PROFESSIONAL PRACTICE

s. The arbitrator has jurisdiction to decide regarding additional work which CHAPTER 14
forms part of the principal work and the same partakes the fo~ of extra
works.
6. The arbitrator has to confine himself to the matter of Arbiu-ation Agreement. FIRE INSURANCE
He cannot go beyond the scope of such limitations.
7. The Arbitrator has to pass a speaking award unless agreement provides for
non speaking award by consenl.
8. Interest: There are two stages to grant of interest in arbitration proceedings. Man is exposed to various risks 10 his person and interesl right from the stage
of cradle to the stage of crematorium. His desire to save him from the risk or risk be
Sllge - I
minimized gave birth to the business of josurance with an ever expanding field The
Interest from the dale on wbich cause of action has arisen to me date on
cbief aim of all insurances is to protect a person from risks. The classical varieties
which the award is made. at sucb rete and Oil such amount as the arbitrBtor
of the insur:mce contracts are marine, frre third party risks, mOfor vehicles, burglary,
adjudicates as fair and reasonable.
aviation etc., and new ones to come in the field are crop insurance, satellite insurance
SlI.ge-2 and also social insurance under the Employees State Insurance Scheme Act, 1948.
Interest from the dale of award to the date of payment OUi of the several varieties of insurance contracts the architect and the engineer are
10. The architect ! engineer has to charge reasonable fees when acting as arbitrator concerned with the fire insurance, and third party risk under the building contracl.
as arbitration is a social obligation and the architect/engineer must meet with The Statutory authorities. also provide a coridition wherever necessary making it
the expectations of the society in which they live. compulsory for the owner or contractor to take out a Janata Policy as given below:
The owner I CODlreClor should take Janata Insurance Policy so as to cover the
PART-IV compensation claims arising out of the Workman's Compensation Act 1923 before
Slarting the work' and gel the same revalidated from lime-to -time.
The phrase like Direct loss and!orexpenses occurs in the following conditions Besides the above the professional advice of the architect and the engineer
of I.I.A. format of contract. are sought on the insurable value of the property as well as or "damage-claim" report
Particular3 Phrase Used due to fire.
Condition No.
The business of insurance involves two parties namely the person who
30 (Variations) 0iJttt loss and I or expenses wants protection called the insured and the person who undertakes the risk by giving
43 (Loss & expenditure arcessary protection agaInSt tbe loss called the insurer or underwriter for which he
caused by Distwbances -Do- charges an agreed oonsiderntion called me premium. The righlS and liabilities of the
48& 49 Detennination of contract parties including tenns and conditions subjcctto which protection is afforded against
by owner and contractor -Il<>- k loss due to frre. is reduced 10 a Wrinen format called fire policy or fire insurance
54 Antiquities -Do- contract.
41 Liquidated damages -Do- Due to nationalization onife insurance business in 1956 and general insurance
,
The phrase in general deals with (i) Direct loss and (ii) Direct expenses wbica business in 1972, the insurers in our country will be Life Insurance Corporation for
in one way or another represent delay damages like: life business and Generallnsurance Corporation oflndia for general insurance. Hence,
1l$UtCn; hereafter will be referred to as "Company I Corporntion".
DlRECf LOSS: It will cover expenses like preliminaries, Head office
expenses, profit margin, overheads which in the opinion of the contractors is lost Fire Insurance Defined
no fault on his part including work with drawn from him. it means a contract whereby one person undertakes in return for agreed
DIRECT EXPENSES: Unexpected expenses incurred by reason ~iderotion to indemnify another person against loss or damage occasioned by [lIf·
perfonniog the scope and dimension of the contract. - , or incidental to fire upon the agreed amount.
All direct loss and I or expenses come into force due to Breach of cor,... From the above one can sieve out the following essential ingredients:
which is the pivotal force; no breach means no damages. (I) II is a contract of insurance.
(2) There must be consideration (premium)

