AN ASSIGNMENT

ON
Writing the Summary of Fire Insurance Contract
Course Code: FCC-305
Course Title: Risk Management and Insurance

Submitted To:
Kazi Sirajum Munira
Lecturer
Department of Management
University of Chittagong

Submitted By:
Group Name: The Enthusiasts
Group Member Id No.
Nurer Nobi 18302008
Faysal Mohammad Tanvir 18302014
Avishek Chowdhury 18302135
Shown Shaik 18302117
Robin 18302076
Md. Asifujjaman Joy 18302047

Session: 2017-2018 (5th Semester)

Department of Management
University of Chittagong
 Date of Submission: 05/12/2020

Fire Insurance

Definition:

Fire Insurance Business has been defined in section 2 of the Insurance Act, 1938 as
“ The business of effecting, otherwise than incidentally to some other class of
insurance business, contracts of insurance against loss by or incidental to fire or
other occurrence customarily included among the risks insured against in fire
insurance policies.”

It is a device to compensate for the loss consequent upon destruction by fire.

Causes of Fire:

1. Physical hazard: Physical hazard refers to inherent risk of fire in the

property.
2. Moral hazard: In this case owner destroys the property or his carelessness
and lack of sense of duty cause damage to property.

Elements of Fire Insurance Contract:

1. Nature of general contract:

a. Agreement(offer and acceptance)
b. Legal Consideration
c. Competent to make contract
d. Common Intention
e. Legal Object.
2. Nature of special contract:
a. Insurable interest
b. Utmost good faith
c. Indemnity
d. Subrogation
e. Proximate Cause.
Types of Fire insurance Policies

1. Valued Policy: The value of the property to be insured is determined at the

inception of the policy. In this case The insurer pays the total admitted value
irrespective of the then market value of the properties. The measure of indemnity is,
in consequence, not value at the time of the fire, but a value agreed upon the inception
of the policy. The insurer pays the insured a fixed sum following the destruction of
the insured property.
2. Valuable Policy: The valuable policy is that policy where the claim amount is to
be determined at the market price of the damaged property. The amount of loss is not
determined at the time of commencement of risk but is determined at the time and
place of loss. This policy is truly representing the doctrine of indemnity.3.Specific
Policy: Where a specific sum is insured upon a specified property in case of a
specified period, the whole of the actual loss is payable provided it does not exceed
the insured amount. Here the value of the property insured has no relevance in
arriving at the measure of indemnity in a specified policy and the insured sum sets a
limit up to which the loss can be made good.
3. Specific Policy: Where a specific sum is insured upon a specified property in case
of a specified period, the whole of the actual loss is payable provided it does not
exceed the insured amount. Here the value of the property insured has no relevance in
arriving at the measure of indemnity in a specified policy and the insured sum sets a
limit up to which the loss can be made good
4. Floating Policy: The floating policy is the policy taken to cover one or more kinds
of goods at one time under one sum assured for one premium and about the same
owner. This policy is useful to cover fluctuating stocks in different localities.
5. Average Policy: The policy is containing an ‘average clause’ called an Average
Policy. The amount of indemnity is determined concerning the value of the property
insured. If the policyholder has taken a policy for a lesser amount than the actual
value of the property, the insured will be deemed to be his insurer for the amount of
under-insurance.
6. Excess Policy: Sometimes, the stock of a businessman may fluctuate from time to
time, and he may be unable to take one policy or a specific policy. If he takes a policy
for a higher amount, he has to pay a higher premium.
7. Declaration Policy: The excess policy contributes to only a ratable proportion of
the loss because if the amount of excess stock exceeds the sum set in the excess
policy, the businessman will not have a full cover owing to the average condition.
8. Adjustable Policy: The above disadvantage is removed by an adjustable policy.
This policy is nothing but an ordinary policy on the stock of the businessman with the
liberty to the insured to vary in his opinion; the premium is adjustable pro-rata
according to the variation of the stock.
In the case of declaration policy, since the excess premium is refundable at the end of
the year, the insured may put fire to the property.
9. Maximum Value of Discount Policy: Under this policy, no declaration or
adjustment of policy is required, but the policy is taken for a maximum amount, and
the full premium is paid thereon. At the end of the year, in the case of no loss, one-
third of the premium paid is returned to the policyholder.
10. Reinstatement Policy: This policy is issued to avoid the conflict of indemnity, in
other types of policies only the market value of the damage or loss is indemnified but,
this policy undertakes to reinstate the insured property loss by fire to new condition
irrespective of its value at the time of loss.
11. Comprehensive Policy: This policy undertakes full protection not only against
the risk of fire but combining within the risk against burglary, riot, civil commotion,
theft, damage from the past, lightning. The policy is also termed as ‘All in policies’.
Here the ‘Comprehensive’ does not mean that every type of risk is covered. There
may be many exclusions and limitations. This policy is beneficial to the insured and
the insurer. The insurer can get a higher premium, and the assured is protected against
losses due to several specified perils.
12. Consequential Loss Policy: The fire insurance is originally purchased to
indemnify the material loss only. The intangible interest was not indemnified. This
provided a check on the insured to exercise greater care concerning the property.
13. Sprinkler Leakage Policies: This policy insures the destruction of or damage to
by water accidentally discharged or leaking from automatic sprinkler installation in
the insured premises.
14. Add on Covers Policy: An insured may like to cover his property against to
delete some of the exclusions. The cover in respect of these perils is provided by the
insurer by charging an additional premium.
Conditions of Standard Fire Policies
There are two types of conditions

