Fire and Special Perils Policy compensates only for Material Damage to the insured property. It specifically excludes any consequential loss.
In case of a major loss caused by Fire, there could be an interruption in business operation leading to reduction in turnover finally resulting in possible loss of profits. However, standing or fixed charges continue to accrue regardless of whether there is any production or not. Such loss cannot be covered under Fire policy.
Consequential Loss Policy compensates for the Revenue loss suffered by the enterprise. Hence, for complete protection to the business enterprise and its profitability Consequential Loss Policy is very essential in addition to Fire Insurance Policy.
basic of profit insurance
Every business is conducted on the principle that the total income should exceed the total expenditure, so that a profit is earned. if turnover is stopped or reduced, the profits are affected. therefore, loss of profits is determined and measured with reference to reduction in turnover and this is the basis adopted in profits insurance. the money paid or payable to the insured for goods sold and delivered and for services rendered in the course of the business at the premises.
Scope of cover
The Policy broadly covers loss of Net Profit on account of interruption of business,, consequent upon Material Damage to property due to Fire or any other insured peril under the Standard Fire and Special Perils Policy.
It also covers standing charges which continue to be incurred during the period of interruption and the increase in cost of working necessarily and reasonably incurred to maintain the business as far as possible at its normal level, so that loss under net profit and standing charges is avoided or at least minimised.
Sum Insured
Sum to be insured under this policy is the estimated Gross Profit for the Indemnity Period selected.
Indemnity Period is the maximum period beginning with the occurrence of the damage, for which cover of Loss of Gross Profit is required and should reflect the maximum period anticipated for reinstatement of the damaged property. The maximum indemnity period permissible under the policy is 3 years.
Premium
Basis rate depends on Fire and Special Perils rate. Final rate is influenced by Indemnity Period chosen. At inception, Gross Profit is taken on estimated basis and is subject to declaration of the actual figures after expiry of Policy based on final audited accounts.
Significant Exclusions
The Insurance Policy does not cover
Loss of gross profits, which is not consequent upon property damage due to an insured peril.
Loss due to material damage to property, difference between value of stock at the time of fire and the value at the time of subsequent replacement, deterioration of undamaged stock after fire.
Cost of preparing fire and loss of profits claim, third party claims and loss of goodwill.
Main Extension
Policy can be extended to suppliers’ and customers’ premises or public utilities, on which the business is dependent and cost of Auditors fees required to submit claim on Insurer.
Departmental clause
if the business be conducted in departments, the independent trading results of whch are ascertainable, the provision of clauses a ans b of item shall apply separately to each department affected by the damage except that if the sum insured by the said item be less than the aggregate of the sum produced by applying the rate of gross profit for each department the business to the relative annual turnover thereof, the amount payable shall be proportionately reduced .
Gross profit
This is the net profit as defined, added to the amount of the insured standing charges. if the business is in the position that not only is no net profit being earned , but standing charges also cannot be fully met, out of the earnings there is a net trading loss. the insured standing charges for to do so would be to place home in a better position than if the fire had not occurred.
if there be no net profit the amount of the insured standing charges less such a proportion of the net trading loss as the amount of the insured standing charges bears to all the standing charges of the business.