342
343
 PROFESSIONAL PRAcnCE
(3) Indemnification.
The object of the contract must be indemni~cation o~ th~ loss caused by
damage in other words the insurer has been imposed With an obligation 10 make good
at his 0.:.0 expenses any loss or damages whic~ may ~ve been ca~ by fire 10 ~e
property· for indemnification means to put the msured m the very posItion monetanly
or o~ise as if fire bad not occured At the same time it is not permissible for the
insured as well as for the company to make profit out of the insurance contract
Illustration
I. Preston owned a house and had taken out fire policy for il_~e. a~thlo
sell the bouse to Rayner for which agreement to sell was ente...... mto WI a
deposit paid for it. What was left OUI was paymenl of balance of the purchase
price on completion of conveyance deed. . .
In the intervening period of agreement to sell and completion of transactiOn,
a fire occurred and Preston claimed damages from the insurers ~d g~t the
cost of damage. Preston (vendor) thereafter completed the transaction .Wlthout
rectifying or reinstating the damaged portion of the house and received the
balance of the purchase money.
The vendor thus received the full value of the bouse and also a sum of money
from the insurer, resulting in profit for the vendor.
The vendor was asked by the coun to refund the money of the insurer, for
indemnification and not profit is the core of insurance law.
Again indemnification means promise to save another ~rson from ~ann or
loss caused as a result of transaction entered into at the lIlSta.llCe of Insured
which in other words makes the rife insuram:e contract of a personal nanut.
Thus., the insured has to prow: that he has an interest in the propeny and ~
his interest bas been affected by fire. This is known as "Insurable Interest.
If the person seeking protection bas no insurable interest in).he property be is
not covered by the contract of i~e.
Illustration
I. Mr,'M' bas timber in his estate and gelS the same ins~ ~~~~t fi1lre in
name of a limited company in which he holds substailtlli.l ~c:;. n ~
* For formation of fire insurance contract it is essential thin a proposal
fire Mr. 'M' is not entitled to indemnification as he has no msurable mtcresl
in timber for the policy has been taken out in the name of the company. If
Mr. 'M' wanted to have compensation against loss due to fire he would h,,'r
laken out fire policy in his personal name and not in the name of the companJ.
for law treats the company as a separate legal entity. Thus, Mr. 'M' has
insurable interest in the assets of the company though he is a substan
shareholder and will suffer loss due to destruction of timber due to fire.
2. If the vendor sells his property which is insured, his ins~~le inhte~s~
'?
If the propeny is damaged by fire, the vendor is not e~titl ..... t e calm.
forms one of the condition for tennination of fire poltcy as gIven below:
344
FIRE INSURANCE
This insurance at any time be terminated by the company on notice 10 that
d'fect being given 10 the insured in which case the company shall be liable 10 repay
• rateable proponioo of the premium for the unexpired term from the date of the
cancellation. However, if the insurance is terminated at the request of the insured
~fore its expiry date the company shall not repay the premium or any pan thereof
daargeable for such insurance except:
(a) Where the said insurance applies to slOcks only or;
(b) Where the insured ceases to have any insurable interest in the propeny
insured; and
(c) In either case the ordinary rlre insurance is terminated simultaneously
in which case the company shall in respect of this insurance retain the
customary short period premium for the time the said insurance bas
. been in force.
As 10 the transfer of insurable interest along with transfer of the propeny. II
made compulsory for the insured to obtain necessary consent to that effect from
company before the occurrence of fire. This condition makes exception in two
wherein the consent of the company may not be necessary and that is when the
~ gelS transferred by (i) wiiJ, (ii) 9petation of law - and in both these cAses
insurable interests pass along with properties. However, it is advisable 10 obtain
acessary endorsement to that effect from the company on the existing fire policy.
entials for Formation of Fire Insurance Contract
The essentials of formation of a fire insurance contract are:
Proposal muSt be made by the insured to the corporation for which the
corporation will supply the printed form.
Deposil receipl for the payment of premium called the Cover note'.
Rejection of the proposal wbereby the deposit paid as premium will be
rtIllmed or on acceptance a fire policy will be issued.
be made by the insured which is usually made in the printed form issued by
companies. The printed form will call for a number of informations from the
lik.e name, address, description of propeny to be insured, value of the items,
of the propeny etc. Qut of the paniculars on which the companies call for the
,",1"'.li,ms., the following are important ones due to the fact that the insured signs a
~...tii,," at the end of the proposal foml thaI answcr given by him are to form the
contract and if any of them is untrue, the policy can be treated as null and
Whether manufacturing process or hazardous trade is carried on in the
building or near it.
Details of previous proposals and I or previous policies.
345
 PROFESSIONAl PRAcnCE FLRE INSURANCE

