Important
terms
Escalation
Subrogation clause
Contribution
Fig. 7.2 Important terms in fire insurance
• Salvage: The term ‘salvage’ is means:

All property covered by insurance which escapes destruction or damage from the operation of an insured
peril.
The residual value of property which is partially damaged.
Assessment of loss may be on a ‘net’ basis or on a ‘gross’ basis. If the insured retains the salvage, the loss is indemnified
‘net’ that is, the gross agreed amount of loss or damage, less the value of the salvage. Where the insurers take over
the salvage the loss is paid gross, receipts from the sale of the salvage remaining with the insurers. The principle of
indemnity has two corollary principles of contribution and subrogation.
• Contribution: The condition provides that in case of more than one policy on the same subject matter each
insurer will pay his rateable proportion of the loss.
• Subrogation: Subrogation is implied in all contracts of indemnity. The fire policy condition of subrogation
modifies the common law position in one respect. This condition provides that subrogation takes place even before
indemnification by the insurer. This is considered necessary to enable the insurer to act quickly in disposing the
salvage and where applicable, proceeding against the third party responsible for the loss.
• Pro-rata average: If there is under-insurance, the amount of claim is proportionately reduced.
• Escalation clause: The tariff permits the incorporation of the escalation clause which provides for automatic
regular increase in the sum insured throughout the period of the policy.
• Excess: There is a compulsory excess under the fire policy. Voluntary excess, if opted for by the insured will
also apply.
94/JNU OLE
7.2 Procedural Aspects in Fire Claims
• On receipt of claim intimation the first step is to verify that:
The policy is in force.
The peril which has operated is covered under the policy.
The items of properties affected and the location involved are the same as covered in the policy.
The interest involved is the same as referred to in the policy.
• Thereafter the claim is registered and a claim number allotted. After registration of the claim, a claim form is
issued to the insured for completion and return.
• If the loss is more than Rupees 20000/-, a licensed surveyor is assigned the survey job for assessing the loss.
The surveyor is furnished with a copy of the claim form, copy of the policy and other relevant information.
• The basic duty of the surveyor is to investigate and report the cause of loss, extent of loss and compliance with
the terms and conditions of the policy.
• In very large losses, the insured desires and the surveyors recommend payment of ‘on account settlements’.
This course of action is taken where the liability under the policy is not in doubt and the preparation of the final
survey report will take time for various reasons.
• After completing the initial investigation, the surveyor will submit a preliminary report which would indicate
briefly:
the date of loss
the cause of the loss
a preliminary estimate of the loss or damage
• Thereafter, a final report is submitted giving full details of the adjustment of the loss and the surveyor’s opinion
on the question of liability under the policy.
• This final report is scrutinised along with other documents and if everything is in order, a discharge voucher is
sent to the insured for his signature and return, on receipt of which a cheque in settlement is sent.
• For small losses, the preliminary or interim report is not required and the claim will be settled on the basis of
the final survey report.
• As per condition 15 of the fire policy, the insurance cover is maintained to the full extent of the sum insured.
• However, in case the insured immediately on occurrence of the loss exercises his option not to reinstate the sum
insured, the sum insured shall stand reduced by the amount of loss.
• When the insurance is on a co-insurance basis, the surveyor is appointed by the leading insurer.
• The leading insurer settles the entire claim and recovers the expenses and proportionate shares of the loss from
the co-insurers.
• The claims which are paid will be reflected in the accounts which are prepared at the time of closing. In addition
to known outstanding claims, there may be losses which have occurred but not intimated to the insurers.
• A certain ad-hoc percentage of the known outstanding claims are provided for what are called I.B.N.R. claims
(incurred but not reported claims).
7.3 Important Aspects of Survey

The surveyor’s primary duties are to:
• investigate into the cause of loss
• ascertain the extent of loss
• advise the insured on loss minimisation measures and the protection of salvage
• advise the insurers on the disposal of salvage
• submit a detailed report on the above and other aspects relating to the loss
95/JNU OLE
Fire Insurance
7.3.1 Process of Surveying and Loss Assessment

An adequate investigation of the loss is facilitated, if the surveyor follows a logical and orderly process which may
consist of the following steps:
a. A thorough examination of the policy to ascertain the scope of coverage.
b. Inspection of the scene of loss and examination of the property destroyed or damaged and of undamaged
property to determine the cause and extent of loss, to render advice to the insured for loss minimisation and
measures to protect the salvage.
c. Examination of books of accounts and other records in the possession of the insured to arrive at the values
of the property insured and the property destroyed or damaged.
d. Examination of other records or reports covering the occurrence of the loss (e.g., fire brigade report, Salvage
Corps Report and so on). These reports may throw light on the time, place or cause of loss.
e. Preparation and submission of preliminary/interim and final reports.
7.3.2 The Important Issues Involved in any Survey Job

Cause of loss
• An important purpose of survey is to determine the cause(s) of loss. A thorough examination at an early stage
of the undisturbed salvage may reveal the most probable cause of fire.
• In some cases, the cause of fire may be defective heating devices, careless handling of hot or burning material or
electrical short-circuit. In many cases, the cause of loss may be visible and investigation may not be difficult.
• However, it may be difficult to determine spontaneous combustion which occurs in certain commodities such
as cotton seeds, oil-cakes etc. Bad storage conditions, existence of humidity and lack of ventilation result in
fermentation and heat which may lead to combustion.
• Visual inspection itself may identify the cause. Chemical analysis also may be conducted to establish that it was
a slow process of oxidation. Explosion damage is evidenced by shattered glass, broken or displaced machinery,
splintered timbers and widely scattered debris.
Assessment of loss
• The other important function of a survey job is to determine the value of the property covered by insurance and
the amount of loss that it has suffered.
• The condition of the property provides some evidence of value and the amount of loss.
• Another reliable evidence of value is provided by records which may show quantities, costs, age, history or
condition.
Building – loss assessment

• The cost of reconstruction is worked out on the basis of the prevailing material and labour costs at the place
and on the date of fire.
• This approach holds good for simple structures. For complex modern buildings, estimates will have to be
prepared by architects and contractors.
• But the surveyor still carries the responsibility to examine such estimates both as regards description of the
damage as well as the cost of reinstatement. If a building has been damaged, the surveyor should determine the
extent of necessary repairs and their cost. Whether the loss is total or partial, depreciation or betterment has to
be determined.
Machinery – loss assessment

• The loss on damaged machines or equipment is assessed on the basis of the cost of repair with deduction for
depreciation. Total losses are agreed according to the replacement cost less depreciation.
• This method is based on estimates of the cost of repairs or replacement prepared either by the surveyor or by
outside repairers, manufacturers and so on.
96/JNU OLE
• Where the machinery is of a complicated type or the damage is extensive, the loss assessment procedure becomes
more elaborate. In complicated machinery, components may have to be sent for repairs to manufacturers.
Stock and merchandise – loss assessment

• From the examination of the salvage, the entire premises and the places of storage or the display of stock, the
surveyor may be able to determine the probable quantities of stock that existed prior to the loss.
• If the stock is totally destroyed, then reliance will have to be placed on books of account. If the stock which is
totally damaged has a ready market and is replaceable, the loss is assessed on the basis of the cost of replacement
from the supplier or the wholesaler.
• If the stock is damaged but can be reconditioned for sale, then the basis of settlement will be the cost of
reconditioning plus any reduction in its sale price because of the reconditioned nature of the goods.
• When reconditioning is not possible, the loss is assessed on the basis of the sound value and the amount of
damage suffered by the goods.
Stock in process – loss assessment

• The quantities will have to be determined by a careful study of the production flow charts, process accounts
and so on, spread over a fairly long period.
• After determining the quantity affected, it is possible to assess the loss based on the cost of raw materials
consumed up to the point of loss and the proportional labour and overhead charges.
7.4 Final Survey Report

