SESSION 55-

FIRE INSURANCE
Definition
Fire insurance means insurance against any
loss caused by fire.
Section 2(61) of the Insurance Act defines fire
insurance as follows: “Fire insurance business
means the business of effecting, otherwise
than incidentally to some other class of
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.”
Another definition of fire insurance
would be: “ A contract whereby the
insurer in consideration of the
premium paid undertakes to
compensate the insured for any
losses that may result due to
occurrence of fire”
What is Fire?
The term fire in a Fire Insurance Policy is
interpreted in the literal and popular sense.
There is fire when something burns. In English
cases it has been held that there is no fire
unless there is Ignition.
Stanley v. Western Insurance Co. Fire
produces heat and light but either o them alone
is not fire. Lighting is not fire. But if lighting
ignites something, the damage may be covered
by a fire-policy. The same is the case with
electricity.
Fire policies cover fire caused
through earthquake, riots, civil
commotion, foreign enemy, rebellion
etc.
Loss and damages which occur as a
result of putting out of fire are covered
by the fire risks.
Case let

A,B & C are continuous houses

insured against fire. An earthquake
causes A to fall and as a
consequence fire breaks out and
spreads to B where an explosion
occurs whereby C is wrecked.
Is the insurer liable for the loss?
Fire risks do not cover loss caused only by
explosion. However, where explosion
actually causes ignition which spread into
fire, the loss would be taken as loss by fire.
In the given case the insurer will be liable
to C if (1) the explosion was caused by fire,
(2) the insurer has not excluded his liability
for the explosion by a special clause in the
fire policy
Features of Fire Insurance
Fire insurance is a contract of indemnity.
The insurer is liable only to the extent of
the actual loss suffered. If there is no loss
there is no liability even if there is a fire.
Fire insurance is a contract of good faith.
The policy-holder and the insurer must
disclose all the material facts known to
them.
Fire insurance policy is usually made for
one year only. The policy can be renewed
according to the terms of the policy.
Insurable Interest: A fire policy is valid
only if the policy-holder has an insurable
interest in the property covered. Such
interest must exist at the time when the
loss occurs.
In English cases it has been held that the
following persons have insurable interest
for the purposes of fire insurance- owner;
tenants, bailees, including carriers;
mortgages and charge-holders.
Fire policies cover losses caused
proximately by fire. The term loss by
fire is interpreted liberally. Example: A
women hid her jewellery under the
coal in her fireplace. Later on she
forgot about the jewellery and lit the
fire. The jewellery was damaged.
Held, she could recover under the fire
policy.
Subrogation is a doctrine by which after
meeting the loss agreed, the insurer or
underwriter becomes entitled to all rights
and remedies available to the insured
against the third party.
Contribution is another doctrine under both
marine and fire insurance where the
subject matter has been insured with more
than one insurer, each insurer has to meet
with only the rate able proportion of the
loss. In case he pays more he is entitled for
a reimbursement of the excess amount
paid by him
Fire policy
A fire insurance policy involves an
insurance company agreeing to pay a
certain amount equivalent to the
estimated loss caused by fire to the
insured, within the time specified in the
contract. The indemnity is subject to
change depending upon the policy. One
should confirm with the insurer about the
types of risks covered, since one cannot
insure the property against all types of
risks of fire.
Types of fire policy
Specific Policy- It is a policy where the insurer
undertakes to make good the loss up to the amount
specified in the policy irrespective of the value of
the policy.
Valued Policy- It is undertaken where the value of
the policy is not easy to determine. In case of total
loss of such property the insurer undertakes to pay
the value of the property as mentioned in the policy.
Average Policy- in this policy the insured is
penalized for under insurance of the property. He is
considered to be self insured to the extent of the
under insurance
Excess Policy-This policy is issued for the stock
of merchandise whose value is constantly
fluctuating. in such case it is not suitable to take
one policy for certain sum. so the insured takes
an ordinary policy for minimum value of the
stock and excess policy for excess value of the
stock. the actual value of the stock will be
reported periodically
Sprinkler Leakage Policy- This type of policy
covers the loss of building as a result of the
damage by leakage of liquid or water
Declaration Policy- This is granted only in
respect of stock. Since stocks of a
business are volatile in nature the insured
has to at the end of a month declare in
writing the stock covered under the policy.
The premium is adjusted accordingly.
Comprehensive Policy- This is an all-in-one
policy indemnifies for loss arising out of
fire, burglary, theft and third party risks.
The policyholder may also get paid for the
loss of profits incurred due to fire till the
time the business remains shut.
Floating Policy- It covers loss on
goods which are lying in different
places. Example- if a person has
goods lying in two warehouses he
may use this to insure the goods at
both places rather than insure both
separately.
Replacement Policy- This policy is
subject to the re-instatement clause,
which requires the insurance
company to pay for replacing the
damaged property.
Consequential Policy- under this policy
insurer agrees to indemnify the insured for
the loss of profits which he suffers due to
dislocation of his/her business as a result
of fire. It includes loss of net profit,
outstanding expenses, prepaid expenses
and loss of goods.
Blanket Policy- Blanket Insurance is an
insurance policy that covers more than one
piece of property at a specific location or
multiple items at multiple locations.
Rental Property fire insurance- It covers the
dwelling and all personal effects against fire,
smoke, wind, and vandalism damage. Some
of the types of damage that are covered
include: collapse, explosion, fire, hail,
lightening, smoke, vandalism, weight of snow
and ice, and windstorm. If the unit is unfit to
rent due to loss, the coverage will reimburse
the owner for fair rental value of the lost rental
income up to 12 months (this may vary with
each specific property fire insurance
company).
Transit Policy- loss of good due to fire during
transit. Includes fire caused by accidents.
Builder’s Risk Insurance- It insures against
the risk of physical loss or damage to
property during construction. Builder's risk
insurance is typically written on an "all risk"
basis covering damage due to any cause
(including the negligence of the insured) not
otherwise expressly excluded. Builder's risk
insurance is coverage that protects a
person's or organization's insurable interest
in materials, fixtures and/or equipment being
used in the construction or renovation of a
building or structure should those items
sustain physical loss or damage from a
covered cause.
Adjustable policy- It is nothing but an
ordinary policy on the stock of the
businessman with liberty to the insured to
vary his option. The premium is adjusted
on pro-rata according to the variation in
stock. The insurer is informed whenever
there is variation in stock. And as soon as
such data is received the policy is suitably
endorsed and the premium adjusted. This
type of policy came into being to remove
the disadvantages of declaration policy
where the variation in stock is valued at the
end of a month
Maximum Value with Discount Policy-
Under this policy one third discount of the
premium paid is refundable to the insured
at the maturity of the policy. this policy
covers the risk for maximum amount.
Case let 1

Mr. X got his goods insured against

fire. Afterwards Mr. X and Mrs. X
quarreled and Mrs. X set the goods
on fire. The goods were destroyed. Is
Mr. X entitled to recover the loss from
the insurer?
Solution: Yes, the insurer may
proceed against Ms. X’s wife against
paying compensation to Mr. X.
Case let 2

A house covered by a fire policy

catches fire. In the confusion that
followed a theft is committed. Is the
insurer liable to the theft amount
also?
Loss by theft during or after the
occurrence of a fire is not covered by
the fire policy. Hence, the insurer has
no liability for the loss
Case let 3

‘A’ insured his house against loss by

fire. Later, while insane, he killed his
wife, severely injured his son and set
fire to the house. Is he entitled to
recover?
The son is entitled to recover the loss,
as the insured caused the fire when
he was insane and so it cannot be
considered as deliberate action.