3. Any preyious insurance. blank gaps left. to be fLlled in based on the paniculars oftbc properties. l'ht __
Whether any property insured by bim has e\o'er been destroyed by fm:. bat of the fire insurance policy contains:
4.
Any other material facts which are within the knowledge of proposer and Recital clausccontaining the names ofthc parties to the contract, theOOli4*lJ
'5.
which are material to the proposal. or corporation agreeing to pay amount of damage or reinstate or rept.cc-
damaged property. effccth'e time limit, inswable value, premium, nature
Illustration of risks covered like fire, lightening, riot, strike, malicious damage risks,
I. Mr.G made a proposal for insurance of his house against fire. explosion, earthquake and a brief description of the property insured
the question in the proposal fonn ....'3S wbe~r the house had
It is clearly understood that insurance policy does oot cover land, plinth,
previollsly offered for insurance to any other.ms~ce company
foundation and compound pavement. Leaving aside land, other items are
The . what
if so pohcy
with was ..results.
_.. an
ISSUcu ;G~I~eft~~th~is~::qU~"':;t~tO~O~WI:~th~O~U!ta~O~Y,::~~
Mr.d the insunmce
that on two previous occasions the proposal for
thereafter connected with the building cost and since these items are not insurable and as
such building cost is reduced by 10% so as to arrive at its insurable value.
The terms and conditions subject to which the contract becomes operative.
been rejected. The company . can also
to pay for damages due to non-declaration of matenal ~ac~. The terms and conditions may conveniently be grouped as under.
2. If a person insures clothes unused for 20 yeanl, mentlonmg as (A) Foundation Conditions
ones without mentioning that these are 20 ~·ears o~d, the . (I) Good faith.
can refuse to pay damages due to fire, as thiS fact IS reqUIred '(2) Warranties and disclosures.
revealed by the insured. (3) Perils insured.
(4) Double insurance (Contribution)
Cover Note h fi (S) Average clause.
Whenever a proposal is made by the . to ave a Ife
policy for his building, be fills form .. . (8) Termtnaoon ClauSf
premium for it. The company needs time to ~e inqUiOes and This bas already been discussed Wlder the topic of indemnification
can either reject or accept the proposal and ID case C) ProceduraJ Cond1tions for Claims
issue of fire insurance policy. If during the . ' (I) Notice of fire forthwith and 10 file claim report within IS days
and issue offrre policy, the frre takes place. how protecn~n '"",',.. with all derails or within extended time limit.
the proposer? In order to protttt the interest of such pro~ ~ng the u (2) Forfeirure condition if the claim is fOWld to be fraudulenl (implied
period, the company gives a deposit receipt for the prenuum paid called the condition of good faith).
pote" Its essential characteriStics are: (3) Reinstatement clause.
I . If fire takes place between the date of receipt of cover note and the (4) Right of enlly and salvage value.
. intimation by the company regarding the acceptance or refusal of tbe (5) Arbitration condition.
the company will be responsible. . .
. . 'od and 'f that pen' od is specified £.lIntctof Utmost Good Faltb
2. It is a protection for an \Dtenm pen I .
days, the protection will be limited to thaI penod only.. This condition grovides that if there is material mis-description of the property

4.
It is also known as lnterim Protection Note.
It is a contract of insurance but is not a policy of insurance.
:::;~t:~;"::':~~:;:':;~:: as to any material fact for estimating the risk or
such facts (non-disclosure of material racts) the company shall
the policy effected as the same fonn breach of utmost good faith
~_I ful! disclosures.
Fire lnsurance Policy
It is the contract '-""",ceredu"'dl'~"';ti"g~'he"b~i"d:~~~
of fire in
of onc person by another person against loss o~ damage due to f~ or in the proposal fonn the ques[ion are put whether the building has been
thereto is to become effective subject to cenam terms an.d conditlo.Ds offered for insurance to the same company or any other company and the
lherem and indemnified (company) ac~t~g the ~ount paid as p~m\Um
indemnification. Such fire insurance poliCies are In the fonn of pnntcd : :'::;':~~7:.:,~r.o~r:answer as blank or answers as "No" whereas the insured
company previously and his proposal was rejected or be:

34. 34'

PROFESSIONAL PRAcnCE
had already taken out rue policy with another company and now wan~ an ""Ii',i"'"
one, but infonnation has been suppressed, for such cases company will not be
on the contract
2. Warranties and Disclosures . '
Warranty is a condition which must be exactly and smelly comphed
whether it is material to the risk or not. If DOt complied with the. compan~ can
the contract. A warranty is generally in writing and is ~ually msert~ In the
Even the answers given in the proposal form, whether lDcorporaled lD the
not will have the effect of~ties ifit is clear either from the
otherwise, that it was the basis on which the panies contracted.
Illustration
\) It is hereby warranted that during the CurreDCY of this policy
buifding referred to herein is built of the class of ~~~~
defined under "Classification of buildings" specified as;
(2) Class 1. (3) Class II. (4) Class ill. With detailed
given for each of the class. . (b)
2) It is hereby wananted that during the currency of this
plinths, foundations and ground pavements are
scope of this insurance. .'
3) WlUT8.Ilted that during the currency of this pohcy crackers.
and other eltplosives be stored under the conditions referred to
Explosive Aci and in accordance with the rules made by
under which the licence is granled.
3. Perils Insured . 2) Damage amounl comes to Rs.IS,OOOI·
If a person desires to have his property insured be must describe in ~,~ I~
fonn the risk he wants the company to cover up. Based on the na~
risk the company will calculate the premium which will ~ ~?re WIUth~E;;
risk. If the property is insured against fire, there ~ust be.I~~lon?" ..:
lightening is a fonn of fue bul if is unaccompanIed by 19rutlon, It
as loss due to fire. Similarly, the rioting mob can damage the propert>: by
otherwise or in the alternative set the property 10 fire. Here the prolt~
loss is not fire but unruly mob. In order 10 overcome these d~fficulties il is
specify the perils (accident; cause of damage) or nature of nsks covered
insured will become entitled to the claim for damage. .
The fire policy usually provides for the risks covered hke fire. .
and malicious damage risk, explosion risk, earthquak~, flI'C and shock
same time the conditions usually provide about the penis not covered Iik
(a) Loss by theft during or after occurre~ce of fi'7'
(b) Burning of property by order ofpubhc authonty.
(c) Loss or damage by nuclear weapons.
(d) War, invasion, act of foreign enemy, etc.
34'
FIRE INSURANCE
"stratioD
Any loss resulting from fire and resulting fonn the necessary and bauafiIk
dbts to put out the whether by spoiling of goods by water or throwing the artic&e$
_ of window or pulling down a house for the purpose of preventing the spreading of
fire andilames is within the policy of fire insurance.
However. if during the course of a fire accident a mob looted the goods, the
-.ance company is IlOlliable because the proximate cause of the loss is nOI rm: but
subsequent independent lawless acts of the mob.
Double losunnce (Contribution)
There is no objection for the insured to take more than one fire policy for his
.,.aperty of different insurable values. But the ftre policy provides two conditions for
amenamely:
(a) The insured has to give notice to the.company about more than one
rue policies having been taken OUI forthe same property as otherwise;
the insured will lose benefit of the policy under consideration. The
same will apply also to additional fire policy taken out in future.
If these facts are declared before bolt! the companies in case of two
flft policies of the same property, the insured will be indemnified in
full jointly by both the companies each bearing its rateable portion
of damages. However, the insured will not be allowed to recover
damages from each of the company separately for making ofprofil by
the insured is prohibited.
.
\) House is insured with Silver Insurance Co., for Rs.SO,OOO/· and with
Golden Insurance Co. for Rs.l ,OO,OOOI·.
3) Silve Insurance Co. will bear Rs.S,OOOI· and Golden lnsurance Co.
will bear Rs.l 0,000/.
4) Insured cannot recover Rs. 15,0001· from each making the total to
Rs, 30,000/-
benge Clause
If the property hereby insured shall at the breaking out of any fire. be
. .~.tfy of greater value than the sum insured thereon, then the insured shall
as being his bwn insurer for the difference. and shall bear a ratable
A~:~~Clause and all fire policies in India are subject
01 specified. The purpose of average clause is to
. . . ., • .to. insurance of the property.
...-erage clause is an extension of the principles of contribution to the loss
When the property is over insured, the company will be liable 10 pay
349
 FIRE INSURANCE
PROFESSIONAL PRACTICE

the value of the property at the time of occwrence of fire, e.g. If the (b) If
. ,
subjecHo part damage wh esc actual cost or
Rs it30is0001
_the company will be liable for :
--pl""....-
'4' - « •
value of the propertY is Rs.l,OO,OOOI- and the insured has taken out a

