Insight

Insight into
into Basics
Basics of
of General
General
Insurance
Insurance

1
 Insurance Documents
PROPOSAL FORMS
 Contains Questions that elicit material Info about the particular risk
proposed.
 In Marine Cargo, usually there is no Proposal form, although a
questionnaire duly completed is obtained.
 Common Questions in a proposal form:
– Proposer’s name in full
– Proposer's Address
– Proposer’s profession, occupation or business
– Previous & Present insurances & full details of all losses suffered & whether or
not they were insured.
– Sum Insured
– Common sections: signature, date & in some cases agent’s recommendation.
 Purpose of Proposal form is to provide all material information to the
Insurers. It also includes a declaration by the insured that all the
information provided in the form are true & correct.

Oct 5, 2020 2
 Policy Forms
• POLICY is a document which provides EVIDENCE of the Contract of Insurance.
• This document has to be stamped in accordance with the provisions of the
Indian Stamp Act, 1899.
• In Fire Insurances, the policy form used is on a scheduled basis i.e., all
individual details relating to a particular insurance are grouped together in a
schedule.
• The Scheduled type of policy may be divided into certain distinct sections:

a) The HEADING: Giving the insurer’s name & address of registered office

b) THE PREAMBLE OR RECITAL CLAUSE: This section introduces the parties to the contract i.e., the
Insurer & the Insured

c) OPERATIVE or INSURING CLAUSE: This specifies the perils insured under the policy & the
circumstances in which the insurer will become liable to make payment to the insured. Sum Insured
& other limits of liability are also mentioned.

d) SCHEDULE: This section contains all the typewritten information applicable to the particular
contract. In Fire Insurance, for example, the schedule provides the following data:

Insured & Address:

Policy No
Date of Issue
Agency
Risk Covered Rate Premium
Period of Insurance
Property Insured

HOMESECURE

Oct 5, 2020 3
 Policy Contents
REGULATION 7 IF THE IRDA REGULATIONS, 2002(Protection of Policyholder's Interest provides
that:

1. A General Insurance Policy shall clearly state:

a) The name & address of the Insured & of any Bank or any
other person having financial interest in the subject matter h) premium payable
of insurance

b) Full description of the property or interest insured i) policy terms, conditions & warranties;

c) the location or locations of the property or interest

j) action to be taken by the insured upon occurance of a
insured under the policy and where appropriate, with
contingency likely to give rise to a claim under the policy
respective insured values

d) Period of insurance k) any special conditions attaching to the policy

l) provision for cancellation of the policy on the grounds of

e) sums insured misrepresentation, fraud, non-disclosure of material facts or
non-co-operation of the insured.

m) the address of the insurer to which all communications in

f) perils covered & not covered
respect of the insurance contract should be sent;

g) any franchise or deductible applicable n) the details of the riders attaching to the main policy

2. Every insurer shall inform and keep informed periodically the insured on the requirements to be fulfilled by the insured
regarding lodging of a claim arising in terms of the policy and the procedures to be followed by him to enable the insurer to
claim early.

Oct 5, 2020 4
 Warranties
Having accepted a risk for a certain rate of premium & subject to certain
terms & conditions, the insurer would like to ensure that the risk remains,
throughout the duration of the policy, the same as it existed at the time of
proposal. For this purpose, WARRANTIES are inserted in the policy.
Examples:
 Fire Insurance: Warranted that during the currency of this policy no
hazardous goods will be stored in the building herein mentioned.
 Marine Insurance: Warranted that the goods are packed in double
gunny sacks
 Burglary Insurance: Warranted that the premises are guarded by a
watchman at all times

If a Warranty is breached, the policy becomes voidable at the option

of the insurers even when it is clearly established that the breach has
not caused or contributed to a particular loss

Oct 5, 2020 5
 Tax Your Mind
 A businessman insured his machinery and stock of goods
stored in the factory premises against damage by fire and
a ‘protection note’ was given, subject to the usual
conditions of the company’s policy, one warranty clause
being “smoking and cooking be strictly prohibited in or
about the premises”.