The final survey report generally consists of the following items of information:
1. The name of the insured, address
2. Construction
3. Occupancy
4. Type of property
5. Protection
6. Exposure
7. Character of the neighbourhood, previous fire record in the area, general labour situation
8. Previous losses suffered by the insured.
9. Assessment of the circumstances and the causes of loss: If the cause is unknown, then the surveyor will have to
give his opinion whether the fire was accidental in origin. The surveyor is also expected to give his comments
on the spread of fire and aggravation of loss due to the presence of combustible materials, openings in the walls
or floors and so on.
10. Description of damage: the condition of the property separately for each item such as building, machinery, etc.
immediately after the loss is described. Similarly, in case of the contents, the condition of the property affected
by the loss is described as damaged by smoke, scorching, water etc. or contaminated or melted or strained.
Photographs of the damage are provided.
11. Loss minimisation measures
12. Condition of average
13. Breach of warranty if any,
14. Recovery from third party, if any
15. Final assessment of loss: Where extensive damage is involved to building, machinery and so on, this section would
provide detailed information, cost of replacement/repair, expenses incurred by the insured in fire extinguishment,
the value of salvage, under insurance if any, excess applicable and the net loss suffered by the insured.
97/JNU OLE
Fire Insurance
Summary
• The processing and settlement of claims requires a sound knowledge of: the general and special law of contract
and the terms, exceptions and conditions of
• It is the duty of the insured to observe good faith not only at the pre-insurance stage but also during the currency
of the policy and especially after the occurrence of a loss. The insured has to act as if uninsured.
• Onus of proof: Where the loss is caused by an insured peril e.g., fire; the onus of proving that the loss was so
caused is upon the insured.
• The classic definition of proximate cause is: the active efficient cause that sets in motion a train of events,
which brings about a result and without the intervention of any force started and working actively from new
and independent sources.
• Insurers make a complete investigation both, into the details of the claim and into the circumstances of the fire
and this require taking over and keeping possession of the salvage as also the premises until investigation is
complete.
• In non-insurance commercial law, a warranty is only a stipulation, breach of which does not go to the root of
the contract but merely gives rise to damages. In insurance law, a warranty is a condition precedent and must
be complied with literally if the insured wishes to recover his claim.
• Ex-gratia payments: these are claims which are paid as a matter of grace where the loss is outside the scope of
the policy or the liability under the policy.
• Rules of interpretation of policies: “The intention of the parties to the contract must prevail and the intention is
to be looked for in the policy itself, read as a whole”.
• A contract of fire insurance is a contract of indemnity. The insurers undertake, by the payment of a sum of money,
as nearly as possible, to place the insured in the same position as he was immediately before the fire.
• The types of properties which are covered under the fire insurance claim are: buildings, machinery, stock in
trade, contract price, household goods and personal effects, manufacturer’s stocks and furniture, fixtures and
fittings.
• The surveyor’s primary duties are: to investigate into the cause of loss, to ascertain the extent of loss, to advise
the insured on loss minimisation measures and the protection of salvage, to advise the insurers on the disposal
of salvage, to submit a detailed report on the above and other aspects relating to the loss.
References
• Rogers, D., 2011. Tips on Fire Insurance Claims [Online] Available at: <http://ezinearticles.com/?Tips-on-Fire-
Insurance-Claims&id=1175332> [Accessed 15 June 2011].
• Wilson, S., 2011. Fire insurance claims guide [Online] Available at: <http://www.pushormitchell.com/files/
articles/Fire-Insurance-Claims-Guide.pdf> [Accessed 15 June 2011].
• Talandassociates, 2010. Fire damage - insurance claim help [Video online]. Available at: <http://www.youtube.
com/watch?v=ZMoYhvX8Q5w> [Accessed 15 June 2011].
• jbrennan1069, 2010. Tips to filing fire insurance claims [Video online] Available at: <http://www.youtube.com/
watch?v=lbaZk5JlvuM> [Accessed 15 June 2011].
Recommended Reading
• Peverett, E., 1997. Fire insurance law and claims, 2nd ed., Witherby & Co Ltd.
• Smith, G., 1998. The adjuster! Making insurance claims pay, 2nd ed., Cargo Publishing Company.
• Longcore, R., 2007. Insurance Claim Secrets REVEALED! Trafford Publishing.
98/JNU OLE
Self Assessment
1. The loss on damaged machines or equipment is assessed on the basis of the cost of repair with deduction for
_________.
a. depreciation
b. appreciation
c. loss
d. claim
2. The market value at the time and place of the loss will be provided as indemnity for _________.
a. furniture
b. stocks
c. buildings
d. raw material
3. Subrogation is implied in all contracts of _________.

a. insurance
b. claim
c. indemnity
d. risk

a. Whether the loss is total or partial, depreciation or betterment has to be determined
b. The condition of the property provides some evidence of value and the amount of loss.
c. An important purpose of survey is to determine the cause of loss.
d. The fire policy condition of subrogation modifies the common law position in multiple respects.
5. The leading insurer settles the entire claim and recovers the expenses and proportionate shares of the loss from
the ___________.
a. insurance company
b. co-insurers
c. market
d. third party
6. According to generally a recognised rule, the onus of proof is on the insurers that the loss was caused by an
excepted _______.
a. damage
b. loss
c. peril
d. hazard
7. ________may be defined as the worth of anything in terms of something else for which it can be exchanged
either in other goods or in money.
a. Value
b. Loss
c. Damage
d. Hazard
99/JNU OLE
Fire Insurance
8. Warranties have to be distinguished from ___________.

a. insurance
b. policy
c. claim
d. representation
9. The condition provides that in case of more than one policy on the same subject matter each insurer will pay
his ________proportion of the loss.
a. rateable
b. average
c. percentage
d. actual
10. The factor of _________is important in the assessment of building losses, especially if old structures are
involved.
a. claim
b. depreciation
c. insurance
d. policy
100/JNU OLE
Chapter VIII
Fire Consequential Loss Insurance
Aim
• explain the concept of fire consequential loss insurance
• discuss the basis of profit insurance
• describe the indemnity period
Objectives
• explain how the indemnity is measured
• highlight the operative clause of the insurance policy
• explain the new business clause and the claim procedure
Learning outcome
• know consequential loss insurance premium rate
• understand the specification of turnover basis
• discuss some important terms like insured standing charges, net profit, gross profit and so on
101/JNU OLE
Fire Insurance
8.1 Fire - Consequential Loss Insurance

The subject matter of consequential loss insurance is the business of the insured i.e. the earning capacity of the
property. Fire insurance affords cover for ‘material damage.’ However, an indemnity for the material damage does
not provide complete protection to the insured who will also suffer trading losses due to the total or partial stoppage
of his business. The object of loss of profits insurance is to make good of these losses. Hence, this is also known as
consequential loss or business interruption insurance. The trading losses which result from the stoppage of business
may be considered under three headings given below:
Increased
Standing
Net profit cost of
charges
working
Fig. 8.1 trading losses from stopping business
1. Net profit: which is the margin of income over expenses

2. Standing charges: which are overhead expenses which continue to be incurred inspite of the stoppage of the
business
3. Increased cost of working: which is the abnormal expenditure incurred by the insured to maintain the business
as far as possible, at its normal level, so that the loss under net profit and standing charges is avoided or at
least minimised. Examples of such expenditure are rent for temporary premises, payment of overtime, hire of
machinery, sub-contracting and so on.
8.2 Basis of Profits Insurance

If turnover is stopped or reduced, profits are affected. Therefore, loss of profits is determined and measured with
reference to the reduction in turnover and this is the basis adopted in profits insurance. Turnover in simple terms
means ‘Sales’ turnover which consists of the following three elements:
• Variable charges: these are expenses incurred in producing goods. They vary in direct proportion to the volume
of business transacted.
• Standing charges: These expenses are fixed in amount irrespective of the volume of business.
• Net profit: This is turnover minus variable and standing charges.
After a fire when the turnover is reduced, the variable expenses will also be reduced in the same proportion in which
case the insured suffers no loss on this account. But the standing charges do not reduce in the same proportion and
net profit too will be affected. For example:
Before Fire (Rs.) After Fire (Rs.)

Turnover 50,00,000 25,00,000
Production Cost 35,00,000 (70%) 17,50,000 (70%)
Standing Charges 10,00,000 (20%) 10,00,000 (40%)
Net Profit 5,00,000 (10%) ----
Net Loss --- 2,50,000
8.2.1 The Measure of Indemnity

• The proportion which the gross profit bears to the turnover during a given period is called the rate of gross
profit.
• In other words, the rate of gross profit is the normal earning power of the business expressed as a percentage.
• Accordingly, the measure of indemnity is the sum produced by applying the rate of gross profit to the reduction
in turnover during an agreed period following damage. When the rate of gross profit is applied to the shortage
in the turnover, the amount of trading loss is ascertained.
102/JNU OLE
• In the above example, the rate of gross profit of 30% is applied to the reduction in turnover of Rs.25, 00,000/-
which produces Rs.7, 50,000/- (loss in gross profit) which will be the measure of indemnity for a one year
indemnity period.
8.2.2 Indemnity Period

• The profits policy provides indemnity in respect of the loss of gross profits during the indemnity period which
is selected by the insured.
• The indemnity period chosen by the insured may vary from 3 months to 3 years. It is in the interest of the insured
to select an indemnity period which is of such duration that will represent the longest period during which his
business could be affected following a serious fire.
• The fire must occur during the period of insurance and the indemnity period which commences from the date
of fire may well extend beyond the expiry date of insurance.
8.2.3 The Sum Insured

The sum insured is fixed by the insured. Where the indemnity period is 12 months or less, the sum insured should
be the annual amount of the gross profit i.e. the annual amount of the net profit and the insured standing charges.
Examples of standing charges are:
• Interest on loans, bank overdrafts, debentures
• Rent, rates and taxes
• Duties, licences and patent fees,
• Director’s fees and remuneration
• Pensions
• Insurance premiums
• Motor car expenses
• Office and general establishment expenses
• Repairs and renewals chargeable to the revenue account
• Salaries to the permanent staff including the employees state insurance contribution
• Provident fund, superannuation, family pension, gratuity, perquisites benefits, welfare and so on
• Wages
• Advertising and publicity
8.3 The Operative Clause of the Policy

The operative clause of the policy reads as follows:
“That if any building or other property or any part thereof used by the insured at the premises for the purpose of the
business be damaged by the perils covered under the STANDARD FIRE AND SPECIAL PERILS POLICY and the
business carried on by the insured at the premises be in consequence thereof interrupted or interfered with THEN
THE COMPANY WILL PAY TO THE INSURED”.
The provisions for this clause are:
• Fire or other peril must occur at the insured’s premises;
• Property used for the business of the insured at the insured premises must be destroyed or damaged.
• The business must be interrupted or interfered with as a consequence.
• The resulting loss is paid in accordance with the provisions of the specifications incorporated in the policy.
• The loss of profits claim will be paid only if the material damage claim is paid or admitted under the respective
policy. (This is called the ‘Material Damage’ proviso).
103/JNU OLE
Fire Insurance
8.4 Important Terms for Various Calculations