2)
policy for Rs.l,50,0001- in case of destruction due to fire , for profit is
not the principle of ~ce contraCt.
When the tnsurcd bas taken out twO or more policies of the same
- lnsunlble amount x cost replacemeDt
Actual value

property with different companies for different extent of amount, in

case of damage due to fire the companies concemed will bear loss by - 2,00,000 x 30,000
3,00,000
their pro-rata contributioo. • 1U.20,OOO/·
3) When the propertY is under inswed and the value of the property
at the time of occurrence of the fU'!: is more th3ll the said insurable pro-retaand balance Rs,IO,OOO/- to be bome by the .LIlSured based on the principle of
contnootion,
amount. the principle of indemnification raises tile questioo as to why
the company should not pay the amount equal to value of the property
Procedural Conditions for Claim
at the time of fire'? Condition No. I: On ha .
The average clause keeping intact the principle of indemnification whicb fonhwitb give a notice thereoflo:8 of ~y I~ or damage, the insured shall
provides that neither the inswed nor the company is allowed to make profit out of 15 days after the loss or damag.o, thinpany ID wntmg to.tbat effect and shall within
WI such extended nme r . sha
the insurance business. makes provision that the insured is liable for part loss of the a aim in writing containin as IDUt II deliver,
damage and has to contribute to that loss on pro-rata basis. This can be explained as () CI
destroyed or damag-A g partlcular an account of property
..... amount of destructi
regard to Its value at the rime of des . on or damage having
undec (a) It is essential that the property be insured for its full jndemnificatioo (b) Particulars of all insurances, if an , !ruCtIon or damage.
value. (c) All such proofs and infonnati y. I .
(b) This indemnification value is divided in twO parts, out of which for etc .., .with respect to the claim. ens me udmg plans and specifications
one part the insured takes out fire policy with a company and for
another part it is hypothetically assumed that he bas taken another (d) Origm hascause
damagesand of fire and cltCllt1lStances
occumd. ' under which loss or
policy (say insured has taken out policy with himself only).
(c) In case of fire, both namely the company as well as insured mUll (e) Any maner
company touching
as may the liabTIty o,r the amounl or liability of the
be reasonab,1
contribute to the amount of loss as if the insured bas taken out twO (I) A declaration 00 oath or in o~~uired by the company.
policies for the same property. . and matters connected therewith gal fonn of the truth of the claim
(d) The share of the company in the amount of loss will be pro-rata
It IS also provided that DO claim under ' .
value of the property at the time of occurrence offU'!: and its condition have been comPli!e ~ICY shall be payable unless the
value for wbich the property is insured and the balance amount
indemnification is to be bome by the 'i"s.,odl"" d 01' thd.C1;'" liII IIIdInlliCoO,.dUIOD
be madeNo.2: If the
or used claim beofinthanYI~'
in support WI , fraudulent or if any false
such "Short fall amount" the insured will be his own insurer, are used br Ibe insured or an on : c aun ~r If any fraudulent means or
,,;;~th~'~PO:~I:iCYt all benefits under ~ ~. act~ on hiS be?alfto obtain any benefit
lUlistration
If the property is insured for Rs,2,OO,000l- but its "I'"" 3.1 thl' .Ii""
of fU'!: is Rs3,OO,OOOI-:
0"._ .. . 0' damage be oceasion.':~;~ ~I~ forfelled.Besides theab"" if
Th' ben.fi~ shall .Iso be forf.i.ed. fu l .co '" ~'th the coMi".ce of
(.) The company will pay Rs.2,OO,OOOI· in COS< the I,roperty is desm'"
'w
by fire and for balance of Rs.l,OO,OCJJI- the ""we,d will
insurer and do bear thai excess amount. ,..
IS IS an Im;>Lied conditions of good fi
"'rigtC,o~,ndidon No. J (Reinstatement
to the company either: O.:~)'·, .. in the fU'!: policy
. This condiuon
..I)) To ii<iY
. the amount 0 f the loss due to damag .
,n To reInState or replace the propc dama e, or
ttther solely or jointly with any 0 th er company,
rty ged
Theorsaid
destroyed,
oondition further