 Subsequently, the stocks were damaged by fire said to be

of accidental nature. The insurance company however
claimed that fire accident could have been caused by
someone smoking a cigarette or bidi carelessly thrown by
some employee. Is the action of the insurer justified?

Oct 5, 2020 6
 Solution
 In the above case, the company denied the claim on the ground that there
was a breach of warranty as it suspected that the fire was occasioned by
“smoking” which was one of the exclusions implied in the insurance policy.

 But there was no eye-witness to the origin of the fire, and the insurance
company’s opinion was not supported by any evidence and was only a
conjecture.

 Fires cannot always be explained, and mostly it must be a matter of

conjecture. As regards the warranty, as the insured had put notices in the
factory and surrounding areas, strictly prohibiting smoking in and around
such places and since there existed no proof, there could be no breach of
warranty.

 Hence, the denial on the part of the insurance company is not justified. On
the other hand, the company should make good the loss. This is supported
by the decision in Dekhari Tea Co Vs Assam Bengal Roadways Co.

Oct 5, 2020 7
 Cover Notes
 Cover notes are issued to provide cover on a provisional basis.
 Pending the preparation of the policy, the cover note is issued as
evidence of protection for a temporary period of time & to prove that
cover is in force.
 As it is temporary in nature, it will be superceded once the policy is
issued.
 Even though it is not stamped, it still represents the same insurance as
that provided by the policy.
 Marine Cover notes are normally issued when details required for the
issue of policy such as name of steamer, number of packages, or exact
value etc. are not known.

Oct 5, 2020 8
 Certificate of Insurance
 Motor: Under Motor Vehicles Act, a certificate of Insurance is required to
be issued in addition to the policy.
 Marine: Certificates of Insurance are issued to provide evidence of cover
on shipments insured under cargo open cover or floating policies.

Endorsements
 Normally Insurers issue policies in a standard form, covering certain perils &
excluding certain others.
 If it is intended, at the time of issuing the policy to modify the terms &
conditions of the policy, it is done through an alteration in a memorandum
which is attached to the policy & forms part of it. This Memorandum is called
as endorsement.
 Endorsements may also be issued during the currency of the policy to record
alterations. The alterations normally required under a policy relate to:
- Variations in sum insured (+/-)
- Change of Insurable interest by way of sale, mortgage, etc.
- Extension of Insurance to cover additional perils etc.

Renewal Notice
 As a matter of courtesy & healthy business practice, insurers issue a
Renewal Notice one month in advance of the date of expiry, inviting
renewal of the policy.
Oct 5, 2020 9
 E
R
I
F
Oct 5, 2020 10
 Fire Insurance
Fire Insurance is designed to provide Financial
Protection for property against loss or damage by
Fire and other specified Perils
– Examples of Insurable Property
 Buildings
 Contents of Buildings such as Machinery, plant & equipment,
accessories, etc.
 Goods (raw materials, in process, semi-finished, finished,
finished, packing materials, etc) in factories, godowns, in the
open.
 Contents in Dwellings, shops, hotels, etc.
 Furniture, fixture & Fittings, etc.

Oct 5, 2020 11
 12-13-14-15
FIRE
12 PERILS 13 EXCLUSIONS 14 ADD ONS 15 POLICY CONDITIONS

Fire Compulsory Deductibles Earthquake (Fire & Shock) Violation of Utmost Good Faith