Some of the important terms which are used for calculation purposes are:
Net profit
• The net trading profit resulting from the business of the insured at the premises after due provision has been made
for all standing and other charges including depreciation but before the deduction of any taxation chargeable
on profits.
• The net profit is that which remains after all costs of production and charges incurred in running the business
have been met.
Insured standing charges

• The standing charges covered by the insurance policy. These are the charges which the insured considers would
continue to be incurred if his business is affected and hence are selected by him for Insurance purposes.
Gross profit
• This is the net profit added to the amount of the insured standing charges.
• If there is no net profit, the amount of the insured standing charges less. Such a proportion of the net trading
loss as the amount of the insured standing charges bears to all the standing charges of the business will be the
basis of indemnity.
For example:
Turnover Rs. 10, 00,000
Production cost (60%) Rs. 6,00,000
Standing charges Rs. 5,00,000
Net Trading Loss Rs. 1,00,000
Insured Standing Charges Rs. 4,00,000
Standing Charges not insured Rs. 1,00,000
Gross Profit, in terms of the policy definition is Rs. 4,00,000
A proportion of the net trading loss as the amount of the insured standing charges bears to all the standing charges
of the business =
= Rs. 80,000
Total Gross Profit for the purpose of the policy is Rs. 3, 20,000
(Rs.4, 00,000 – 80,000 = Rs. 3, 20,000)
Rate of gross profit

• Rate of gross profit is defined as that earned during the financial year immediately before the date of the damage.
However, with most businesses, either they are making progress or they are losing ground.
• Provision must therefore be made to allow adjustments to the results of the previous completed financial year.
• Such adjustment proviso is bracketed against the rate of gross profit, annual turnover and standard turnover,
which three definitions cover all the essential factors in calculating the loss.
104/JNU OLE
Turnover
• It is the money paid or payable to the insured for goods sold and delivered and for services rendered in course
of the business at the premises.
• In other words, it is the insured’s income from trading including services rendered.
Indemnity period
• The period beginning with the occurrence of the damage and ending not later than number of months thereafter
during which the results of the business shall be affected in consequence of the damage.
• The maximum period stated in the specification is not necessarily the indemnity period. As soon as the business
has ceased to be affected by the damage, which may be after a very much shorter period than the maximum,
the effects on the turnover should be ascertained and the claim finalised.
Annual turnover
This is the turnover during the twelve months immediately before the date of the damage.
Standard turnover
• This is the turnover during those months/days of the preceding accounting year which corresponds with the
actual indemnity period during which the business was interrupted due to the operation of the insured peril.
• Hence, if a fire occurs on 1st January and the business is affected during the following three months, January
to March, then in ascertaining the shortage in turnover, the figures for those months are compared with January
to March in the preceding year.
• It is considered that this gives a fair basis of comparison. The standard turnover must be calculated subject to
the provisions of the “Adjustment Clause.”
Adjustment clause
• The adjustment clause as noted already is bracketed against the rate of gross profit, annual turnover and standard
turnover, all of which are the essential factors in calculating the loss.
• By means of this clause, adjustments may be made to the pre-fire figures used to calculate the loss, if by means
of those adjustments it is evident that something approaching true indemnity will be attained.
• The main criterion here is the trend of the business. The trend, either upward or downward must be taken into
account while arriving at the rate of gross profit.
8.5 Specification – Turnover Basis

Insurance is limited to the loss of gross profit due to:
Reduction
in turnover
Loss of
gross profit
Increase in
cost of
working
Fig. 8.2 Reasons for the loss of gross profit
105/JNU OLE
Fire Insurance
• Reduction in turnover and the amount payable as indemnity there under shall be the sum produced by applying
the rate of gross profit to the amount by which the turnover during the indemnity period shall, in consequence
of the damage, fall short of the standard turnover.
• Increase in cost of working and the amount payable as indemnity there under shall be the additional expenditure
(Subject to the provisions of Memo 2) necessarily and reasonably incurred for the sole purpose of avoiding
or diminishing the reduction in turnover which, but for that expenditure would have taken place during the
Indemnity period in consequence of the damage, but not exceeding the sum produced by applying the rate of
gross profit to the amount of the reduction thereby avoided.
Less any sum saved during the indemnity period in respect of such of the insured standing charges as
may cease or be reduced in consequence of the damage.
Memo 1: If during the indemnity period goods shall be sold or services shall be rendered elsewhere than
at the premises for the benefit of the business either by the insured or by others on his behalf, the money
paid or payable in respect of such sales or services shall be brought into account in arriving at the turnover
during the indemnity period.
Memo 2: If any standing charges of the business be not insured by this policy then in computing the amount
recoverable hereunder as increase in cost of working only that proportion of the additional expenditure
shall be brought into account which the sum of the net profit and the insured standing charges bears to the
sum of the net profit and all the standing charges. How the claim amount is computed will be clear from
the following illustration.
Illustration:
Gross profit insured for Rs. 3, 00,000
Period of Indemnity 12 months
Standard Turnover Rs. 10, 00,000
Turnover during the period of interruption Rs. 4, 00,000
Increased cost of working Rs. 70,000
Reduction in turnover saved by above cost Rs. 3,00,000
Gross profit during the previous financial year Rs. 3,00,000
Turnover during the previous financial year Rs. 12,00,000
Annual Turnover Rs. 16,00,000
Reduction in turnover
• Step 1: The rate of gross profit is ascertained as follows:

• Step 2: The shortfall in turnover is ascertained as follows:
0Less 10,00,000 - 4,00,000 = 6,00,000
• Step 3: The rate of gross profit is applied to the shortfall in turnover arrived at the Indemnity (25% of 6,00,000
= 1,50,000 ).
Increase in cost in working

• Step 4: The rate of gross profit is applied to the amount of reduction of business avoided due to additional
expenditure (25% of 3, 00,000 = 75,000). The expenditure of 70,000 which is less than Rs.75, 0000 is, therefore,
payable.
• Step 5: The total amount payable in respect of reduction in turnover and increase in cost of working is 1, 50,000
plus 70,000 i.e. 2, 20,000.
• Step 6: The adequacy of the sum insured is determined by applying the rate of gross profit to the annual
turnover.
106/JNU OLE
25% of 16, 00,000 = 4, 00,000
The sum insured is 3, 00,000 as against the insurable amount of 4, 00,000
The amount payable therefore is
Note: It is assumed that all standing charges were insured. Hence, under insurance and “average”, which is applicable
to such charges separately, have not been included. Similarly it is assumed that no standing charges were saved as
a result of the damage.
Memo 3 (Returns of Premium)

If the gross profit earned (or a proportionately increased multiple thereof, if the indemnity period exceeds 12 months)
during the accounting period of 12 months most nearly concurrent with the period of insurance is less than the sum
insured, a pro-rata return of premium is made in respect of the difference. The refund is subject to a maximum of
50% of the premium paid and to the declaration of figures, as certified by the Insured’s auditors within 12 months
after the expiry of the policy.
If any damage has occurred giving rise to a claim, such returns are made only in respect only of the said damage in
case the insured has opted not to reinstate the sum insured.
8.5.1 Consequential Loss Insurance Premium Rate

The rate of premium for the LOP policy consists of two components:
• basis rate
• percentage for the indemnity period
In the system of rating, the basis adopted is the full average fire rate on the contents of the process blocks of the
premises, which reflect the material hazards considered from the view point of the fire insurers and variation is
made for the degree of the interruption hazard which is reflected in the length of the maximum indemnity period
selected by the insured.
Basic rate
• The basic rate will not be less than the full ‘Average Fire Rate’ of the items covering the contents of the process
blocks of the premises occupied by the insured for the purpose of the business to which the insurance applies.
• For other business premises, where no manufacturing process is carried on, the basic rate shall be the average
fire rate of the contents of the entire premises.
• The rate for annual insurance shall not be less than the following percentages of the basis rate:
107/JNU OLE
Fire Insurance
Period of
Sum to be insured Percentage of Basis Rates
indemnity
Continuous process plant Other than
(excluding petrochemical continuous process
risks) plant
6 months or Equivalent of annual
93.75 75
less gross profit
9 months 112.5 90
12 months 125 100
One and quarter times
15 months 121.875 97.5
the Annual Gross profit
One and a half times
18 months 118.75 95
the Annual Gross Profit
Twice the annual gross
24 months 112.5 90
profit
Two and half times the
30 months 106.25 85
Annual Gross profit
Thrice the Annual
36 months 100 80
Gross Profit
Table 8.1 Percentages of basic rates
Following are the examples of plants carrying out continuous, automatic or semi automatic processes:
Bakeries and Biscuit Factories
• Battery Service Stations
• Breweries
• Cement Factories
• Chemical Manufacturers
• Detergent Factories
• Distilleries
• Electric Power works
• Ice Factories
• Sugar Factories
• Vegetable Oil Solvent Extraction Plants
• Vegetable Ghee Factories
The percentages for the shorter indemnity periods

• The percentages for the shorter indemnity periods are proportionately much higher than for the longer
periods.
• The extent of interruption during the early months following fire is likely to be far greater than during the later
months, when the efforts been made to minimise the interruption are having their effect.
• If there is extensive interruption, there may be saving in standing charges which may not be possible for shorter
interruption.
• It is the general expectation that loss of gross profit will progressively diminish as the date of the fire recedes
and the scale of percentage is graded accordingly.
108/JNU OLE
8.6 New Business Clause
Profits insurance is sometimes effected on new businesses for which past annual results would not be available
for comparison in case of loss in the first twelve months. This situation is met by the addition of the new business
clause which specifies as follows:
“For the purpose of any claim arising from damage occurring before the completion of the first year’s trading of the
business at the premises, the terms ‘Rate of Gross Profit’ ‘Annual Output/Turnover’ and ‘Standard Output/Turnover’
shall bear the following meaning and not as stated in the policy”
Rate of gross profit
During the period between the date of