a)General Condition, b) Special Condition

General Condition:
MISREPRESENATION

1) THIS POLICY shall be voidable in the event of misrepresentation,

misdescription, or non disclosure of any material particular.

FALL OR DISPLACEMENT OF BUILDINGS

2) All insurances under this policy shall cease on expiry of seven days from the
date of fall or displacement of any building or part thereof or of the whole or
any part of any range of buildings or of any structure of which such building
forms part.

ALTERATION

3). under any of the following circumstances the insurance ceases to attach as
regards the property affected unless the Insured, before the occurrence of any
loss or damage.

a) If the trade or manufacture carried on be altered, or if the nature of the

occupation of or other circumstances affecting the building insured or containing
the insured property.
 b) If the building insured or containing the insured property becomes unoccupied
and so remains for a period of more than 30 days (Not applicable for Dwellings).
c) If the interest in the property passes from the insured otherwise than by will or
operation of law.

CANCELLATION

4) `This insurance may be terminated at any time at the request of the Insured, in
which case the Company will retain the premium at customary short period rate
for the time the policy has been in force.This insurance may also at any time be
terminated at the option of the Company, on 15 days' notice to that effect being
given to the Insured.

LOSS NOTIFICATION

5) (i) On the happening of any loss or damage the Insured shall forthwith give notice
thereof to the Company and shall within 15 days.

a) A claim in writing for the loss or damage containing as particular an account as

may be reasonably practicable of all the several articles or items or property
damaged or destroyed.

b) Particulars of all other insurances, if any

The Insured shall also at all times at his own expense produce, procure and give to
the Company all such further particulars, plans, specification books, vouchers,
invoices, duplicates or copies thereof, documents, investigation reports
(internal/external), proofs and information with respect to the claim and the
origin and cause of the loss and the circumstances under which the loss or
damage occurred.

No claim under this policy shall be payable unless the terms of this condition
have been complied with.(ii) In no case whatsoever shall the Company be liable
for any loss or damage after the expiration of 12 months from the happening of
the loss or damage unless the claim is the subject of pending action or
arbitration; it being expressly agreed and declared.

RIGHT OF ENTRY

6). On the happening of loss or damage to any of the property insured by this
policy, the Company may

a) Enter and take and keep possession of the building or premises where the loss
or damage has happened.

b) Take possession of or require to be delivered to it any property of the Insured

in the building or on the premises at the time of the loss or damage.

c) Keep possession of any such property and examine, sort, arrange, remove, or
otherwise 35 deal with the same.

d) Sell any such property or dispose of the same for account of whom it may
Concern. The powers conferred by this condition shall be exercisable by the
Company at any time until notice in writing is given by the insured that he makes
no claim under the policy.

FORFEITURE

7). If the claim be in any respect fraudulent, or if any false declaration be made
or used in support thereof or if any fraudulent means or devices are used by the
Insured or any one acting on his behalf to obtain any benefit under the policy.

OPTIONS TO REINSTATE

8) If the Company at its option, reinstate or replace the property damaged or

destroyed, or any part thereof, instead of paying the amount of the loss or
damage, or join with any other Company or Insurer(s) in so doing, the Company
shall not be bound to reinstate exactly or completely but only as circumstances
permit and in reasonably sufficient manner.