Omission to Insure additions,

Lightening War 7 Days Clause
alterations or extensions

Alteration, Desertion &

Explosion/Implosion Nuclear Risks Architects, etc Fees
Transfer

RSMD Pollution Damages Terrorism Marine Policy Cover

Excluded Property unless

Impact Damage Debris Removal Expenses Cancellation of Contract
specified

Cold Storage Premises: Deterioration of Stocks in Cold

Aircraft Damage Duties of Insured on Loss
Change in Temp Storage

STFI Electrical Risks Spontaneous Combustion Rights of Insurers on Loss

Debris Removal=1% of
BOWTAP Forest Fire Fraudulent Claims
claim

Architects Fees = 3% of
S&L Impact Damage Reinstate or Replace
Claim

MTO Consequential Losses Loss of Rent Condition of Average

ALASI Loss by Theft Temporary Removal Condition of Contribution

Earthquake, Volcanic
BUSH FIRE Spoilage Material Damage Condition of Subrogation
Eruptions

Displacement of Machinery
  Startup Expenses Arbitration Act
for more than 60Days

    Escalation Clause Written Communication

      Prorata Premium
Oct 5, 2020 12
 The Standard Fire & Special Perils Policy
Fire: Improper Ignition under accidental
circumstances so far as insurance is concerned.

Excludes damage or destruction caused to the property isured by:

(a) (i) its own fermentation, natural heating or spontaneous

combustion.

(ii) its undergoing any heating or drying process.

(b) Burning of Property by order of any Public Authority

Oct 5, 2020 13
 Lightening, Explosion/Implosion
 Destruction, Damage or Loss by Lightening
 Explosion/Implosion
 Explosion: A sudden unexpected violent burst with a loud noise
creating pressure in that atmosphere
 Implosion: Inward Caving in of Contents

Explosion/Implosion cover excludes loss, destruction of or

damage:
(a) To Boilers (other than domestic boilers) or their contents resulting from their
own explosion/implosion

(b) Caused by centrifugal forces

(Note: This risk can be covered by Boiler Explosion Policy in Engineering Insurance)

Oct 5, 2020 14
 Riot, Strikes & Malicious Damage
 Riot: Disturbance of Public Place by an assembly of
Unruly People

 Strike: Protest by a mob resulting in Rampage

 Malicious Damage: Damage/Destruction/Loss

resulting out of malicious intentions. FIR a must.
Onus of proving malicious intention lies with the
insured if the Insurer refutes claim.

Oct 5, 2020 15
 Today, while my building watchman had happily disappeared for his two hour lunch break, a
mad, pervert man entered the society. After attempting to sexually assault a lady resident,
the madman turned towards the parking lot. Only my two cars were parked at that time.
Both washed and covered. He lit the cars covers, probably using some propellant and turned
towards my window parapet. Clothes were put out to dry. He lit the clothes on fire. The
blaze that ensued engulfed the entire sun shade and went as high as two storeys.
Thankfully, the windows were closed and the fire did not reach inside. Although, the
window glasses did shatter because of the heat. This madman then burnt some clothes hung
out to dry in other flats and even threw a burning pant into another ground floor flat. He
then went to the next society and tried burning dried leaves. A bhel-puri wala outside was
assaulted by him and his cart overturned. By now, the collectively damage was severe and a
mob thrashed the hell out this guy. Dad put out the flames and called the cops, who
promptly arrested him.
Both the cars suffered fire damage. The melting of the car covers made it stick to the paint
and the bumper is melted at some places. Took both the cars for a Diesel + Soap wash to get
the soot off. The paint has discolored (brownish yellow) in some places because of fire
damage. Also, replaced the number plate which had melted partly.

http://www.team-bhp.com/forum/street-experiences/48913-pervert-madman-sets-my-cars-home-fire-5.html

Oct 5, 2020 16
 Impact Damage/Aircraft Damage
Impact Damage
Loss or visible physical damage or destruction caused to the
property insured due to impact by ANY RAIL/ROAD VEHICLE
OR ANIMAL BY DIRECT CONTACT NOT BELONGING TO OR
OWNED BY
 The insured or any occupier of the premises or
 Their employees while acting in the course of their employment

Aircraft Damage
Destruction or damage caused by Aircraft, other aerial or space
devices and articles dropped thereon excluding those caused by
pressure waves.