3, 1
1,0
 PROFESSIONAL PRAcrTCE FIRE INSURANCE

lays down thai the reinstatement will be limited {() the condition as it was before ftre The insured is prohibited from tin '
and further amount spent will not be more than the sum insured, also deliver the damaged property 10 th::m g any obstruc?on in the said acts and
The condition uses two words viz. "Reinstate" and "Replace" having different IDder the policy, panyas othel"Wlse he losses all benefits
scopes, lfthe property is wholly destroyed, the company at its option may replace by . The imponance of this condition from th I.: • '

its equivalent and if damaged the company is {() reinstate the damaged parts that is to -.age by fire ' , , , e arclUtecl s POIOI of view is that on
, II IS not penmsslble to treat the loss as a total l b '
say repair tbem and put them in a condition in which they were before fire, The above reduced by the salvage value of the damaged prnnPrfv J ' ass ~~ ,":U have {()
proposal is not a working proposal in as much as say windows with 40 years of age .ured {() abandon the dama ed '-"'-"J ' I IS 001 permiSSible for the
I {() 18k ' g property on the assumption that the company has
are destroyed, il is nOI possible to provide equivalent old windows of 40 years of age, e possession and sell the damaged property rt is an ' ,
Hence, the company usually opts out for payment of the amount for loss, 4Inpany, In praclice the company will hardly opt OUI '1o seU !beOP:' ~ghl of the
g
Besides the above if th.e company opts out for reinstatement it has to face I marleet, but,usuaIly deducts 5% 10 10010 of the amount arrived at for th ~
lot of problems like proper supervision of the work, property affected by regular line . bi,""'c,g mlo operation fac{()rs of depreciation and IV.......... 1
, ,.plicPU • gc
of!be street (set back portion) wherein reinstatement will not be permitted and hence I~ , -'""eo'" C BUSt wherever

opts OUI for the payment of amoUnt. COD~ltioD No.5: FinaUy there is a condition of arbitral' ' th fi '
If the company opts oul for reinstatement the insured has to supply al his ow. ~e difference or dispute arises as (() the quantum 10 be 10~ ~~ lre pol~cy
expense necessary plans, specifications, measurements, quantities and other delBill _ ...."',,~.have to be as per the provisions of the Arbitration ':t. Howe: ~I:
necessary for the work of reinslatement and extend all co-opemtion in the , ISPUtes or has not accepted its liability under or ' , I ,
without impeding the progress of the work, Here again the company is nOI bound tame IS required 10 be decided by the Court of law an~n ~b 'thof~~,poh,CY,
reinstate exactly and completely as the property was before ftre and also nOI "'" y e "' . . ltrallon
to spend more except what is needed to reinstate in its original condition within
specified bounds of insurable value of the property as provided in the policy, . ., A,rcbltoct or Engineer Is ProfeSSionally Connected witt. th
However, if the insured requires that bis property wben damaged ord"~" of Fire Insurance? e
by fire should be replaced by new one. the same is pennissible provided: ~ arcbilect or engineer is professionally connected with the sub' f , __
i) lnsurable value of the building is based on the';", of' CO,~",.,ti", m the fOllOwing fields viz: ~ect 0 un:;
if new, i) Fair marlcel value of property based
techni h ' on InCOme capitalization
ii) '0
lnsurable value is I,. r.,j.sed from " ..noy....' that ,b,,;am.do
u) u-'-
.~
qlh""bw 'I""'d' msurance premium forms an item of outgoings
e UI IDg contracts, '
not fall below the cost of construction of a new building,
w)
iii) A qualifying clause {() that effect is inttoduced in fin, p<;I;~1 w1do~ To advise on the insurable value of the property
w)
"Reinstatemenl Clause", To p~ the claim repon in case of loss due I~ ftre and to represent
th e chum before the company,
It should be noled here that in the contract of insurance the normal
of the company is 10 indemnify the insure by paying the value of the thing . . . .0. Ffeld
1\e fai::~el value ~ on inco~ capitalization technique is estimated
expenses incurred in repairing the damaged partS. If the old window of the
is destroyed by ftre, the insured has suffered the loss of an old '
acme ' lD~me by year s purchase ID perpetuity or for a specified period.
new one, Thus, company is bound 10 give the'value of old r ':do:iW~:~::
~
:;:;~::lS, amved at by deducting the outgoings from the gross ,
damaged portion is required 10 be replaced by new portion forms an outgoing on the gross income (rent) and th IOcom~,
the insurable value has {() be increased correspoodingly and a deducted along with other oUlgoings from the ' e sam~ IS
effect must be added 10 the reinstalement clause, -:::.::"', Hence, It' IS
" essential 10 examine the insurance
gross tncomefrom
to amve
.. premium two
CODditloD No.4 (Riatll or eDtry IDd S.lv.ge nlue): Th,i "...titi<.
the company right of entry into the property on happening of any loss or property Is UDder·IDsuttd: The insurable value of
any of the property insured with a view, full value and in such a case an owner is liable to ~roperty may
i) To make inquiries as (() the origin of fire; case of dams d Ii pan cost of
ge ue 10, Ire, Hence, the valuer will have to work out
ii) To take possession of the damaged property and sell the
for ~ fulllDsurable value of me property and ad t the
iii) To take all reasonable steps 10 minimize the loss,
~ low premium as me prudent purchaser may not like to ~ the