CONTRIBUTION

9) If at the time of any loss or damage happening to any property hereby insured
there be any other subsisting insurance or insurances, whether effected by the
Insured or by any other 7 person or persons covering the same property, this
Company shall not be liable to pay or contribute more than its rateable
proportion of such loss or damage.

ARBITRATION

10) If any dispute or difference shall arise as to the quantum to be paid under this
policy (liability being otherwise admitted) such difference shall independently of
all other questions be referred to the decision of a sole arbitrator to be appointed
in writing by the parties to or if they cannot agree upon a single arbitrator within
30 days of any party invoking arbitration.

NOTICE

11) Every notice and other communication to the Company required by these
conditions must be written or printed.

Notwithstanding what is stated above, the Sum Insured shall stand reduced by
the amount of loss in case the insured immediately on occurrence of the loss
exercises his option not to reinstate the sum insured as above.

Special Conditions:
a) Basis of Sum insured:
(i) Market Value Basis

It is a requirement of this Insurance that the sums insured stated in the Schedule,
as declared by the insured shall not be less than the “Market value” of the
property insured.

(ii) Reinstatement Value Basis

The insured will also have an option to insure the property (except for stocks) on
a “Reinstatement value basis”, which shall be the cost of replacing or reinstating
on the same site or any other site with property of the same kind or type but not
superior to or more extensive then the insured property when new as on date of
the loss, subject to special provisions contained elsewhere in this Policy.

b) Basis of Settlement:

(i) Market Value settlement: It is the actual cost of the property lost or damaged
at the time of loss (excluding profit of any kind) taking into consideration the wear
and tear and depreciation for usage.

(ii) Reinstatement Value settlement: The work of replacement or reinstatement

(which may be carried out upon another site and in any manner suitable to the
requirements of the insured subject to the liability of the Company not being
thereby increased) must be commenced

Until expenditure has been incurred by the Insured in replacing or reinstating the
property destroyed or damaged the Company shall not be liable for any payment
in excess of the amount.

This Memorandum shall be without force or effect if, the Insured fails to
intimate to the Company within 6 months from the date of destruction or
damage or such further time as the Company may in writing allow his intention to
replace or reinstate the property destroyed or damaged.

a) the Insured is unable or unwilling to replace or reinstate the property

destroyed or damaged on the same or another site.
 Expenses Covered
i) Architects, Surveyors and consulting engineer’s fees (up to 3% of the
claim amount) “It is hereby declared and understood that the expenses
incurred towards Architects, Surveyors and Consulting Engineers fees for
plans, specification tenders, quantities and services in connection with the
superintendence of the reinstatement for the Building, Machinery.

Removal of debris clause (up to 1% of the claim amount) “It is hereby

declared and agreed that the expenses incurred up to 1% of the claim amount
is included in the sum insured thereon for

(a) Removal of debris from the premises of the Insured; (b) dismantling or
demolishing; (c) shoring up or propping.”
Note: (b) & (c) above should be deleted when neither Building nor
Machinery are covered.

FACTORS AFFECTING PREMIUM RATE IN FIRE INSURANCE

1. Construction or Structure (height of building, the area, the number of

unprotected floor openings, construction of walls, floors, roof, etc.).
2. Occupancy (the use to which the building is devoted).
3. Nature of flooring (wooden floor introduces more risk).
4. Height (height adds difficulty in fighting a fire on upper floors).
5. Floor & wall openings (openings in the floor for lifts or belts constitutes higher
physical hazard).
6. Lighting, heating, power.
7. Place or situation.
8. Protection
 Policy claim of fire insurance

on receiving the notice from the policy holder of the insurance. The
insurer appoints an assessor to examining the fact of the case. Then the
assessor will check the following thinks....

1.The policy is in force on the date of the occurrence of the loss or damage.
2. The loss or damage is by a peril insured by the policy.
3. The property affected by the loss is the same as insured under the
policy.
4. Notice of loss is received without undue delay.

After that a claim form is issued to the policy holder which requires some
following information...
1.full description of circumstances of loss like date of loss time, place of
fire.
2. Causes of fire.
3. Particular of the property affected by the loss.
4. Statement of other insurances on the property, name of insurer, policy
member and the sum insured.
5. Sound value of the property.
 Conclusion

 Fire insurance is  a contract between the insurance company and the

insurer, wherein the insurer will compensate the losses occurred at
the insured property due to fire. To make a fire insurance claim, you should
establish the actual fire  and should prove that the fire is accidental.