Oct 5, 2020 17
 Storm, Cyclone, Typhoon, Tempest,
Hurricane, Tornado, Flood,&
Inundation (STFI)
 The natural perils Cover is defined as: Loss,
destruction or damage directly caused by Storm,
Cyclone, Typhoon, Tempest, Hurricane, Tornado,
Flood, or Inundation , excluding those resulting
from volcanic eruption or other convulsions of
nature (wherever earthquake cover is given as an “add on cover”
the words “excluding those resulting excluding those resulting from
volcanic eruption or other convulsions of nature “ shall stand deleted)

Oct 5, 2020 18
 Subsidence & Landslide (Inc Rockslides)

 Loss, Damage or Destruction directly

caused by subsidence of part of the
site on which the property stands or
landslides/rockslides excluding…….
a. The normal cracking, settlement or bedding down of new
structures.
b. Demolition, construction, structural alterations or repair of
any property or groundworks or excavations.

Oct 5, 2020 19
 • Bursting and/or Overflowing of
Water tanks, Apparatus & Pipes

• Missile Testing Operations

• Accidental Leakage from

Automatic Sprinkler Installations

• Bush Fire (excluding damage caused by

Forest Fires)

Oct 5, 2020 20
General Exclusions

Compulsory Deductibles

This Policy does not Cover:

1. The first 5% of each & every Claim subject to
minimum of Rs 10,000 in respect of each & every
loss arising out of Act of God perils such as
Landslide & Rockslide, Lightening, STFI,
Subsidence.
2. The first Rs. 10,000 for each & every loss arising
out of other perils
( The excess is not applicable to dwellings)
Why excess
– To eliminate small losses disproportionate to the cost of handling
- To make the Insured loss conscious/accountable
Oct 5, 2020 21
 General Exclusions

3. Loss, destruction, damage due to War Perils

4. Loss, destruction, damage due to Nuclear Perils
5. Loss, destruction, damage due to Pollution or
Contamination
Excluding pollution or contamination that results from the peril insured
6. Loss, destruction, damage to Bullion, unset
precious stones, curios or works of art for an
amount exceeding Rs 10,000, manuscripts, plans,
drawings, stamps, coins or paper money, cheques,
books of accounts or other business books,
computer systems records, explosives etc. unless
OTHERWISE EXPRESSLY STATED IN THE POLICY
7. Loss, destruction, damage to Stocks in Cold
Storage premises caused by change in
temperature

Oct 5, 2020 22
 General Exclusions

8. Loss, destruction, damage to any electrical machine,

apparatus, fixture or fitting due to over-running, excessive
pressure, short circuiting, self-heating or leakage of
electricity from whatever cause (lightening included). This
exclusion will apply only to that electrical machine,
apparatus, fixture or fitting so affected & not to other
machines which may be destroyed or damaged by the
resultant fire. This is known as Electrical Risks exclusion otherwise
covered under Machinery Insurance Policy (Engg Insurance)
9. Expenses incurred on
a. Architects, Surveyors & Consulting Engineers Fees &
b. Debris Removal
Necessarily incurred by the Insured following a loss destruction or damage to
property insured by an insured peril in excess of 3% & 1% of the claim
amount respectively.
(Note: Cover for expenses in excess of 3% & 1% can be arranged by endorsement)

10. Loss or damage by spoilage from the interruptions of any

process caused by any of the perils covered. (conseq)
Oct 5, 2020 23
 General Exclusions

11. Loss, destruction, damage due to Earthquake

12. Loss or damage to insured property if removed to any
building or place other than the insured premises (except
machinery temporarily removed for repairs, etc, for a
period not exceeding 60 days)
13. Theft during or after the occurrence of any insured Peril.

ADD ON COVERS

1. Omission to Insure additions, alterations or extensions

2. Architects etc fees (in excess of 3% of claim amount)
Covers under the standard policy applies only upto 3% of the
claim amount. The extension provides cover for a higher
limit i.e. upto 7.5% of the adjusted loss.