353 '
 PROFESSIONAL PRAcnCE FrRE INSURANCE

said pan cost of reinstatement. _ oftbt: building as if new@ Rs. 850 Per S.M. IU. 3,91,000
Wbell property is Nol InsuM at all: When ~ ~ 1$ 10% towards the cost of foundation and
owner runs the full risk of repairing the damaged portIon m
purchaser will always like to enjoy the ~ return ~~t the slightest Plinth It.. 39,100
in the same. He will not like that when his part ClpltallS destroyed, Net value Rs.3,5I,900
to spend from his own pocket to repair the same so that the return
is likely that when the property is damaged, the tenants may stop Deduct: Depreciation for the total life of 70 years
and age of30 years at 35%
thus resulting in the loss of ntt return to the prudent purc~hase<~~.~=:::
Rs. 1,23,165
the necessary premium based on the full insurable value of a Insurable value Rs.2,28,73S
should be deducted from the gross rent inspite of the fuet Say Rs.2)O,OOO
paying any insurance premium. ..
The duty of an architect and an engmeer IS threefold so far as Jk wchilecl or the engineer may be called upon to prepare a report on the
~ done to the building due to fire.
is concerned: .
J. To safeguard the interest of his client against fire dunng .It"."".
Dew construction work or in case of additions and alterations.
a) The insurance company should be immediately infonned about the
For Ihis purpose a clause is usually inserted in the conUICI rue in the building. .
, fi .
compulsqry on lhe contractor to take oul a ue msUf8nce b) Ajoi.ot inspIx:tioo and measurements of the damage m.ust be taken with
approved company in lhe joint name of lhe owner and ttth~:'~:: the surveyor of the company. Plans be prepared iffound necessary.
full value of the work. The policy and the receipt oftbe pI e) Claim must be submitted to the company within 15 days from the date
to be deposited with the architect within 21 days from the .date of fire. Extension of time if requin.-d to submit the claim repon must
the contract. in default, the owner can take out the rue policy be applied to the company.
amount of premium from the contractor's hill. d} Report to be prepared on itemwise basis after making Decessary
In case of additions and alterations it is limited to the proposed deductions fro- (I) Depreciation, (2) Under insurance, (3) Salvage
and not for the existing floors . value.
Gainful reference may be made to condition Nos. 45, 46, 47A, e) The report must contain the date of fire, time and cause of fire be
1.1.A. form ofcootract. given if known.
2. The architect or the engineer may be called upon by"" oIi,enllo .... f} When the owner gets the claim for damages, it is bis duty to hand over
insurable value of the property all the salvage materials to the company wbo can deal with the same
in any manner it likes.
lIIustratloD
.. practice the insurance company usually does not take over salvage materials.
" Insurable Value of a Property"
"''''''''''1' reasot>al,I, deduction from the claim put forward by .the party.
Prepare a valuation report on the insurable value of a property ne architect's fees for supervising the works of repairs and reinstatement
data: . . . ., ~.Io',,( by the company bUI his fees for preparing the claim report is nol