Rate of gross profit earned on the output/turnover commencement of the business and the date
of the damage
Annual output/turnover: The proportional equivalent During the period between the date of
for a period of twelve months of the output/ turnover commencement of the business and the date
realised of the damage
Standard Output/ Turnover : The proportional During the period between the date of
equivalent for a period equal to the indemnity period of commencement of the business and the date
the output/turnover realised of the damage
Table 8.2 Rate of gross profit earned on the annual and standard turnover
These definitions are subject to the ‘trends, variations and special circumstances’ clauses. After 12 months of trading
have been completed, the normal specification wording operates.
Extensions (at additional premium)

• The LOP policy may be extended parallel to the material damage policy covering the add-on perils included
in that policy.
• Accidental failure of public electricity/gas/water supply.
• Spoilage loss extension.
• Insured’s property at other locations.
• Damage at supplier’s premises.
• Insurance of wages, lay-off compensation and auditor’s fees.
8.6.1 Claims Procedure

The duties of the insured upon the happening of the “Damage” are set out in condition 3 of the policies.
• Notice must be given to the Company forthwith. The insurer may wish to appoint surveyors forthwith to examine
the steps being taken to minimise loss and speed in this respect is essential. Even if it at first appears that damage
is not serious, it is still important to advise the insurers.
• All possible steps must be taken to minimise the interruption. The surveyor’s advice will be available for this
purpose.
• Particulars of the claim, supported by the necessary evidence, must be furnished within 30 days after the expiry
of the indemnity period. The expense of preparing the claim, extracting particulars from his books and producing
evidence in support of the claim falls upon the insured. As mentioned earlier, the Insured can however insure
the Auditor’s fees for producing and certifying any particulars or details contained in the Insured’s books and
records as may be required by the Insurers.
109/JNU OLE
Fire Insurance
• Payments on account already made must be repaid in the event of non-compliance with any of the requirements
of the conditions.
• On being advised of the damage, the insurers examine the contract to ensure that the claim falls within the terms
of the cover granted e.g. that the cause of the damage is an insured peril, that the premises where the damage
has occurred and the business carried on in those premises, are as specified in the policy.
• The insurers take steps to furnish the surveyor with all the necessary particulars of the insurance, including a
copy of the policy, to enable him to act on their behalf with the full knowledge of the extent of liability.
• Once it is clear that the liability for the loss attaches to the material damage policy, the surveyor makes certain
that the peril causing the loss is also covered by the LOP policy.
• The surveyor recommends measures for the speedy resumption of the business, making it clear that the increased
cost of working will be payable subject to the policy terms e.g. earning of the turnover by the increased cost
and penalty if all standing charges are not insured.
• The surveyor prepares a preliminary report indicating the extent of the interruption expected, the steps being
taken to minimise the interruption and the amount which in his opinion should be provided in the insurers books
as a reserve against the estimated loss.
• As soon as practicable, the necessary preliminary examination of the accounts of the business is made in order
to ascertain whether all standing charges have been insured and whether the amount insured on the net profit
and insured standing charges basis is adequate for the expectations of the business.
• The surveyor pays periodical visits to the scene of the damage to ensure that all possible steps are being taken
towards the resumption of normal work.
• When it is clear that the business has resumed to its full working capacity, the surveyor takes up detailed
examination of the accounts to prepare the final assessment.
Finally the surveyor has to consider the application of the ‘Trends, Variations and Special Circumstances’ clause to
adjust the rate of gross profit, annual turnover and the standard turnover.
The other procedural aspects such as the payment of claim, reduction of the sum insured and its reinstatement etc.
are the same as under material damage claims.
110/JNU OLE
Summary
• The subject matter of consequential loss insurance is the business of the insured, i.e., the earning capacity of
the property. Fire insurance affords cover for ‘material damage.’
• The trading losses which result from the stoppage of business may be considered under three headings namely:
net profit, standing charges and increased cost of working
• If turnover is stopped or reduced, profits are affected. Therefore, loss of profits is determined and measured with
reference to the reduction in turnover and this is the basis adopted in profits insurance.
• Turnover in simple terms means ‘Sales’ turnover which consists of the following three elements: variable
charges, standing charges and net profit
• The proportion which the gross profit bears to the turnover during a given period is called the rate of gross
profit
• The net profit is that which remains after all costs of production and charges incurred in running the business
have been met.
• Insured standing charges: these are the charges which the insured considers would continue to be incurred if
his business is affected and hence are selected by him for Insurance purposes.
• Gross profit is the net profit added to the amount of the insured standing charges
• Rate of gross profit is defined as that earned during the financial year immediately before the date of the
damage
• Turnover is the insured’s income from trading including services rendered.
• Standard turnover: this is the turnover during those months/days of the preceding accounting year which
corresponds with the actual indemnity period during which the business was interrupted due to the operation
of the insured peril.
• By means of adjustment clause, adjustments may be made to the pre-fire figures used to calculate the loss, if by
means of those adjustments it is evident that something approaching true indemnity will be attained
• Insurance is limited to the loss of Gross Profit due to: reduction in turnover and increase in cost of working
• The rate of premium for the LOP policy consists of two components: basis rate and percentage for the indemnity
period
References
• iiivideo, 2008. Six Steps to Follow When Filing a Claim: Podcast [Video online] Available at: <http://www.
youtube.com/watch?v=WdXRe1lGQMk&feature=related> [Accessed 20 June 2011].
• QualityClaims, 2009. What Should You Do If Your House Burns - True Story [Video online] Available at: <http://
www.youtube.com/watch?v=YWvKu04NQBE&feature=related> [Accessed 20 June 2011].
• Consequential Loss (Fire) [Online] Available at: <http://www.rahejaqbe.com/Corporate/Commercial-Property/
ConsequentialLoss/Insurance.html> [Accessed 20 June 2011].
• Fire Consequential Loss [Online] Available at: <https://www.maa.com.my/maaas/pages/ProductInfo.
aspx?ProdID=102> [Accessed 20 June 2011].
Recommended Reading
• Oviatt, F. 1904. Fire Insurance, Expenses, Profits, Problems. American Academy of Political and Social
Science.
• McCune, W., 1922. A Fire Insurance Agency for Profit. Revised ed., the rough notes co.
• Ramachandran, G., 1998. The Economics of Fire Protection. Spon Press.
111/JNU OLE
Fire Insurance
Self Assessment
1. The standard turnover must be calculated subject to the provisions of the ____________.
a. operative clause
b. adjustment clause
c. reduction clause
d. turnover clause
2. Which of the following are the expenses incurred in producing goods?

a. Variable charges
b. Fixed charges
c. Standing charges
d. Operative charges

a. The profits policy provides indemnity in respect of the loss of gross profits during the indemnity period
which is selected by the insured.
b. The indemnity period chosen by the insured may vary from 3 months to 10 years.
c. The proportion which the gross profit bears to the turnover during a given period is called the rate of gross
profit.
d. If turnover is stopped or reduced, profits are affected.
4. Rate of gross profit is defined as that earned during the financial year immediately before the date of the
________.
a. profit
b. business
c. turnover
d. damage
5. The measure of __________is the sum produced by applying the rate of gross profit to the reduction in turnover
during an agreed period following damage.
a. profit
b. claim
c. indemnity
d. damage
6. The rate of premium for the LOP policy consists of two components namely _________ and percentage for
the indemnity period.
a. basis rate
b. interest rate
c. insurance rate
d. damage rate
112/JNU OLE
7. The percentages for the shorter indemnity periods are proportionately much higher than for the _________.
a. higher percentages
b. longer periods
c. higher rates
d. higher turnover
8. The _____profit is that which remains after all costs of production and charges incurred in running the business
have been met.
a. net
b. sales
c. gross
d. insurance
9. Which of the following statement is true?

a. Turnover is the insured’s income from trading excluding services rendered.
b. Rate of gross profit is defined as that earned during the financial year immediately after the date of the
damage.
c. The proportion which the gross profit bears to the turnover during a given period is called the rate of net
profit.
d. Insurance is limited to the loss of Gross Profit due to reduction in turnover and increase in cost of
working.
10. The indemnity period chosen by the insured may vary from 3 months to ____ years.
a. 2
b. 3
c. 6
d. 10
113/JNU OLE
Fire Insurance
Case Study I
Skyview Casino, Williamstown, VT
On April 21, 1993, an arson fire destroyed the Skyview Casino, a privately-owned dance hall in Williamstown,
Vermont. A preliminary investigation by the Vermont State Police identified the owners of record for the building,
Ronald A. McCoy and Rene L. Crete, as possible suspects in the arson. James M. Stacy was also identified as the
“torch” hired by the owners to start the fire. Total loss to the insurance company was $135,000.
ATF originally became involved in the investigation in May 1993 for the sole purpose of assisting the Vermont State
Police with processing and identifying evidence pursuant to an agreement between the ATF National Laboratory
and the Vermont State Police Crime Laboratory.
In October 1995, AUSA Paul Van de Graaf requested that ATF provide additional investigative assistance to the
Vermont State Police in this investigation. In the new investigation, numerous witnesses were interviewed and re-
interviewed, and an additional suspect was developed.
Additional information about the Casino
Ronald McCoy and Rene Crete had owned the Skyview Casino for several years prior to the fire. The Casino operated
as a local nightclub, to which customers had to bring their own alcohol. It was open only one or two nights a week
and for special functions. Just prior to the fire, the Casino started featuring bar dancers, a practice which met with
substantial opposition from the Williamstown community.
The bar dancers had performed the night of the fire. Because of the opposition in town and the fact that the insurance
coverage was only about $20,000 more than the mortgage owed, the owners were not initially considered to be
strong suspects. However, the casino was becoming increasingly difficult to manage. As a result of town meetings
in April 1993, the owners were going to be forced to close unless they could find a law enforcement officer willing
to work there when the Casino was open.
The charges issued by the United States Code were:

• Title 18, Section 844(i), Arson
• Title 18, Section 1623, False Declaration to a Grand Jury
• Title 21, Section 841(a)(1), Possession with Intent to Distribute a Controlled Substance
• Title 21, Section 844(e), Wire Fraud
Evidences
The Skyview Casino burned to the ground on April 21, 1993. Although evidence samples submitted to the ATF
Laboratory did not test positive for an accelerant, an ATF certified fire investigator, a Vermont State Police fire
investigator, and an independent origin and cause expert hired by the insurance company each concluded that the
fire had been intentionally set with the aid of an accelerant.
After the fire, McCoy and Crete made no serious attempt to rebuild but instead sold the land for about $35,000.
Thus, although the insurance claim did not yield a high profit, the fire allowed the owners to get rid of the building
and then sell the land for a profit.
The break in the case came in July 1993, when Mark Parker was arrested for outstanding motor vehicle violations.
In exchange for having his tickets taken care of, Parker told police he would provide information on the Skyview
Casino arson.
Parker told police that on April 20, 1993, he received a telephone call from his friend, James Stacy. Stacy, who was
working as a bouncer at the Casino, asked Parker to meet him there. When he arrived, Stacy gave Parker $400 and
asked him to burn down the Casino that night. Parker said that Stacy told him the owners wanted the job done on a
114/JNU OLE
night that the topless dancers would have performed. When Parker questioned Stacy as to why the owners wanted
the Casino burned, Stacy said that they weren’t making a lot of money and the place was becoming a hassle. Parker
accepted and went home.
When he got home, Parker told his girlfriend of the plan. She told Parker that she would leave him if he carried
it out, and that he would have to return the money. Parker then drove back to the Casino and returned the money,
even though Stacy offered him another $100. Stacy told Parker that McCoy and Crete wanted the fire to look like
arson and that they wanted the whole building gone. He asked for advice on how to start it, and Parker suggested
using 5 gallons of fuel on the floor.
Parker agreed to meet with Stacy and wear a recording device. In recorded conversations on July 12 and 13, Parker
told Stacy that he had been questioned about the fire, and he asked for advice on whether he should take a polygraph.
Stacy urged Parker to lie to police, reassuring him that he could honestly answer several questions about it and
implying personal knowledge that Parker was not responsible for setting the fire.
After being confronted with the Parker tapes, Stacy agreed to cooperate with the State’s investigation in exchange
for immunity. However, the State gave Stacy an immunity deal without Stacy having seen a lawyer. Stacy made a
statement and agreed to an undercover meeting with McCoy, who at the time was allegedly supplying Stacy with
marijuana. During an undercover meeting with McCoy that same night, McCoy because suspicious, and Stacy
subsequently stopped checking in with police every day. Without telling Stacy, police arrested McCoy and Crete
on July 26, and Stacy fled to Florida.
The State had no case without Stacy. Stacy was arrested on arson charges but refused to continue to cooperate. The
State dropped the charges against McCoy and Crete, and pressed its case against Stacy, arguing that Stacy no longer
had immunity because he had violated the agreement by refusing to check in and by fleeing. Stacy challenged the
admission of his statements and argued that the immunity deal still applied. He claimed that the State police had
promised to tell him when they planned to arrest McCoy and Crete because he was afraid of repercussions when
they learned of his cooperation. The State court accepted Stacy’s argument and suppressed all of his statements
because he had not been given Miranda warnings. At that point, the State requested ATF’s assistance.
The U.S. Attorney’s office agreed to prosecute the arson, but had to grant Stacy immunity because of the Miranda
issue.
A long-time friend of Stacy’s testified that on the night of the fire, Stacy asked her for a ride. She drove Stacy to a
Cumberland Farms (store) in Barre, where Stacy bought a gallon of water, emptied it, and filled the container with
gasoline. Stacy then told the driver to return to the road to the Casino. While she waited in the car with the lights
out, Stacy got out with the gasoline and headed up the road. When he returned, the gas container was empty. Stacy
later bragged to her that he had burned the Casino in exchange for money paid by the owners, and that he and the
owners had beat the polygraph.
Following Stacy’s sworn testimony, Ronald McCoy and Rene Crete pled guilty as charged.
James Bernasconi, who was developed as a key witness in this investigation, falsely testified to the Federal Grand
Jury. He was indicted and subsequently pled guilty to a false declaration charge.
Verdict
Ronald McCoy pled guilty to federal charges of arson and possession with intent to distribute a controlled substance.
He was sentenced to a concurrent sentence of 27 months’ imprisonment followed by 3 years of supervised release
and ordered to pay $5,000 to the insurance company.
Rene Crete pled guilty to a Federal charge of Wire Fraud. He was sentenced to 9 months’ incarceration and 3 years’
supervised release, and ordered to pay $10,000 to the insurance company.
James Bernasconi pled guilty to making a False Declaration to a Grand Jury. He was sentenced to 6 months’
115/JNU OLE
Fire Insurance
incarceration and 2 years’ supervised release.
Source: Graaf, P., 2011. Skyview Casino, Williamtown, VT [Online] Available at: <http://www.interfire.org/res_file/
acb_sky.asp> [Accessed 1 July 2011].
Questions:
1. How the casino caught fire and was the insured eligible for insurance?
Answer
As per the evidences above, it is clear that the casino was torched intentionally by the casino owners Ronald
McCoy and Rene Crete. Since the fire was not an accident so the insurance company is not liable for the payment
of the insured amount.
2. Who according to the U.S Attorney office was held guilty for the accident?
Answer
According to the U.S attorney three people were held guilty:
• Ronald McCoy pled guilty to federal charges of arson and possession with intent to distribute a controlled
substance.
• Rene Crete pled guilty to a Federal charge of Wire Fraud.
• James Bernasconi pled guilty to making a False Declaration to a Grand Jury
3. What was the verdict of the jury and was it justified?