Oct 5, 2020 24
 ADD ON COVERS
3. Debris Removal Expenses (in excess of 1% of claim)
Following a loss, the insured may have to incur costs & expenses
i. In the removal of debris from the insured premises
ii. Dismantling or demolishing
The sum insured for the extension is separately fixed not exceeding 10% of the
total sum insured.
4. Deterioration of Stocks in the Cold Storage premises:
There are 2 types of add on covers for deterioration caused by change of temp.
a. Due to failure of electric supply at terminal ends of electric service feeders
from which the insured obtains electric supply directly due to damage by
an insured peril to property at any electric station of public supply
undertaking from which the insured obtains electric supply.
b. Failure of electric supply following damage to property at the insured’s
premises
The extension does not cover any loss due to any act of govt, municipal authority
etc or due to rationing etc of power supply.

Oct 5, 2020 25
 ADD ON COVERS
5. Spontaneous Combustion
This extension covers loss or damage by fire only of the insured property
caused by its own fermentation, natural heating or spontaneous
combustion.

Spontaneous combustion means burning which results from internal

heating &
not from external causes. This takes place in certain commodities e.g..
Groundnuts, dyes, chemicals, paints & Varnish, gunnies, hay & grass,
copra
cake, etc.
6. Forest Fire
7. Impact Damage (due to the insured’s own rail/road vehicles, forklifts, cranes etc)

Oct 5, 2020 26
 ADD ON COVERS
8. Earthquake (Fire & shock)
Earthquake (Fire & Shock) add on cover is available in two types:
i. If STFI Perils are not opted for in the standard policy: wherein although all losses
arising out of damages by earthquake inc landslide/rockslide are covered BUT
those arising out of flood or overflow of the sea, lakes, reservoirs & rivers caused
by earthquake are not covered.
ii. If STFI Perils are not deleted then all of the above is covered.

9. Loss of Rent
Loss of rent is covered if the insured building or any part thereof becomes unfit for
occupation as a result of damage by insured perils
- The owner occupant to insure both buildings and contents
- The tenant to insure the contents of the premises for which this extension is
sought

10. Temporary Removal

This extension provides cover for insured stocks (not exceeding 10% of the total sum
insured of such stock) while temporarily removed to any other premises for
fabrication

Oct 5, 2020 27
 ADD ON COVERS
11. Spoilage material damage: SMD cover under a separate item
in the policy relates to
i) Loss of stock in process &
ii) Damage to machinery containers & equipment (inc cost of removal
of debris & cleaning)
12. Loss or damage due to Terrorism can be insured by paying
additional premium. It will be a separate cover which can
be granted only in conjunction with RSMD and will not be
granted in isolation.
13. Start Up Expenses: start up costs necessarily & reasonably
incurred by the insured consequent upon a loss or damage
covered by this policy.

Oct 5, 2020 28
 ADD ON COVERS
14. Escalation Clause : This clause applicable to policies on
Buildings, machinery & accessories only, can be covered on
payment of additional premium.
this clause allows automatic regular increase, not exceeding
25% in the sum insured throughout the policy period.

Oct 5, 2020 29
 General Conditions
15 POLICY CONDITIONS
Violation of Utmost Good Faith

7 Days Clause
Alteration, Desertion & Transfer
Marine Policy Cover
Cancellation of Contract
Duties of Insured on Loss
Rights of Insurers on Loss
Fraudulent Claims
Reinstate or Replace
Condition of Average
Condition of Contribution
Condition of Subrogation
Arbitration Act
Written Communication

Prorata Premium

Oct 5, 2020 30
 General Conditions

1. Violation of Utmost Good Faith

This Policy shall be voidable in the

event of mis-representation, mis-
description or non-disclosure of any
material particular. This condition
deals with the principle of utmost
good faith.

Oct 5, 2020 31
 2. Seven Days Clause
 All insurance under this policy shall cease on the expiry of
seven days from the date of fall or displacement of any
building or part thereof. Provided such a fall or displacement
is not caused by insured perils.

