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2.BASIC PRINCPLES & THE FIRE POLICY

Insurance that is used to cover damage to a property caused by fire. Fire insurance is a specialized form of insurance beyond property insurance, and is designed to cover the cost of replacement, reconstruction or repair beyond what is covered by the property insurance policy. Policies cover damage to the building itself, and may also cover damage to nearby structures, personal property and expenses associated with not being able to live in or use the property if it is damaged.

The basic principles that govern Fire Insurance are:

• A contract of indemnity : Its object is to place insured as far as possible in the same financial position after a loss as that occupied immediately before the loss. The insured can recover only the amount of actual loss subject to the sum assured.

• Insurable Interest : In fire insurance the insurable interest must exist at the time of effecting the insurance as well as at the time of the loss. The interest, however, may be legal or equitable or may arise under a contract of purchase or sale. The following have been held to have insurable interest in the subject matter :
1. Owner
2. Mortgagee
3. Trustee
4. Executor
5. Warehouseman
6. Common
7. Bailee
8. Pledgee
9. Person in lawful possession
10. Finder
11. Insurer
12. Commission Agent where the agency is couppled with interest and
13. Tenants who are liable to pay rent after a fire.It should however, be noted that persons can insure only to the extent of such limited interest.

• Contract of Good Faith : The contract of fire insurance is a contract of Uberrimae fidei i.e., a contract based upon absolute good faith, and therefore, the insured must make full and detailed disclosure of all material facts likely to affect the judgement of fire officials in determining the rates of premium or deciding whether the proposal should be accepted. The description of the property, when asked for, should be correctly give, and all information that may be required as to the class of goods and articles that are kept on the premises or in the surrounding neighbourhood, should be accurately supplied.

• Loss Through Fire : Loss resulting from fire of some other cause which is the proximate cause is the risk covered under a fire insurance contract. But where the fire is caused by the insured himself or with his connivance or by the operation of a peril specifically excluded under the policy like earthquake, the loss will not be covered.

• A Contract from Year to Year : A fire insurance policy is usually for one year only and can be renewed after that.

• Subrogation: Subrogation is a doctrine applicable to both fire and marine insurance by which the insurer or underwriter, becomes entitled to on his paying compensation to the insure, to claim the advantage of every right of the insured against third parties who may be proved to be responsible for that loss, owning to such third parties negligence, default etc.

• Proximate cause
A cause which immediately precedes and produces the effect, as distinguished from the remote, mediate, or predisposing cause. An act from which a loss or injury results as a natural, direct, uninterrupted consequence and without which the loss or injury would not have occurred.
It is the primary cause of a loss or injury. It is not necessarily the closest cause in time or space nor the first event that sets in motion a sequence of events leading to an injury.
Proximate cause produces particular, foreseeable consequences without the intervention of any independent or unforeseeable cause. It is the active, direct, and efficient cause of loss in insurance that sets in motion an unbroken chain of events which bring about damage, destruction, or injury without the intervention of a new and independent force. It is also called legal or direct cause.
• Indemnity
The objective of the principle is to place the insured , as far as possible, in the same financial position after a loss, as that occupied by him, immediately before the loss.
In simple words, the principle of indemnity means the insured is indemnified only to the extent of his loss, no profit or undue benefit is extended. The indemnity is subject to the sum insured and other terms of the policy. The sum insured can be fixed on the basis of Reinstatement Value or Market Value. The term ‘Market value’ means, for insurance purposes, the present cost of construction of similar buildings, after deducting depreciation based on age, usage, maintenance etc.

• Contribution
The principle of contribution, which is also a corollary of the principle of indemnity, provides that if the same property is insured under more than one policy, the insured can recover a rate able proportion of the loss under each policy. Under no circumstances can he recover more than his loss, and make a profit.

Where the subject matter has been insured with more than one insurer, each insurer has to meet the loss only rateably. If he has paid more than his share of loss, he is entitled to recover the excess paid from his co insurers. Thus, the principle of contribution applies in the case of fire insurance.

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