Answer
The verdict of the jury was well justified as per the laws of the city.
• Ronald McCoy was sentenced to a concurrent sentence of 27 months’ imprisonment followed by 3 years of
supervised release and ordered to pay $5,000 to the insurance company.
• Rene Crete was sentenced to 9 months’ incarceration and 3 years’ supervised release, and ordered to pay $10,000
to the insurance company.
• James Bernasconi was sentenced to 6 months’ incarceration and 2 years’ supervised release.
116/JNU OLE
Case Study II
Southern California Homeowner Fire Loss
Background facts
The insured’s home caught on fire in the early hours of November 10, 2005. The insured, including his extended
family, his son, daughter-in-law and two grandchildren, were able to get out of the house in time to avoid injury.
However, the family home sustained extensive fire damage to the second floor interior, the structure and the fire
burned through the roof. The lower floor sustained extensive water damage from fire fighters’ efforts to extinguish
the fire. There was also smoke damage throughout the home.
The insured notified his insurance company of his loss the morning of the fire. The insurance company’s initial
adjuster sent out an “emergency preferred vendor” to board up and tarp the roof. It was apparent to the emergency
preferred vendor that immediate dry out of the house was necessary. It was also apparent from the claim file that the
insurance company’s first adjuster knew that there was water in the home from the fire extinguishing efforts. However,
the adjuster did not authorize the insurance company’s emergency preferred vendor to dry out the house
Mold formation
On November 12, 2005, the insurance company’s large loss field adjuster (the second adjuster assigned to the claim)
inspected the insured’s home. This adjuster observed that the house was wet and needed immediate dry out. He took
no steps to get the home dried out, did not include dry out in his scope of repairs and did not inform the homeowner/
insured that immediate water extraction was necessary to prevent the formation of toxic mold.
A home with a water soaked interior cannot be immediately restored unless it is promptly and thoroughly dried out.
If the home is not properly dried out and mold forms, then a complete and proper mold remediation must commence
before major restoration begins.
Yet, nothing was done for the insured and his family regarding drying out of the insured home. As a result, toxic mold
developed in the home. This occurred because it was the insurance company’s apparent internal policy to not dry
out insured homes subsequent to fire suppression activities - including a home deluged by water by fire fighters.
The dispute between the insurance company and the insured regarding the cost to restore the family home:
After the fire was extinguished at the insured family home, one of the fire fighters told the homeowner/insured that
he should hire a public adjuster to help him with his claim. Upon this advice, the insured hired a public adjuster.
He also hired a contractor of his choice to make the home restoration repairs.
The insurance company large loss field adjuster initially determined that the Replacement Cost Value (RCV) of the
loss was $64,772.03 to restore the home and then after arbitrarily deducting depreciation determined that the Actual
Cash Value (ACV) was $51,834.44. The insurance company then sent a check for $51,834.44 and informed the
insured that it was going to close its file.
The insured’s contractor of choice determined that in fact, it would cost about $172,000 (Replacement Cost Value)
to do the job properly and to fully restore the home to its pre-loss condition. The difference between the insured’s
contractor’s estimate and the amount that the insurance company paid was over 2.5 times, or, more than a 150%
difference. The insurance company’s estimate was ridiculously and unreasonably low.
Using the estimate of the insured’s contractor, the insured’ public adjuster pointed out to the insurance company that
the insurance company’s scope left out over 200 repair items and that it was impossible to repair the home for the
amount of the insurance company’s estimate. One of the major items ignored by the insurance company was the
extensive structural repairs that were necessary to replace the roof rafters and burned floor joists. After the public
adjuster pointed out in writing this gross deficiency, as well as the other missing items in the insurance company
estimate, the insurance adjuster only increased his RCV up to $74,288.17 and ACV to $58,594.72 and paid the
insured an additional approximate $6,700. This was still grossly below the insured’s contractors’ restoration scope
117/JNU OLE
Fire Insurance
and estimate.
In an attempt to get an agreed to scope for the insured that was reasonable, the insured’s public adjuster scheduled
a meeting with the insurance company large loss adjuster, the insurance company’s contractor, the public adjuster
and the insured’s contractor. The purpose of the meeting was to have the individuals walk the damaged home and
compare their lists of home repairs so that they could reach an agreement as to what had to be done – the scope of
work.
The insured had just had major surgery on his leg before the fire. The insured had been in a wheelchair for some
time. The insured had to arrange transportation to the meeting, to let the adjuster and other individuals into the
house for the inspection. About 15 minutes before the insured arrived, the insurance company adjuster and the others
agreed to reschedule the meeting. During the next three weeks the insured’s public adjuster repeatedly attempted
to reschedule the “walk through” meeting with the insurance company adjuster. However, the insurance company
adjuster refused to agree to a time to meet with the insured’s public adjuster and contractor at the insured’s home. The
follow-up meeting did not take place because of the insurance company adjuster’s unreasonable refusal to attend.
In an attempt to justify his unreasonably low restoration scope and repair estimate, the insurance company adjuster
sent his scope to a purportedly “independent contractor.” The adjuster e-mailed his scope to this “independent”
contractor. This contractor selected by the insurance company that had worked on prior losses with this insurance
company adjuster, essentially “rubber stamped” the unreasonably low insurance company scope and later admitted
under oath that it was not an independent scope. This was a fraudulent attempt to justify the insurance company’s
lowball estimate.
The insurance company adjuster then sent a misleading letter to the insured stating that the insurance company’s
contractor was “independent,” and that it could conduct the repairs to the insured home in the amount of the insurance
company’s estimate. The adjuster concealed the fact that his contractor did not prepare his own independent scope,
but instead just adopted the insurance company’s deficient scope. This is a common insurance company trick.
They have contractor’s that will agree to their unreasonably low estimates to try to get the job with the expectation
that they can make it up with supplements. This is essentially fraud and is improper.
The insurance company’s contractor further informed the insured that he knew he could not repair the insured’s
home for the amount of the insurance company’s estimate. However, this contractor told the insured to “trust” him
because he had a special relationship with the insurance company - he stated that he could get more money out of the
insurance company. The insured did not trust this contractor and believed that the contractor was acting in concert
with the carrier. It was later determined that the insurance company contractor had been the subject of complaints
by various insured’s for doing very poor quality work.
The insurance company knew that it was unlawful to try to force its contractor upon the insured, without at least
advising the insured in writing that the insured had the right to select his own contractor. It is improper for an
insurance company to even suggest another contractor to the insured - unless the insured specifically requests such a
referral. The insured never requested any such referral, because the insured had already hired his own contractor and
the insurance company never informed the insured in writing that he had the right to select his own contractor.
The insured’s contractor of choice did not begin repairs because it could not get an agreed scope from the insurance
company. The insurance company simply refused to change its position regarding what the public adjuster and
the insured perceived as the insurance company’s lowball restoration scope and estimate. After fighting with the
insurance company for over nine months to get an agreed to scope so the insured’s contractor could begin repairs, the
insurance company stopped paying for the insured’s Alternative Living Expenses (ALE). The insured’s contractor
of choice refused to start the job without an agreed to scope with the insurance company. The insured’s public
adjuster advised the insured that he should retain the services of city fire insurance attorneys and pursue litigation.
The insurance company forced the insured into litigation.
Mitigation of damages
After the insurance company cut off the insured’s ALE, he had to continue to make house payments and needed a
place to live. The insured tried to find a reputable contractor to start fixing up his home with the little money he
118/JNU OLE
had been paid by the insurance company, so he could at least move into the first floor bedroom to reduce his living
expenses. His extended family had at that time found other places to live. No licensed contractor would agree to
start the repairs with the money that the insured had been paid. However, the insured found a company that repaired
the lower bedroom so he could live there until the claim was resolved by litigation. At that time, the insured was
not aware of the mold. His exposure to the mold, when he attempted to live in the lower bedroom, caused him
harm and injury.
Viau & Kwasniewski took on the case to fight the bad faith insurance company and filed it in Los Angeles Superior
Court Central District. After initial investigation, the fire insurance lawyers at Viau & Kwasniewski were concerned
that mold had developed in the insured home, given that the insurance company did not dry out the home at the
commencement of the claim. Viau & Kwasniewski fire insurance lawyers hired a company frequently used by
insurance companies to test for the presence of mold in the home. The test results indicated high levels of Penicillium/
Aspergillus in the insured’s home. Some forms of Aspergillus are known to be toxic and can cause bodily harm.
This of course caused significant concern to the insured because he had been living in the lower bedroom in the
house to mitigate his damages.
The insured attempted to secure alternative living arrangements. The insurance company refused to pay for such
arrangements after the summer of 2006. Because the insured still had to pay the mortgage on the home in which
he could not live, he could not afford to pay additional rent for alternative living arrangements. The insured made
arrangements to live with his parents; however, this proved difficult because of logistics relating to his work. All
of this harm, distress and expense constitute part of an insured’s damage in an insurance bad faith case.
A case of bad faith was filed against the insurance company. As often occurs in litigation against insurance carriers,
the case was actively litigated by Viau & Kwasniewski fire insurance attorneys. Over 20 depositions were taken,
including the depositions of 5 retained experts and 6 non- retained experts.
Viau & Kwasniewski fire insurance lawyers took videotaped depositions with instant visual display and conducted
extensive written discovery, as well. All of these efforts were done to maximize the insured’s recovery.
Viau & Kwasniewski fire insurance lawyers additionally pursued Colonial Life discovery. It is the law of the State
of California that an insurance company may not engage in a pattern of practice of wrongful claims handling. How
a California insurance company handles similar fire claims is of the utmost importance: By engaging in a conscious
and wilful pattern and practice of wrongful denial, wrongful delay, purposeful refusal to objectively investigate and
discrimination, the insurer unlawfully reaps a significant profit at its insured’s’ expense.
The California Legislature and the California courts implemented laws expressly designed to preclude such wrongful
practices by California fire insurance companies. These laws support an insured’s efforts to obtain relevant and
pertinent information regarding how a California fire insurance company handles certain “other claims.”
Particularly in California insurance bad faith cases, the insurance company’s “mind set,” and any purported pattern
and practice of wrongfully handling and delaying particular kinds of insurance claims is of the utmost importance.
Typically and logically, this information is in the possession of the California insurance company itself. The manner
in which insured’s may obtain this discovery was first discussed in the case of Colonial Life & Acc. Ins. Co. v.
Superior Court (1982) 31 Cal.3d 785. This discovery relates to the California insurance company’s handling of
other similar fire insurance claims made by other insured’s.
The California Supreme Court and the courts in uniform decisions since 1982, specifically hold that such discovery
is relevant, is not privileged or protected so long as it proceeds as outlined in Colonial Life and properly protects
the other insured’s’ privacy interests.
Viau & Kwasniewski fire insurance lawyers believed that this Colonial Life discovery is important and relevant.
This discovery is not an attempt to merely “annoy” the California insurance company, as many carriers improperly
believe. The information is relevant, important and pertinent to insurance bad faith issues. Viau & Kwasniewski
119/JNU OLE
Fire Insurance
fire insurance attorneys have pursued this information in insurance bad faith cases, including in proceedings before
the Court of Appeal.
Additional evidence was obtained during the depositions of another public adjuster and the insured’s contractor,
that this particular fire insurance company adjuster was lowballing other insured’s. This was additional evidence of
a pattern and practice of insurance bad faith claims handling. Further the California insurance company adjusters’
managers admitted in their depositions that they ratified and approved the insurance company adjusters’ conduct.
This was very important because it potentially exposed the California insurance company to punitive damages.
The California insurance company lawyers filed what is called a Motion for Summary Judgment/Adjudication, taking
the position that the insured’s case had no legal merit and that the insured could not pursue punitive damages. Viau
& Kwasniewski fire insurance attorneys vigorously opposed the Motion. The Court denied the California insurance
company’s Motion in its entirety.
Viau & Kwasniewski’s efforts resulted in a settlement on the eve of trial:

The Final Status Conference was set for October 11, 2007. Trial was set for October 23, 2007. The parties prepared
and filed all of their Pre-Trial documents, including: Motions in Limine; Oppositions and Replies to Motions in
Limine; Joint Statement of the Case; Joint Exhibit List; Joint Witness List; Jury instructions; and Trial Briefs.
The case was hard fought. It was clear that the insured and the Viau & Kwasniewski fire insurance lawyers were
fully prepared and looking forward to trying the case and fight the bad faith insurance company. At the end and
on the eve of trial, the carrier paid the full amount of the insured’s demand. Viau & Kwasniewski fire insurance
attorneys were able to achieve this result by their hard work, thorough knowledge of California insurance issues,
ability to validly gain the trust of the insured and total preparedness.
Homeowner insurance claims can be difficult and there are numerous potential pitfalls. For example, the California
insurance company here argued that the initial dry out was not covered under the homeowner’s policy. However,
where there is coverage under the insurance policy, in order to conduct a proper home repair to a home that has been
deluged by water, the carrier should make sure that the home is dried out. An analysis of the California insurance
policy provisions and coverage issues must be made. Viau & Kwasniewski fire insurance attorneys have in-depth
expertise in conducting such analyses and vigorously opposed the insurance company’s repeated attempts to convince
the court that there was no coverage to dry out the home.
At one point the California insurance company’s lawyers went so far as to quote language out of a different policy to
try to support their position that there was no coverage for the dry out. This misconduct by the insurance company
lawyers was discovered by a careful coverage analysis by the Viau & Kwasniewski fire insurance lawyers and was
presented to the judge in a multi-page trial brief. In the end, the California insurance company and its lawyers
gave up their nonsense and realised that if the case went to trial it was going to result in a very bad result for the
insurance company. The carrier and their lawyers came to this conclusion only after the case was fully prepared for
trial and their insupportable arguments and repeated requests for delay were vigorously opposed by the insured’s
fire insurance lawyers.
Source: Viau & Kwasniewski, 2010. Southern California Homeowner Fire Loss Case Study [Online] Available at:
<http://www.vklawyers.com/fireclaim-casestudy.html> [Accessed 30 June 2011]
Questions:
1. What steps were taken by the insured in order to get the correct amount for house renovation?
2. What case was put up against the insurance company?
3. List out the issues with the insurance company regarding its practices.
4. Write briefly about the outcome of the case.
120/JNU OLE
Case Study III
Pacaccio’s Hair Salon, Arlington, Texas
At approximately 1:00 a.m. on February 5, 1996, an arson fire occurred at Pacaccio’s Hair Salon in Arlington, Texas.
This salon was centrally located in a strip shopping centre that housed, among other things, an exotic gentlemen’s
tanning salon and a bar. The fire caused approximately $50,000 in damages to the salon and over $200,000 in damages
to the building and other adjoining businesses. Investigation revealed that the owner of the salon, Charles Nathaniel
Thomas, had paid a co-conspirator, Hardy Gene Parker, $1,000 to set the salon on fire for insurance profits of $70,000
for contents coverage. Parker, in turn, paid co-conspirator John Irvin Jenkins $500 to actually set the fire. After the
fire, Thomas filed proof of loss statements to Ohio Insurance Company to claim the insurance profits.
The charges issued by the United States Code:

• Title 18, Section 844(i), Maliciously Damaging by Means of a Fire a Building Involved in Interstate
Commerce.
• Title 18, Section 844(h), Use of Fire to Commit a Felony
• Title 18, Section 371, Conspiracy
• Title 18, Section 1341, Mail Fraud (two counts)
Findings and evidences

• The owner, Charles Nathanial Thomas, let insurance on all personal and other business assets lapse with the
exception of the hair salon. He paid the premium in full 3 weeks prior to the fire.
• Thomas and his wife arrived at the fire scene within 15 minutes of notification of the fire and appeared to be
wide awake and clear headed at 3:00 a.m. They lived approximately 18 miles from the fire site. The wife was
in full makeup, although they later told fire investigators that they were asleep when notified about the fire.
• The fire scene investigation revealed that the fire had been intentionally set. There were five separate points of
origin, all set with gasoline. The insurance policy for the salon was lying alone on the office desk top, as though
someone had been reviewing it.
• Interviews with employees and associates of the owner revealed that the salon had been experiencing financial
difficulties. Thomas was 1 month behind on his mortgage at the time and had received an eviction notice.
• Thomas owed vast sums of money to sports bookies in the Dallas area. He had offered the salon to one bookie
just prior to the fire as payment for his debts. That bookie refused the offer and requested that Thomas find some
way to pay his gambling debts. He had invested approximately $90,000 to build the salon but in desperation
was willing to sell it for $16,000. Thomas also owed Harrah’s casino $10,000 and a business associate $11,000.
He was on bond at the time of the fire for violating Texas organized crime statutes for keeping a gambling
establishment.
• Thomas was living well above his means. In 1995, he purchased a new home, a new pickup truck, a new Corvette,
two four-wheelers, and a trailer. Thomas showed that he made only $17,000 in personal income that year.
• Interviews revealed that prior to the fire, Thomas had made many comments in reference to burning down the
salon.
• Thomas’ right-hand man came forward after several intensive interviews and stated that after the fire he had
paid Hardy Parker for burning the business for Charles Thomas. That right-hand man was given full immunity
in return for his cooperation.
• Hardy Parker admitted to his involvement in the conspiracy and gave information leading to John Jenkins. Parker
later wore a wire while paying Jenkins additional money as payment for the fire. This payment was videotaped by
ATF and used as evidence during trial. Upon arrest, Jenkins gave a full statement detailing his involvement.
Issues and problems