 Provided such a fall or displacement is not caused by insured

perils.

 However the company subject to an express notice being given

as soon as possible but not later than 7 days of any such
fall/displacement, may agree to continue the insurance
subject to revised rates, terms & conditions as may be decided
by it & confirmed in writing to this effect.

Oct 5, 2020 32
 3. Alteration, Desertion & Transfer
 Under any of the following circumstances the
insurances ceases to attach as regards the
property affected unless the insured, before the
occurrence of any loss or damage, obtains the
sanction of the company signified by endorsement.
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 be changed in such a way as to
increase the risk of loss or damage by the insured perils.
b) If the building insured or containing the insured property becomes
unoccupied and so remains for a period of more than 30 days.
c) If the interest in the property insured passes from the insured
otherwise than by will of operation of law.
These are material changes in the risk & hence have to be notified to the
company. However, on the death of the insured the legal heirs
automatically become the insured.

Oct 5, 2020 33
 4. Marine Cover Policy

If there is a marine policy covering the

loss the Fire Policy will pay only the
excess over the amount payable under
the marine policy

Oct 5, 2020 34
 5. Cancellation of Contract
 This condition deals with the cancellation of the
policy by either of the parties to the contract.

 If the cancellation is by the Insured then the

premium is retained by the company on short period
basis.

 The Insurance company can also cancel the policy by

giving 15 days notice to the insured and in such
cases the premium will be refunded on a pro-rata
basis.

Oct 5, 2020 35
 6. Duties of Insured on Loss
This condition deals with the duties of the insured on the
happening of a loss which are:
First Part
a. Notice of loss/damage should be
given to the insurer forthwith
b. Within 15 days or further time as
allowed by the insurance company
submit a claim statement giving
itemwise details of amount of loss
not including profit of any kind.
c. particulars of other insurances
should also be submitted. Non
Compliance of this condition will
make the claim untenable.
Oct 5, 2020
Second Part
a. The insurer is not liable for any loss after
the expiry of 12 months from the date of
loss unless the claim is the subject of
pending action or arbitration.
b. If liability is disclaimed by the insurer and
the insured has not filed a suit in a court
of law, within 12 months of the date of
disclaimer, the claim is deemed to have
been abandoned by the insured. It is not
receivable thereafter
36
 7. Rights of Insurers on Loss
This condition provides for certain rights of the insurers following
the occurrence of a loss. Insurers can:

a) Enter and take possession of the building or premises where

the loss has occurred.
b) Remove, sort, arrange or salvage the property.

If the insured or any person on his behalf doesn't cooperate or

hinders the process in any way then all the benefits under this
policy shall be forfeited.

The insured does not have any right to abandon damaged property
whether the insurer takes possession or not.

Oct 5, 2020 37
 8. Fraudulent Claims: If the claim is fraudulent then the insured loses all
benefits under the policy

9. Reinstate or Replace: This condition gives the insurer the option to

reinstate or replace the property that is lost/damaged instead of paying the
amount of claim to the insured.

10. Condition of Average: This is the condition of average. An insured is

expected to insure his property for its full value. In the event of claim if it is
found that he has not covered the property for its full value, then he has to
bear a portion of the claim for his own account.
Example:
Value of insured property : Rs 2,00,000
Sum Insured : Rs 1,50,000
Loss : Rs 80, 000
The amount payable: = 1,50,000 x Rs 60,000
2,00,000
11. Condition of Contribution:
Contribution This condition provides that in the event of
more than one policy covering the loss, all polices will contribute towards
the claim amount in the proportion that the particular policy’s sum insured
bears to the total sum insured under all the policies. (contribution)
Oct 5, 2020 38
 12. Condition of Subrogation : If the loss is caused by a third party the insured
is required to give assistance to the insurers to enable them to recover the
loss from the third party responsible for the loss. The insured's rights of
recovery against the third party are subrogated to the insurers, and this
transfer of rights takes place even before the insurers pay the loss.