I. Plinth area
2 Height upto halfroofuuss level ""_ •• ,.,,"",' of Damage Due to Fire"
3. Age ofthc building A timber-framed building has been partly damaged by rue. Work out the claim
4. Future life of the building following data:
5. Depreciation Plinth area 4OOsq.ml.
6. Timber framed structmt: with floor ofT.W. joists, Dq!reciation 30%
planks and T.W. truSSeS, purlins, banens, mangalore tiles kIlurance cover Rs. 2,00,000
and teakwood doors and windows.

35' 3SS
 PROFESSIONAl PRAcnCE

4. Estimated cost of the damage.as worked CHAPTER 15

out'on item wise basis Rs. 60,000
Claim LAW RELATING TO REPAIRS,
• Cosr of th~ building wh~n new at
Rs. 1,000/· Per S.M. x 400 • . R..4,OO,OOO DILAPIDATIONS, WASTE AND
lRdua: 10% towards th~ cost of FIXTURES
foundation and plinth Rs. 40.000

Net valu~ Rs. 3,60,000

Dtdutt: Depreciation at 30% Rs. 1,08,000 PART-I

P~nt insurable valu~ of th~ property Say Rs. 2,52,000
LAW RELATING TO REPAIRS,
Since the building is insured for Rs. 2,00,000/- against the insuf1l.ble value of
The relationship between landlord and tenant is created by a contract of
Rs. 2,52,000/- hence, it is under insured to the tune of21%:
tenancy called the lease or letting whereby the landlord allows the tenant exclusive
..,.
;: Present value of the claims as estimated Rs. 60,000 possession and quiet cnjoYlDent of the landlord's premises for a definite period in
Deduct: Depreciation at 30% Rs. 18,000 exchange for a periodic payment called the rent. If the lease is from year to year or
b any tenn exceeding one year or reserving a yearly rent, it has to be by a registered
Insurable value ot damages Rs. 42,000 mtrument; whereas other leases may be made either by registered instruments or by
Deduct: Under insurance at 21% (average clause) Rs. 8,820 tn..I agreement at the option of the parties, but must be accompanied by delivery of
possession. The laner type of arrangement is to be found in case of monthly tenancy
Rs. 33,180 wbmin rent receipt and delivery of possession of premises fonn important ingredients
Deduct: Salvage (usually @ 5%to 10% of the damage) Rs. 1,659 justify relationship of landlord and tenant between the parties in the absence of
CGIltt8Ct of tenancy in writing. Nearly all leases or contract of tenancies contain a list
Rs. 31,521
things which shall be done and sball not be dooe which will encompass the subjoct
Add: Architect's fees at 10% on the cost ofrepairs and repairs also. For want ofwrinen contracts in case of monthly tenancies, the subject
Reinstatement i.e. 10''"' ofRs. 31,52 1 (small job) Rs. 3.152 liabilities for repairs are to be assimilated from other sources. Thus, liabilities
Rs. 34,673 repairs to a property can be contractual one or statutory one depending upon the
Say Rs. 35,0001· .-.nstaDces of the case. The contractualliabiliiies are spelt out through the vebicles
CO\."eDaIlts in the lease deed; the concept of covenant is explained as under:
Not~ : An insured will be entitled to claim Rs. 60,0001- if the complete
insured for Rs. 2,52,0001· and further that the policy contains When there is a wrinen lease or apment, the respective liabilities of the
clause. (landlord) and the lessee (tenant) are usually fIXed by express clauses in the
itself. Thus. covenants are conditions in apments which spell out rights
.liabilities of parties to such agreements as also their successors and in certain .

~
:~:;~.~th:etse~:~,",,~enforceable against the third party. These take the fonn of
when given in leases or take the fonn of implied covenants which
landlord and tenant.
There are two types of covenants namely personal covenants and covenants
"'Touch and Concern Land" also referred as "having refirence to the subject·
. The simple test to find out whether a covenant is of personal nature or

356 357