Thomas was involved in so many illegal activities that much of it was kept out of trial due to the judge’s opinion
that it was too prejudicial. Thomas had made an extensive number of insurance claims that were found to be suspect.
121/JNU OLE
Fire Insurance
Only one of these claims was allowed in court, under evidence rule 404b.
Verdict
After a 6-day jury trial, Charles Nathanial Thomas was found guilty on all five counts. On April 3, 1997, he
was sentenced to 105 months in prison, 36 months’ supervised release, and was ordered to make restitution of
$178,000.
Hardy Parker pled guilty to one conspiracy count and was sentenced February 4, 1997, to 18 months imprisonment
followed by 36 months’ supervised release. He was also ordered to pay $178,000 restitution.
John Irvin Jenkins pled guilty to arson and conspiracy and was sentenced March 27, 1997, to 30 months’ imprisonment
and 36 months’ supervised release. Due to ill health, Jenkins was not required to pay restitution.
Source: Murphy, C., 1996. Pacaccio’s Hair Salon, Arlington, Texas [Online] Available at: <http://www.interfire.
org/res_file/acb_phs.asp> [Accessed 1 July 2011].
Questions
1. What was the cause of the fire and the extent of damage?
2. What was the verdict of the case and was it justified?
3. Enlist the evidences which led to the verdict.
122/JNU OLE
Bibliography
References
• Authorstream.com, 2011. Fire insurance [Online] Available at: < http://www.authorstream.com/Presentation/
niru.007-752229-fire-insurance/> [Accessed 9 June 2011].
• Balaji, T., 2010. Fire insurance of the Indian Act insurance [Online] Available at: <http://policybazaarinsurance.
blogspot.com/2010/12/fire-insurance-of-indian-act-insurance.html> [Accessed 9 June 2011].
• BenmoreNi, 2010. Fire Risk Assessment [Video online] Available at: <http://www.youtube.com/
watch?v=3gKuyyvr1kE> [Accessed 27 June 2011].
• BVS training, 2010. Fire Safety 1: Hazards and Prevention Training Teaser from BVS [online video] Available
at: < http://www.youtube.com/watch?v=K2Ml2GJJ9Dc> [Accessed 13 June 2011]
• Consequential Loss (Fire) [Online] Available at: <http://www.rahejaqbe.com/Corporate/Commercial-Property/
ConsequentialLoss/Insurance.html> [Accessed 20 June 2011].
• Consequential-Loss [Online] Available at: <http://www.icicilombard.com/app/ilomen/Businessproducts/
Consequential-Loss.aspx> [Accessed 13 June 2011].
• Fire Consequential Loss [Online] Available at: <https://www.maa.com.my/maaas/pages/ProductInfo.
aspx?ProdID=102> [Accessed 20 June 2011].
• Fire Hazards (Fire Prevention Tips) [Online] Available at: <http://www.fire-extinguisher101.com/hazards.html>
[Accessed 13 June 2011].
• Fire insurance [Online] Available at: <http://business.gov.in/manage_business/fire_insurance.php> [Accessed
13 June 2011].
• Fire Risk Assessment [Online] Available at: <http://www.bedsfire.com/COMMUNITYSAFETY/
BUSINESSFIRESAFETY/Pages/FireRiskAss.aspx> [Accessed 27 June 2011].
• Goel, K., 2011. Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/2/
OBJECTIVES> [Accessed 9 June 2011].
• Goel, K., 2011. Non-life insurance [Online] Available at: <http://www.scribd.com/doc/50915844/5/TYPES-
OF-FIRE-POLICIES> [Accessed 13 June 2011].
• Hirschler, M., 1992. Fire Hazard and Fire Risk Assessment. Astm Intl.
• iiivideo, 2008. Six Steps to Follow When Filing a Claim: Podcast [Video online] Available at: <http://www.
youtube.com/watch?v=WdXRe1lGQMk&feature=related> [Accessed 20 June 2011].
• Industrialfirefight, 2011. Industrial Fire Brigades: Tank Hazard Control from Action Training Systems [Video
online] Available at: <http://www.youtube.com/watch?v=4RR6dw_hO2M> [Accessed 14 June 2011].
• Industrialfirefight, 2011. Industrial Fire Brigades: Ventilation Procedures from Action Training Systems [Video
online] Available at: <http://www.youtube.com/watch?v=3rz_gKTVoe8> [Accessed 14 June 2011].
• jbrennan1069, 2010. Tips to filing fire insurance claims [Video online] Available at: <http://www.youtube.com/
watch?v=lbaZk5JlvuM> [Accessed 15 June 2011].
• Jpht197, 2009. The great fire of London [video online] Available at:<http://www.youtube.com/
watch?v=b7vXcYmKFDQ> [Accessed 9 June 2011].
• Kumar, A. & Rohit, 2011. Industrial hazards due to fire accidents, mechanical and electrical equipments,
chemicals and pharmaceuticals [Online] Available at: <http://www.scribd.com/doc/47446597/INDUSTRIAL-
HAZARDS-DUE-TO-FIRE-ACCIDENTS-MECHANICAL> [Accessed 14 June 2011].
• Nfpadotorg, 2008. Hidden Electrical Hazards [Online video] Available at: <http://www.youtube.com/watch?v
=LJm8w25KgM8&playnext=1&list=PLD3432488038BB5F0> [Accessed 13 June 2011].
• NPCCAR, 2008. 20-C, Fire Insurance, Cancellation [Video online] Available at: < http://www.youtube.com/
watch?v=ZG8iwifGsbE> [Accessed 9 June 2011].
• Price, A., 2011. 8 Common Fire Hazards in Your Home [Online] Available at: <http://www.streetdirectory.com/
travel_guide/61015/home_security/8_common_fire_hazards_in_your_home.html> [Accessed 13 June 2011].
123/JNU OLE
Fire Insurance
• QualityClaims, 2009. What Should You Do If Your House Burns - True Story [Video online] Available at: <http://
www.youtube.com/watch?v=YWvKu04NQBE&feature=related> [Accessed 20 June 2011].
• Rogers, D., 2011. Tips on Fire Insurance Claims [Online] Available at: <http://ezinearticles.com/?Tips-on-Fire-
Insurance-Claims&id=1175332> [Accessed 15 June 2011].
• Rutter & Russin, 2000. Fire Insurance Law [Online] Available at: <http://library.findlaw.com/2000/Oct/1/127239.
html> [Accessed 9 June 2011].
• safetynut1, 2011. Fire Risk Assessment & the Fire Safety Order Explained [Video online] Available at: <http://
www.youtube.com/watch?v=lkXXzwRK3q8> [Accessed 27 June 2011].
• Talandassociates, 2010. Fire damage - insurance claim help [Video online]. Available at: <http://www.youtube.
com/watch?v=ZMoYhvX8Q5w> [Accessed 15 June 2011].
• Taylor, H., 1949. Fire insurance law [Online] Available at: <http://www.archive.org/download/
fireinsurancelaw032035mbp/fireinsurancelaw032035mbp.pdf> [Accessed 15 June 2011].
• Ten, 2009. Fire insurance [Video online] Available at: <http://www.youtube.com/watch?v=J8oPCmebnmc&f
eature=related> [Accessed 9 June 2011].
• The Footwear & Leather Health & Safety Committee, 2007. Fire safety – fire risk assessment [Online] Available
at: <http://www.britfoot.com/documents/FIRE%2007.pdf> [Accessed 27 June 2011].
• Types of major chemical/industrial hazards – Fire [Online] Available at: <http://www.ekdrm.net/e5783/e17327/
e27015/e27713/> [Accessed 14 June 2011].
• Wilson, S., 2011. Fire insurance claims guide [Online] Available at: <http://www.pushormitchell.com/files/
articles/Fire-Insurance-Claims-Guide.pdf> [Accessed 15 June 2011].
• Yung, D., 2009. Principles of Fire Risk Assessment in Buildings. Wiley.
• Zandramari, 2010. Essentials of Fire Insurance Contract [Video online] Available at: <http://www.youtube.com/
watch?v=Plqsw1u85U4> [Accessed 9 June 2011].
Recommended Reading
• Cheremisinoff, N., 1999. Fire and Explosion Hazards Handbook of Industrial Chemicals. William Andrew.
• Darrach, H., 2008. The Standard Fire Insurance Policy, Pranava Books.
• Dominge, C., 2010. Fire Insurance Inspection & Underwriting. Nabu Press.
• Gagnon, R., 1997. Design of Special Hazard & Fire Alarm Systems. Delmar Cengage Learning.
• Insurance Society of New York, 2010. The fire insurance contract: its history and interpretation. Nabu Press.
• Ketcham, E., 2010. Fire Insurance; The Essentials of the Fire Insurance Business. General Books LLC.
• Kitchin, F., 1904. The principles and finance of fire insurance. E. Wilson.
• Longcore, R., 2007. Insurance Claim Secrets REVEALED! Trafford Publishing.
• McCune, W., 1922. A Fire Insurance Agency for Profit. Revised ed., the rough notes co.
• National Fire Protection Association, 1990. Industrial Fire Hazards Handbook, 3rd ed., NFPA.
• Oviatt, F. 1904. Fire Insurance, Expenses, Profits, Problems. American Academy of Political and Social
Science.
• Peverett, E., 1997. Fire insurance law and claims, 2nd ed., Witherby & Co Ltd.
• Ramachandran, G., 1998. The Economics of Fire Protection. Spon Press.
• Reed, P., 1940. Fire Insurance Underwriting. McGraw-Hill Book Company.
• Riegel, R., 1947. Fire insurance; from insurance principles and practices. 3rd ed., Prentice-Hall.
• Robert B. Holtom, 2001. Commercial Fire Underwriting. 3rd. ed., Natl Underwriter Co.
• Rochie H., 2010. Fire Insurance Law: An Authoritative Analysis of the Standard Fire Insurance Policy, of Its
Legal Aspects, and of the Standard Forms. Nabu press.
124/JNU OLE
• Shepard, S., 2009. Be fire safe: how to avoid fire, reduce loss, and recover from insurance if you have a fire.
Ronin Publishing
• Smith, G., 1998. The adjuster! Making insurance claims pay, 2nd ed., Cargo Publishing Company.
• Thomson, N., 2001. Fire Hazards in Industry. Butterworth-Heinemann.
• Thomson, N., 2007. Controlling Fire Hazards, NGT Publishing Limited.
125/JNU OLE
Fire Insurance
Self Assessment Answers
Chapter I
1. c
2. a
3. a
4. d
5. b
6. b
7. a
8. a
9. d
10. b
Chapter II
1. a
2. c
3. a
4. d
5. b
6. b
7. c
8. a
9. b
10. c
Chapter III
1. a
2. b
3. a
4. b
5. a
6. a
7. d
8. c
9. b
10. c
Chapter IV
1. d
2. a
3. b
4. c
5. c
6. d
7. b
8. d
9. a
10. c
126/JNU OLE
Chapter V
1. b
2. c
3. c
4. a
5. b
6. d
7. a
8. b
9. b
10. a
Chapter VI
1. b
2. d
3. b
4. a
5. c
6. a
7. c
8. c
9. a
10. c
Chapter VII
1. a
2. b
3. c
4. d
5. b
6. c
7. a
8. d
9. a
10. b
Chapter VIII
1. b
2. a
3. b
4. d
5. c
6. a
7. b
8. a
9. d
10. b
127/JNU OLE

Fire Insurance PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fire Insurance PDF

Uploaded by

Copyright:

Available Formats

Fire Insurance

This book is a part of the course by Jaipur National University, Jaipur.

The content in the book is copyright of JNU. All rights reserved.

II. List of Figures...........................................................VI

III. List of Tables......................................................... VII

IV. Abbreviations........................................................ VII

V. Case Study.............................................................. 114

VI. Bibliography.......................................................... 123

VII. Self Assessment Answers................................... 126

Chapter III . ................................................................................................................................................ 22

Chapter VIII.............................................................................................................................................. 101

• introduce the concept of fire insurance

• elucidate the origin of fire insurance

• explain the nature of fire insurance policy

• explain the scope of fire insurance

• discuss the loss caused by fire

• highlight the purpose of fire insurance

• understand the types of fire insurance

• explain ordinary, special and comprehensive scope of fire insurance

• discuss what is covered under fire insurance and what is not

1.1 Origin of Fire Insurance

1.2 Fire Insurance Policy

Fig. 1.1 Loss caused by fire

In the following cases, the loss by fire is not considered:

Fig. 1.2 Fire by accident

In its strict sense, a fire insurance contract is the one:

Fire insurance policy

1.3 Scope of Fire Insurance

1.3.1 Ordinary Scope

 Defects in construction known to the insured.

Following risks do not fall under purview of the fire insurance:

1.3.2 Special Scope

1.3.3 Comprehensive Scope

• loss of net profit

1. What are consequential losses/risks also known as?

3. Heating unaccompanied by __________ is not fire.

4. Which of the following statements if FALSE?

6. Which of the following statements is TRUE?

9. The scope of fire insurance can be understood from:

• introduce the concept of insurable property

• elucidate the basic principles of fire law

• explain the laws governing fire insurance

• define fire insurance contract

• discuss the examples of insurable property

• explain essential ingredients of fire insurance contract

• understand risks covered under fire insurance policy

• enlist the characteristics of fire insurance contract

• discuss the risks not covered by fire insurance policy

2.1 Basic Principles of Fire Law

Examples of insurable property are:

2.2 Laws Governing Fire Insurance

2.2.2 Essential Ingredients of Fire Insurance Contract

• Utmost Good Faith

• Reinstatement Value (RIV)

Property Sum Insured

Building plant, Machinery and

Fixtures, furniture & fittings,

Table 2.1 Basis for fixing sum insured

2.2.3 Risks Covered Under Fire Insurance Policy

2.2.4 Risks Not Covered by Fire Insurance Policy

2.3 Characteristics of Fire Insurance Contract

1. Flood or Inundation occurs when the water rises to an ___________ level.

3. Which of the following statements is FALSE?

Defects in construction known to the insured.