13. Arbitration Act: Any dispute regarding the amount of claim payable
(liability having been admitted by the insurers) shall be referred to
arbitration as per provisions of the Arbitration & Conciliation Act, 1996.
Arbitration is a private method of dispute resolution & is faster & cheaper than
the process of litigation.

14. Written Communication: Every notice & other communication to the

company required by these conditions must be written or printed.

15. Prorata Premium:

Premium Upon the settlement of any loss under this policy,
Prorata premium for the unexpired period from the date of such loss to the
expiry period of insurance for the amount of such loss shall be payable by
the insured to the company.

Oct 5, 2020 39
 Special Policies

Floater Policy
 These policies cover stocks at various specific
locations under one sum insured.
 The insured may have stocks in two or more
godowns.
 He is able to declare for insurance the total value of
goods in all godowns but not separate values for
each godown.
 Unspecified locations are not allowed.
 Similarly, in a manufacturing risk, the stocks in the
process blocks, godowns &/or in the open can be
covered under one sum insured.

Oct 5, 2020 40
 Special Policies ILLUSTRATION
Sum Insured: 1 Crore
Rate: Rs 1/Mille

Declaration Policy Premium:

 
Rs 10,000
 
Monthly Declarations  

To take care of frequent fluctuations in January 52,00,000

stocks/stock values, Declaration February 56,00,000

Policies can be granted subject to March 46,00,000

April 46,00,000
following conditions:
May 30,00,000
a) The policy is issued for a sum insured
selected by the insured. (Insurers stipulate a June 30,00,000
minimum sum insured). July 30,00,000
b) Monthly declarations based on average of August 30,00,000
the value at risk on each day or highest September 40,00,000
value on any day of the month shall be
October 40,00,000
submitted by the Insured. If the declarations
are not received within the specified November 40,00,000
period, the full sum insured under the December 40,00,000
policy shall be deemed to have been Total Declarations 4,80,00,000
declared. Average Sum Insured 40,00,000
c) Refund of premium on the adjustment based    
on the total declaration/cancellations shall
Premium Rs 10,000
not exceed 50% of the total premium.
Premium on Avg sum ins Rs 4000

Refund: Rs 6000 ???

   

Oct 5, 2020 41
 Special Policies

Reinstatement Value Policies

A. This is a Fire Policy with the reinstatement value clause attached to it. The
clause provides that in the event of loss, the amount payable is the cost of
reinstating property of the same kind, or type, by new property.

The basis of settlement differs from the basis under the fire policy where
the losses are settled on the basis of market value i.e. making deductions
for depreciation, etc.

B. The reinstatement value clause incorporates the following special

provisions:

1. Reinstatement must be carried out by the insured and completed within 12

months after the destruction or damage, failing which the loss will be
settled on the normal indemnity basis i.e. according to the Fire Policy.

2. The reinstatement basis of settlement will not apply:

(i) If the Insured fails to intimate to the insurer within 6 months or any
extended time his intention to replace the damaged property.
(ii) If the insured is unable or unwilling to replace the damaged property. In
such cases the loss will be settled on the normal basis of indemnity.

3. The work of reinstatement may be carried out upon another site and in any
manner required by the insured provided the liability under the policy is
not thereby increased.
These insurances are granted to the insured whose bonafides are
satisfactory and, are generally issued only IN RESPECT OF BUILDING,
PLANT&MACHINERY in a comparatively new condition.
THESE INSURANCES ARE NOT GRANTED ON STOCKS.
Oct 5, 2020 42
 Special Policies

Industrial All Risks Policy

This is a package cover designed for Industrial Risks (both
manufacturing and storage facilities) with an overall sum
assured of Rs 100 Crores and above. The policy provides cover
for the following:
 Fire & Special Perils

 Burglary

 Machinery Breakdown/Boiler Explosion/Electronic Equipment

(Material Damage)
 Business Interruption (Fire & Allied Perils)

 Business Interruption (Machinery Breakdown). This is an

optional cover.
Discounts in rates are provided. Under insurance of upto 15% is
permitted. Apart from the reduced costs of premium, there is
administrative convenience both for the insured and the
insurer.

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 Agreed Bank Clause
All policies in which a Bank has a partial interest are
to be made out in the name of the Bank and the
Owner or Mortgagor and the Agreed Bank Clause
incorporated in the policy.

The salient features of this clause are:

a) The claim is payable to the Bank whose receipt
shall be a complete discharge and binding on all
parties insured.
b) Any settlement, compromise etc. in relation to
dispute if made with the bank shall be valid and
binding on all parties insured.

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 Fire Proposal Form

The fire proposal form elicits, among other things, the following
information.
Description of property. This would include:
i. Construction of external walls & roof, number of storeys.
ii. Occupation of each portion of the building.
iii. Presence of hazardous goods.
iv. Process of manufacture.
v. The sums proposed for insurance.
vi. The period of insurance.
vii. History of previous losses.
viii. Insurance History – whether previously other insurers had
declined the risk, etc.

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 Consequential Loss (Fire)

Insurance
Fire Insurance is designed to provide protection in respect of loss of or
damage to buildings, machinery, furniture & fittings, goods and
merchandise, etc. by fire & allied perils.

 The Insurance affords cover for “material damage”. However an indemnity

for the “material damage” does not provide complete protection to the
insured who may also suffer trading losses due to total or partial stoppage of
business.

 The purpose of consequential loss or loss of profits insurance (also known as

Business Interruption Insurance) is, therefore, to make good these losses,
namely net profit, standing charges & increased cost of working.

Turnover of a Business consists of the following three elements:

a) Variable Charges: these are expenses incurred in producing the goods (e.g. purchase of
raw materials, wages, etc.)
b) Standing Charges: these expenses are fixed in amount irrespective of the volume of the
business transacted (e.g. taxes, bank interest, salaries to permanent staff, etc.)
c) Net Profit: This is turnover minus variable and standing charges.
d) Gross Profit: Standing charges, and net profit together constitute the gross profit of the
business.

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 Indemnity Period
 The profits policy provides indemnity in respect of
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.
 The indemnity period is to be distinguished from the
period of insurance which is usually a year; the
insured peril must occur during the period of
insurance and the indemnity period which
commences on the date of loss and terminates when
the business returns to normal level.

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 The Sum Insured
The sum insured is to be fixed by the insured. As the indemnity provided
by the consequential loss policy is in respect of loss of gross profits for
the indemnity period naturally the sum insured should represent the
gross profits of the indemnity period selected.
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.
Where the indemnity period is 24 months, the sum insured should
represent twice the annual gross profit & so on.
The sum insured is to be computed from the Insured’s accounts. The standing charges have
to be specified by the insured.
Some examples of the standing charges are:-
 Interest on loans, bank overdrafts, and debentures, including brokerage on
deposits;
 Rent
 Directors fees & remuneration
 Legal, auditing and other professional fees and expenses;
 Insurance Premiums
 Advertising & Publicity expenses;
 Conveyance, Stationary, Postage, Telephone, Telex, Telegram, teleprinter
expenses;
 Office and General Establishment expenses;
 Salaries to permanent staff including Employees State Insurance Contributions;
 Wages (including Employees State Insurance Contributions)

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 Cont…
When loss becomes payable:
a) Fire or other insured peril must occur at the insured
premises.
b) Property used for the business of the insured at the insured
premises must be destroyed or damaged.
c) The business must be interrupted or interfered with as a
consequence.
d) The resulting loss is paid in accordance with the provisions
of the policy.

Payment of loss under the LOP Policy is subject to payment or

admission of liability for the loss under the material damage
insurance i.e. fire & special perils policy. (this is ‘material
damage’ clause)

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